10-K

THE PROCTER & GAMBLE COMPANY
AND SUBSIDIARIES

 
ANNUAL REPORT ON FORM 10-K
TO THE
SECURITIES AND EXCHANGE COMMISSION
FOR THE
YEAR ENDED JUNE 30, 2003

******************************************

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, 2003 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	Name of each Exchange on which registered
Common Stock, without Par Value	New York, Cincinnati, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Brussels, Tokyo

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 [X] 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 registrant’s 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 Act). Yes [X] No [  ]

There were 1,296,560,113 shares of Common Stock outstanding as of July 31, 2003. The aggregate market value of the voting stock held by non-affiliates amounted to $111 billion on December 31, 2002.

Documents Incorporated By Reference

Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2003 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 2003 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein.

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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 the Common Stock and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplemental Data
	Item 9. Disagreements on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-3.1 Amended Articles
EX-3.2 Regulation
EX-10.1 2001 Stock and Incentive Compensation Plan
EX-10.2 1992 Stock Plan
EX-10.3 Executive Life Insurance Policy
EX-10.5 Deferred Comp
EX-10.6 1993 Non-Employee Directors' Stock Plan
EX-10.7 1992 Stock Option Plan
EX-10.8 Future Shares Plan
EX-11 Computation of EPS
EX-12 Computation of Ratio
EX-13 Annual Report
EX-21 Subsidiaries of Reg
EX-23 Independent Auditors' Consent
EX-31 Certs
EX-32 Certs
EX-99.2
EX-99.3
EX-99.4
EX-99.5
EX-99.6
EX-99.7
EX-99.8
EX-99.9
EX-99.10

PART I

Item 1. Business.

General Development of Business

     The Procter & Gamble Company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. Today, the Company manufactures and markets a broad range of consumer products in many countries throughout the world.

     Unless the context indicates otherwise, the term the “Company” as used herein refers to The Procter & Gamble Company (the registrant) and its subsidiaries.

     In March, 2003, the Company entered into an agreement to acquire a controlling interest in Wella AG from the majority shareholders and, in June, 2003, the Company completed a tender offer for the remaining outstanding voting class shares and preference shares. On September 2, 2003, the Company completed the previously announced purchase of the shares of Wella AG held by the majority shareholders for 3.16 billion Euros (approximately $3.42 billion based on spot exchange rates on that date). On September 10, 2003, the Company purchased the shares secured through the tender offer for 1.49 billion Euros (approximately $1.67 billion based on spot 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). The acquisition was financed by a mixture of available cash balances and debt. Wella AG 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.

     On November 16, 2001, the Company completed the acquisition of the Clairol business from Bristol-Myers Squibb Company and, on May 31, 2002, the Company completed the spin-off of the Jif peanut butter and Crisco shortening brands to the Company’s shareholders and their subsequent merger into the J.M. Smucker Company.

     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, the Company initiated a multi-year restructuring program, a discussion of which is incorporated herein by reference to Note 2, Restructuring Program, which appears on pages 42-43 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

Additional information about these transactions is incorporated herein by reference to Note 3, Acquisitions and Spin-Off, which appears on pages 43-44 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003, excluding the first paragraph thereof, which is updated by the information on Wella above.

Financial Information About Industry Segments

     The Company’s products fall into five business segments: Fabric and Home Care; Baby and Family Care; Beauty Care; Health Care; and Snacks and Beverages.

     Additional information required by this item is incorporated herein by reference to Note 12, Segment Information, which appears on pages 53-54, and Financial Review, which appears on pages 23-33 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

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Narrative Description of Business

     The Company’s business, represented by the aggregate of its Fabric and Home Care; Baby and Family Care; Beauty Care; Health Care; and Snacks and Beverages segments, is essentially homogeneous. None of these segments are seasonal. Many of the factors necessary for an understanding of these five segments are similar. The primary differences relate to the degree of capital intensity of the businesses, which may affect gross margin trends and operating margins. The markets in which the Company’s products are sold are highly competitive. The products of the Company’s business segments compete with products of many large and small companies, and there is no dominant competitor or competitors. Advertising is used in conjunction with an extensive sales force, because the Company believes 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. Most of the Company’s products in each of its segments are distributed through food, drug, mass and other retail outlets.

     The laundry category constituted approximately 19% of consolidated fiscal 2003 sales, compared to 19% in 2002 and 20% in 2001. The diaper category constituted approximately 12% of consolidated sales for each of the past three fiscal years. The creation of new products and the development of new performance benefits for consumers on the Company’s existing products are vital ingredients in the Company’s continuing progress in the highly competitive markets in which it does 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.

     The Company has registered trademarks and owns or has licenses under patents which are used in connection with its business in all segments. Some of these patents or licenses cover significant product formulation and processing of the Company’s products. The trademarks of all major products in each segment are registered. In part, the Company’s success can be attributed to the existence and continued protection of these trademarks, patents and licenses.

     Most of the raw materials used by the Company are purchased from others, some of whom are single-source suppliers. Additionally, some raw materials, primarily chemicals, are produced by the Company for further use in the manufacturing process. The Company purchases and produces a substantial variety of raw materials, no one of which is material to the Company’s business taken as a whole.

     Expenditures in fiscal year 2003 for compliance with federal, state and local environmental laws and regulations were not materially different from such expenditures in the prior year, and no material decrease is expected in fiscal year 2004.

     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 elements including changing currency values and different rates of inflation and economic growth.

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     The Company has approximately 98,000 employees. The decline of approximately 4,000 employees versus the prior year is primarily from separations related to the Company’s restructuring program.

     Additional information required by this item is incorporated herein by reference to Note 12, Segment Information, which appears on pages 53-54; Financial Summary, which appears on page 55; and Financial Review, which appears on pages 23-33 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

Financial Information About Foreign and Domestic Operations

     The information required by this item is incorporated herein by reference to Note 12, Segment Information, which appears on pages 53-54, and Financial Review, which appears on pages 23-33 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003. Company sales by geography for the fiscal year ended June 30, 2003 were as follows: North America - 54%; Europe, Middle East and Africa - 29%; Asia - 11% and Latin America - 6%.

Assets and net sales in the United States and internationally were as follows (in millions):

	Net Sales (for the year ended June 30)						Assets (as of June 30)
	2003		2002		2001		2003		2002		2001
United States	$	21,853	$	21,198	$	20,334	$	23,424	$	23,434	$	18,318
International		21,524		19,040		18,910		20,282		17,342		16,069

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are available, without charge, at http://www.shareholder.com/pg/Edgar.cfm, as soon as reasonably possible after they are filed electronically with the SEC. The reports can also be accessed through links from the Company’s 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.

Item 2. Properties.

     In the United States, the Company owns and operates 35 manufacturing facilities and leases and operates 2 manufacturing facilities. These facilities are located in 21 different states. In addition, the Company owns and operates 83 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 45 of these locations; Baby and Family Care products at 32; Health Care products at 25; Beauty Care products at 39; and Snacks and Beverages products at 11. Management believes that the Company’s production facilities are adequate to support the business efficiently and that the properties and equipment have been well maintained.

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, 2003, representing the Company’s probable future costs that can be reasonably estimated, was $5 million.

Item 4. Submission of Matters to a Vote of Security Holders.

     Not applicable.

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Executive Officers of the Registrant

     The names, ages and positions held by the executive officers of the Company on September 1, 2003 are:

					Elected to
Name		Position	Age		Officer Position
	Alan G. Lafley	Chairman of the Board, President and Chief Executive Director since June 8, 2000		56		1992
	Bruce L. Byrnes	Vice Chairman of the Board and President - Global Beauty and Feminine Care and Global Health Care Director since April 8, 2002		55		1991
	R. Kerry Clark	Vice Chairman of the Board and President - Global Market Development and Business Operations Director since April 8, 2002		51		1995
	Richard L. Antoine	Global Human Resources Officer		57		1998
	G. Gilbert Cloyd	Chief Technology Officer		57		2000
	Clayton C. Daley, Jr.	Chief Financial Officer		51		1998
	Stephen N. David	Chief Information Officer and Business-to-Business Officer		54		1998
	R. Keith Harrison, Jr.	Global Product Supply Officer		55		2001
	James J. Johnson	Chief Legal Officer		56		1991
	Mark D. Ketchum	President - Global Baby and Family Care		53		1996
	Robert A. McDonald	President - Global Fabric and Home Care		50		1999
	Jorge P. Montoya	President - Global Snacks and Beverages and Latin America		57		1991
	Charlotte R. Otto	Global External Relations Officer		50		1996
	James R. Stengel	Global Marketing Officer		48		2001
	John K. Jensen	Vice President and Comptroller		54		2002

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All of the above named Executive Officers, except Stephen N. David and John K. Jensen, are members of the Executive Committee of the Global Leadership Council of The Procter & Gamble Company. All of the Executive Officers named above have been employed by the Company for more than five years.

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PART II

Item 5. Market for the Common Stock and Related Stockholder Matters.

     The information required by this item is incorporated by reference to Shareholder Information, which appears on page 56 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003, 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 40-42; Note 12, Segment Information, which appears on pages 53-54; and Financial Summary, which appears on page 55 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The information required by this item is incorporated by reference to Financial Review, which appears on pages 23-33; Note 1, Summary of Significant Accounting Policies, which appears on pages 40-42; Note 2, Restructuring Program, which appears on pages 42-43; Note 3, Acquisitions and Spin-Off, which appears on pages 43-44 excluding the first paragraph, which is updated by the information on Wella in the third paragraph of Item I of this report; Note 11, Commitments and Contingencies, which appears on page 53; and Note 12, Segment Information, which appears on pages 53-54 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

     The Company has made certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 2003 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 necessary to achieve the Company’s goals are: (1) the ability to achieve business plans, including growing existing sales and volume profitably and successfully managing and integrating key acquisitions (including Wella) and completing planned divestitures (including a potential sale of the Company’s juice business), despite high levels of competitive activity, especially with respect to the product categories and geographical markets (including developing markets) on which the Company has chosen to focus; (2) the ability to manage and maintain key customer relationships; (3) the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources); (4) the ability to successfully manage regulatory, tax and legal matters (including product liability matters), and to resolve pending matters within current estimates; (5) the ability to successfully implement, achieve and sustain cost improvement plans in manufacturing and overhead areas, including successful completion of the Company’s outsourcing projects; (6) the ability to successfully manage currency (including currency issues in volatile countries), interest rate and certain commodity cost exposures; (7) the ability to manage the continued global political and/or economic uncertainty, especially in the Company’s significant geographical markets, as well as any political and/or economic uncertainty due to terrorist activities; and (8) the ability to successfully manage increases in the prices of raw materials used to make the Company’s products. If the Company’s assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of these key factors, then the Company’s actual performance could vary materially from the forward-looking statements made herein.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     The information required by this item is incorporated by reference to Financial Review, which appears on pages 23-33, and Note 7, Risk Management Activities, which appears on pages 46-47 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

Item 8. Financial Statements and Supplemental Data.

     The financial statements and supplemental data are incorporated by reference to pages 34-55 of the Annual Report to Shareholders for the fiscal year ended June 30, 2003.

Item 9. Disagreements on Accounting and Financial Disclosure.

     Not applicable.

Item 9A. Controls and Procedures.

     The Company’s Chairman of the Board, President and Chief Executive, A.G. Lafley, and the Company’s Chief Financial Officer, Clayton C. Daley, Jr., have evaluated the Company’s internal controls and disclosure controls systems as of the end of the period covered by this report.

     Messrs. Lafley and Daley have concluded that the Company’s disclosure controls systems are functioning effectively to provide reasonable assurance that the Company can meet its disclosure obligations. The Company’s disclosure controls system is based upon a global chain of financial, staff and general business reporting lines that converge in the world-wide 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 Commission’s 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 Company's internal control over financial reporting occurred during the Company's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART III

Item 10. Directors and Executive Officers.

     The 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, and to the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, which appears on page 25 of the proxy statement filed since the close of the fiscal year ended June 30, 2003, pursuant to Regulation 14A which involved the election of directors. Pursuant to Item 401(b) of Regulation S-K, 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 9-19 of the proxy statement filed since the close of the fiscal year ended June 30, 2003, 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.

     Additional information required by this item is incorporated by reference to pages 20-24 of the proxy statement filed since the close of the fiscal year ended June 30, 2003, 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 25 of the proxy statement filed since the close of the fiscal year ended June 30, 2003, pursuant to Regulation 14A which involved the election of directors.

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PART IV

Item 14. Exhibits, Financial Statements, 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, 2003, 2002 and 2001
		-	Consolidated balance sheets – as of June 30, 2003 and 2002
		-	Consolidated statements of shareholders’ equity – for years ended June 30, 2003, 2002 and 2001
		-	Consolidated statements of cash flows – for years ended June 30, 2003, 2002 and 2001
		-	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	(2) –	Share Purchase Agreement for Shares of Wella AG (English Translation) (Incorporated by reference to Exhibit (2-1) of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
			Exhibit	(3-1) –	Amended Articles of Incorporation.
				(3-2) –	Regulations.
			Exhibit	(4) –	Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission.
			Exhibit	(10-1) –	The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended December 10, 2002) which was adopted by the shareholders at the annual meeting on October 9, 2001.*
				(10-2) –	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.*
				(10-3) –	The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus).*
				(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 Company’s Annual Report on Form 10-K for the year ended June 30, 2000).*

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	(10-5) –	The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980.*
	(10-6) –	The Proctor & 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.*
	(10-7) –	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.*
	(10-8) –	The Procter & Gamble Future Shares Plan (as amended June 10, 2003) which was adopted by the Board of Directors on October 14, 1997.*
Exhibit	(11) –	Computation of earnings per share.
Exhibit	(12) –	Computation of ratio of earnings to fixed charges.
Exhibit	(13) –	Annual Report to Shareholders (pages 1-56).
Exhibit	(21) –	Subsidiaries of the registrant.
Exhibit	(23) –	Independent Auditors’ Consent.
Exhibit	(31) –	Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit	(32) –	Section 1350 Certifications.
Exhibit	(99-1) –	Directors and Officers Liability Policy (Incorporated by reference to Exhibit (99-1) of the Company’s 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.

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(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, 2003, the Company did not file any Current Reports on Form 8K. During the quarter ended June 30, 2003, the Company furnished Current Reports on Form 8-K containing information pursuant to Item 9 (“Regulation FD Disclosure”) dated April 7, 2003, relating to the declaration of a quarterly dividend; dated April 8, 2003, relating to the Company’s intention to launch a tender offer for the shares of Wella AG; dated April 28, 2003, relating to the launching of a tender offer for the shares of Wella AG; dated May 8, 2003, relating to restoring capability at the Company’s Jackson, Tennessee plant after it was hit by a tornado; dated May 9, 2003, relating to the Wella AG Management Board’s acceptance of the Company’s tender offer; dated May 29, 2003, relating to the closing of the initial acceptance period for its public offer for the remaining shares of Wella AG; dated June 5, 2003, relating to updating previously issued guidance for the April-June 2003 quarter; dated June 5, 2003, relating to the initial Wella AG tender offer results and the launching of a mandatory extension period; dated June 6, 2003, relating to the correction of the timing of the additional acceptance period for the Wella AG tender offer; and dated June 26, 2003, relating to the final results of the Wella AG tender offer. The Company also furnished Current Reports on Form 8-K containing information pursuant to Item 12 (“Results of Operations and Financial Condition”) dated April 28, 2003, relating to the announcement of earnings for the January-March 2003 quarter.

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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 9, 2003

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)	Chairman of the Board, President and Chief Executive (Principal Executive Officer)
CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.)	Chief Financial Officer (Principal Financial Officer)
JOHN K. JENSEN (John K. Jensen)	Vice President and Comptroller (Principal Accounting Officer)
NORMAN R. AUGUSTINE (Norman R. Augustine)	Director
BRUCE L. BYRNES (Bruce L. Byrnes)	Director	September 9, 2003
R. KERRY CLARK (R. Kerry Clark)	Director
SCOTT D. COOK (Scott D. Cook)	Director
DOMENICO DESOLE (Domenico DeSole)	Director
RICHARD J. FERRIS (Richard J. Ferris)	Director

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Signature	Title	Date
JOSEPH T. GORMAN (Joseph T. Gorman)	Director
CHARLES R. LEE (Charles R. Lee)	Director
LYNN M. MARTIN (Lynn M. Martin)	Director
W. JAMES McNERNEY, JR. (W. James McNerney, Jr.)	Director
JOHNATHAN A. RODGERS (Johnathan A. Rodgers)	Director
JOHN F. SMITH, JR. (John F. Smith, Jr.)	Director	September 9, 2003
RALPH SNYDERMAN (Ralph Snyderman)	Director
ROBERT D. STOREY (Robert D. Storey)	Director
MARGARET C. WHITMAN (Margaret C. Whitman)	Director
MARINA v.N. WHITMAN (Marina v.N. Whitman)	Director
ERNESTO ZEDILLO (Ernesto Zedillo)	Director

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EXHIBIT INDEX

Exhibit	(2) –	Share Purchase Agreement for Shares of Wella AG (English Translation) (Incorporated by reference to Exhibit (2-1) of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
Exhibit	(3-1) –	Amended Articles of Incorporation.
	(3-2) –	Regulations.
Exhibit	(4) –	Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission.
Exhibit	(10-1) –	The Procter & Gamble 2001 Stock Incentive Compensation Plan (as amended December 10, 2002), which was adopted by shareholders at the annual meeting on October 9, 2001.
	(10-2) –	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.
	(10-3) –	The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus).
	(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 Company’s Annual Report on Form 10-K for the year ended June 30, 2000).
	(10-5) –	The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980.
	(10-6) –	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.
	(10-7) –	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.
	(10-8) –	The Procter & Gamble Future Shares Plan (as amended June 10, 2003) which was adopted by the Board of Directors on October 14, 1997.
Exhibit	(11) –	Computation of earnings per share.
Exhibit	(12) –	Computation of ratio of earnings to fixed charges.
Exhibit	(13) –	Annual Report to Shareholders (pages 1-56).
Exhibit	(21) –	Subsidiaries of the registrant.
Exhibit	(23) –	Independent Auditors’ Consent.

Exhibit	(31) –	Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit	(32) –	Section 1350 Certifications.
Exhibit	(99-1) –	Directors and Officers Liability Policy (Incorporated by reference to Exhibit (99-1) of the Company’s 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.

EX-3.1 3 l02788aexv3w1.txt EX-3.1 AMENDED ARTICLES EXHIBIT (3-1) Amended Articles of Incorporation AMENDED ARTICLES of INCORPORATION of THE PROCTER & GAMBLE COMPANY [P&G LOGO] October, 1997 CERTIFICATE OF AMENDED ARTICLES OF INCORPORATION OF THE PROCTER & GAMBLE COMPANY John E. Pepper, Chairman of the Board and Chief Executive, and Terry L. Overbey, Secretary, of The Procter & Gamble Company, an Ohio corporation, with its principal office located in Cincinnati, Hamilton County, Ohio, do hereby certify that at a meeting of the Board of Directors of said corporation, duly called and held on the 14th day of October, 1997, at which a quorum of such Directors was present, the following resolution consolidating the Amended Articles of all previously adopted amendments thereto presently in force was adopted by the affirmative vote of all Directors present: RESOLVED, That pursuant to the authority granted to this Board of Directors by Section 1701.72(B) of the Ohio Revised Code, in order to consolidate the provisions of the Amended Articles of Incorporation of the Company and all amendments thereto heretofore adopted and still in force, the Amended Articles of Incorporation are hereby further amended to read in their entirety as presented at this meeting. and that the Amended Articles of Incorporation of the corporation as thus presented to and approved by the Directors at said meeting are as follows: AMENDED ARTICLES OF INCORPORATION OF THE PROCTER & GAMBLE COMPANY THE PROCTER & GAMBLE COMPANY, a corporation under the laws of the State of Ohio, adopts these Amended Articles of Incorporation to supersede and take the place of its existing Amended Articles of Incorporation, and all amendments thereof, that are in force at this time, and for such purpose certifies as follows: First: The name of the corporation is The Procter & Gamble Company. Second: The place in the State of Ohio where its principal office is located is in the City of Cincinnati, in Hamilton County. Third: The purposes for which it is formed are to produce, manufacture, buy, sell, merchandise and generally deal in the following: 1. Soap, soap products, cleansers, detergents and cleaning products of any and all kinds, for any and all uses and purposes. 2. Cosmetics, perfumes, toilet powders, toilet waters, and all other toilet preparations and articles. 3. Fats and oils, hydrogenated fats and oils, and derivatives of fats and oils for any and all uses and purposes. 4. Cottonseed, soybeans, other oilseeds, oilseed meals, linters, cotton, hulls and any products and any by-products resulting from the processing of any of these or any products made therefrom. 5. Cellulose, cellulose products, purified cellulose, forest products, fibrous products, paper and paper products of any and all kinds, and any products and any by-products resulting from the processing of any of these or any products made therefrom. 6. Food products of any and all kinds. 7. Candles, stearine, stearic acid, glycerine, silicate of soda, cuastic soda and any similar or related products. 8. Organic and inorganic chemicals, chemical compounds, drugs and pharmaceuticals. 9. All substances and products, kindred to or competitive with any or all of the foregoing and all that may result from or be convenient to the production, manufacture, sale and dealing in any or all of the foregoing substances and products. 10. All substances, materials, and articles made from or containing any or all of the foregoing products or entering into or convenient for the manufacture and sale of any or all of the foregoing products. The purpose for which it is formed also include the power to do all other things necessary or incident to any or all of the foregoing purposes, including provision for insurance, financial and other services and of means for the development, promotion, advertising, marketing and transportation of raw materials, intermediate or finished products and the power to purchase, acquire, hold, convey, lease, mortgage or dispose of stock, securities and property, real or personal, tangible or intangible, in connection therewith or in furtherance thereof. In addition to the foregoing specified purposes and not limited in any manner thereby, the purpose for which it is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code. Fourth: The authorized number of shares without par value is five billion eight hundred million (5,800,000,000) of which six hundred million (600,000,000) are classified and designated as Class A Preferred Stock, two hundred million (200,000,000) are classified and designated as Class B Preferred Stock and five billion (5,000,000,000) are classified and designated as Common Stock. 1. The express terms and provisions of the shares classified and designated as Class A Preferred Stock and Class B Preferred Stock are as follows: (a) The holders of the shares classified and designated as Class A Preferred Stock shall be entitled to one (1) vote per share at all meetings of the shareholders of the Company. The holders of the shares classified and designated as Class B Preferred Stock shall not be entitled to vote at meetings of shareholders of the Company, other than as provided by law. (b) The Board of Directors is authorized, subject to any limitations prescribed by law and to the provisions of this Article Fourth, to adopt amendments to these Amended Articles of Incorporation in respect of any unissued or treasury shares of the Class A Preferred Stock and Class B Preferred Stock and thereby to fix or change: the division of such shares into series and the designation and authorized number of shares of each series; the dividend rate; the dates of payment of dividends and the dates from which they are cumulative; liquidation price; redemption rights and price; sinking fund requirements; conversion rights; and restrictions on the issuance of such shares or any series thereof. In addition the Board of Directors is hereby authorized to similarly fix or change any or all other express terms in respect of the Class A Preferred Stock and Class B Preferred Stock as may be permitted or required by law. (c) Upon the conversion of any share of Class A Preferred Stock and Class B Preferred Stock, the stated capital of the Company shall be reduced or increased in such a manner and at such a rate so that the stated capital attributable to any share issued upon the exercise of such conversion rights shall be the same as any other share of its class and not the stated capital of the share so converted. (d) The holders of the shares of Class A Preferred Stock and Class B Preferred Stock shall receive dividends, when and as declared by the Board of Directors, out of funds available for the payment of dividends, before any dividend shall be paid on the shares of Common Stock. Such dividends shall be payable at the rate per share per annum, and no more, and pursuant to the other terms as shall have been fixed by the Board of Directors, and no dividends shall be paid on the shares of Common Stock unless the current dividend, and all the arrears of dividends, if any, on the outstanding shares of the Class A Preferred Stock and Class B Preferred Stock shall have been paid or provision shall have been made for the payment thereof. (e) In case of the dissolution or liquidation of the Company, before any payment shall be made to the holders of the Common Stock, the holders of the Class A Preferred Stock and Class B Preferred Stock shall be entitled to be paid from the assets available therefor the liquidation price fixed by the Board of Directors, and all accrued and unpaid dividends thereon, but shall not be entitled to participate any further in the distribution of the assets of the Company. (f) Pursuant to subsection (b) of this Section 1, there is hereby established a series of the Class A Preferred Stock with nine million ninety thousand nine hundred nine (9,090,909) shares authorized which is designated as "Series A ESOP Convertible Class A Preferred Stock" with express terms as set forth in Appendix A attached hereto and incorporated herein as if fully set forth herein.(1) (g) Pursuant to subsection (b) of this Section 1, there is hereby established a series of the Class A Preferred Stock with nineteen million, one hundred forty-two thousand, four hundred eighteen (19,142,418) shares authorized which is designated as "Series B ESOP Convertible Class A Preferred Stock" with express terms as set forth in Appendix B attached hereto and incorporated herein as if fully set forth herein.(2) 2. The express terms and provisions of the shares classified and designated as Common Stock are as follows: (a) The holders of said shares shall be entitled to one (1) vote per share at all meetings of the shareholders of the Company. (b) After the payment to the holders of all Class A Preferred Stock and Class B Preferred Stock of the preferential amounts to which they shall be entitled in the event of the dissolution or liquidation of the Company, the holders of the shares of Common Stock shall be entitled to all of the residue of the assets and shall receive payment thereof in proportion to the shares held by them respectively. (c) Subject to the express terms and provisions of the shares designated as Class A Preferred Stock and Class B Preferred Stock, the holders of the shares of Common Stock shall have all, and all other rights, interests, powers and privileges of shareholders of corporations for profit as provided by law, without any restrictions, qualifications or limitations thereof. Fifth: The stated capital of the Company shall be the aggregate stated capital of all classes of outstanding shares: (a) The stated capital of shares with par value shall be the par value of such shares. (b) The stated capital of shares without par value shall be One Dollar ($1.00) per share or such other amount required by law. Sixth: The following provisions are hereby agreed to for the purpose of defining, limiting and regulating the exercise of the authority of the Company, or of its shareholders, or of any class of shareholders, or of its directors, or for the purpose of creating and defining rights and privileges of the shareholders among themselves: 1. The Company may purchase, hold, sell, and reissue any of its shares and to the extent that the authority to do the same may be granted under these Articles, the Board of Directors shall have power to do all said acts, without any action by shareholders, except as otherwise provided below in this Article Sixth. 2. No holder of shares of any class shall have any right, pre-emptive or other, to subscribe for or to purchase from the Company any of the shares of any class of the Company hereafter issued or sold. 3. (a) Except as otherwise provided in Subsection (b) of this Section 3 the following transactions shall require the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for the purposes of this Section 3 as one class: (i) the purchase by the Company of any of its shares of any class from any Related Person, if any such shares have been beneficially owned by the Related Person less than two years prior to the date of such purchase or any agreement in respect thereof; (ii) any merger or consolidation of the Company or a subsidiary of the Company with or into any Related Person, in each case without regard to which entity is the surviving entity; (iii) any sale, lease, exchange, transfer or other disposition of all or any substantial part of the assets of the Company or a subsidiary of the Company to or with any Related Person; (iv) the purchase by the Company from any Related Person of any assets or securities, or a combination thereof, except assets or securities or a combination thereof so acquired in a single transaction or a series of related transactions having an aggregate fair market value of less than Fifty Million Dollars ($50,000,000); (v) the issuance or transfer of any securities of the Company to any Related Person for cash; (vi) the adoption of any plan or proposal for the voluntary dissolution, liquidation, spin-off, or split-up of any kind of the Company or a subsidiary of the Company, or a recapitalization or reclassification of any securities of the Company, proposed by or on behalf of any Related Person; or (vii) any other material transaction involving the Company or a subsidiary of the Company with, or proposed by or on behalf of, any Related Person. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange. (b) The provisions of this Section 3 shall not apply to any purchase described in Subsection (a)(i) of this Section 3 if the purchase would be made as part of any purchase by the Company of its shares made on the same terms to all holders of the shares to be purchased and complying with the applicable requirements of the Securities Exchange Act of 1934. the provisions of this Section 3 shall also not apply to any transaction described in Subsection (a)(ii) through (vii) of this Section 3 if the Board of Directors of the Company shall by resolution have approved a memorandum of understanding with such Related Person with respect to and substantially consistent with such transaction prior to the time the Related Person became such, or if the transaction is approved by a resolution adopted by the affirmative vote of at least two-thirds (2/3) of the members of the whole Board of Directors of the Company at any time prior to the consummation thereof. (c) For the purposes of this Section 3, and as guidance to the Board of Directors for the purpose of Subsection (d) hereof, the term "Related Person" shall mean (1) any individual, firm, corporation or other entity, or group thereof acting or agreeing to act in the manner set forth in Rule 13d-5 under the Securities Exchange Act of 1934 (the "Act") as in effect on October 8, 1985, who is the beneficial owner, directly or indirectly, of five percent (5%) or more of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors and (2) any "Affiliate" or "Associate" of any of the above or of any entity or group (or any member thereof) described in Clause (1) above, whether or not acting as a Director of the Company. The terms "Affiliate" and "Associate" as used herein shall have the respective meanings ascribed to such terms in The General Rules and Regulations under the Act as in effect on October 8, 1985, and shall include any person otherwise acting in the capacity of an "Associate" or "Affiliate". The Term "Related Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any trustee of or fiduciary with respect to any such plan acting in such capacity. In addition to all shares beneficially owned, directly or indirectly, a Related Person shall also be deemed to be the beneficial owner of any shares of capital stock of the Company (1) which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; or (2) which are beneficially owned, directly or indirectly (including shares deemed owned through application of Clause (1) above), (A) by its "Affiliate" or "Associate" or (B) by any other individual, firm corporation, or other entity (or any "Affiliate" or "Associate" thereof) with which it or its "Affiliate" or "Associate" of (B) by any other individual, firm, corporation, or other entity (or any "Affiliate" or "Associate" thereof) with which it or its "Affiliate" or "Associate" has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of capital stock of the Company. For the purposes of this Section 3, (A) the outstanding shares of any class of capital stock of the Company shall include shares deemed owned through the application of Clauses (1) and (2) of the preceding sentence but shall not include any other shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, and (B) subsidiary shall mean any corporation of which the Company owns, directly or indirectly, fifty percent (50%) or more of the voting stock. (d) The Board of Directors of the Company shall have the power and duty to determine for the purposes of this Section 3, on the basis of information then known to it, whether (1) any individual, firm, corporation, or other entity is a Related Person or is an "Affiliate" or an "Associate", or a group thereof; (2) any proposed sale, lease, exchange or other disposition of part of the assets of the Company or a subsidiary of the Company involves all or any substantial part of the assets of the Company or a subsidiary of the Company; (3) any assets or securities, or a combination thereof, to be acquired by the Company, have an aggregate fair market value of less than Fifty Million Dollars ($50,000,000) and whether the same are proposed to be acquired in a single transaction or a series of related transactions; (4) any plan or proposal is for the voluntary dissolution, liquidation, spin-off or split-up of any kind of the Company or a subsidiary of the Company, or is a recapitalization or reclassification of any securities of the Company, and whether any plan or proposal is proposed by or on behalf of any Related Person; (5) any transaction involving the Company or a subsidiary of the Company with, or proposed by or on behalf of any Related Person is material, and whether any such transaction is proposed by or on behalf of any Related Person; and (6) the memorandum of understanding referred to above is substantially consistent with the transaction to which it relates. (e) The Board of Directors of the Company, when evaluating any material, unsolicited offer of another party to (1) merge or consolidate the Company or a subsidiary of the Company with or into another corporation; (2) purchase or otherwise acquire all or any substantial part of the assets of the Company or a subsidiary of the Company; (3) sell any assets or securities to the Company; (4) purchase any securities from the Company or from the holders thereof in a tender offer; (5) dissolve, liquidate, spin off or split up the Company or a subsidiary of the Company, or to recapitalize or reclassify any securities of the Company; or (6) involve the Company or a subsidiary of the Company in any other material transaction, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Company and its shareholders, give due consideration to (A) all relevant factors, including without limitation the financial and managerial resources and future prospects of the other party and the social, legal, environmental and economic effects on the employees, customers, suppliers and other affected persons, firms and corporations and on the communities and geographical areas in which the Company and its subsidiaries operate or are located and on any of the business and properties of the Company or any of its subsidiaries, as well as such other factors as the Directors deem relevant; and (B) the amount and form of the consideration being offered in relation to the then current market price for the Company's outstanding shares of capital stock, in relation to the then current value of the Company in a freely negotiated transaction or transactions and in relation to the Board of Directors' estimate of the future value of the Company (including the unrealized value of its properties and assets) as in independent concern. In evaluating any such offer, the Board of Directors shall be deemed to be performing their duly authorized duties and acting in good faith and in the best interests of the Company within the meaning of Section 1701.13 of the Ohio Revised Code, as it may be amended from time to time, and the Company's Regulations. 4. The statutes of Ohio require that action on certain specified matters at a shareholders' meeting shall be taken by the affirmative vote of the holders of more than a majority of shares entitled to vote thereon, unless other provision is made in the Articles of Incorporation. On all these specified matters action may be taken by the affirmative vote of a majority of shares entitled to vote thereon or, if the vote is required to be by classes, by the affirmative vote of a majority of each class of shares entitled to vote thereon as a class, except that any amendment, alteration, addition to or repeal of this Article Sixth and of any of the matters specified above in Section 3 of this Article Sixth as requiring a vote other than the affirmative vote of the holders of a majority of the shares entitled to vote thereon, may only be taken, (1) prior to the date of the annual meeting in 1990, by the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for the purposes of this Section 4 as one class; (2) from the date of the annual meeting in 1990 to, and including the date of the annual meeting in 2000, by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for the purposes of this Section 4 as one class, provided that during such period said vote may be increased at any time to the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of capital stock of the Company by a resolution adopted by at least two-thirds (2/3) of the members of the whole Board of Directors(3); (3) after the date of the annual meeting in 2000, by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for the purposes of this Section 4 as one class. Seventh: No holder of shares of any class shall have the right to vote cumulatively in the election of Directors. IN WITNESS WHEREOF, said John E. Pepper, Chairman of the Board and Chief Executive, and Terry L. Overbey, Secretary, of The Procter & Gamble Company, acting for and on behalf of said corporation, have hereunto subscribed their names and caused the seal of said corporation to be hereunto affixed this 14th day of October, 1997. THE PROCTER & GAMBLE COMPANY /s/ John E. Pepper BY JOHN E. PEPPER Chairman of the Board and Chief Executive /s/ Terry L. Overbey BY TERRY L. OVERBEY Secretary - ----------------------- (1) As a result of three two-for-one stock splits on the Common Stock effective October 10, 1989, May 15, 1992 and August 22, 1997, the number of shares of Series A ESOP Convertible Class A Preferred Stock authorized was automatically increased to 72,727,272 in accordance with the terms of paragraph 9(A)(1) of Appendix A. (This footnote is not a part of the Company's Amended Articles of Incorporation, but is included to provide up-to-date information on the status of Series A ESOP Convertible Class A Preferred Stock.) (2) As a result of the two-for-one stock split effective August 22, 1997, the number of shares of Series B ESOP Convertible Class A Preferred Stock authorized was automatically increased to 38,284,836 in accordance with the terms of paragraph 9(A)(1) of Appendix B. (This footnote is not a part of the Company's Amended Articles of Incorporation, but is included to provide up-to-date information on the status of Series B ESOP Convertible Class A Preferred Stock.) (3) On October 9, 1990, in accordance with this provision, the vote required was increased to 80% of the outstanding shares of capital stock of the Company. (This footnote is not a part of the Company's Amended Articles of Incorporation, but is included to provide up-to-date information.) APPENDIX A(4) SERIES A ESOP CONVERTIBLE CLASS A PREFERRED STOCK (Hereinafter referred to as Series A Preferred Stock) 1. Issuance and Cancellation. (A) All shares of Series A Preferred Stock redeemed or purchased by the Company shall be retired and shall be restored to the status of authorized but unissued shares of Class A Preferred Stock. (B) Shares of Series A Preferred Stock shall be issued only to a trustee or trustees acting on behalf of an employee stock ownership trust or plan or other employee benefit plan of the Company. In the event of any transfer of shares of Series A Preferred Stock to any person other than any such plan trustee or trustees, the shares of Series A Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder, shall be automatically converted into shares of Common Stock on the terms otherwise provided for the conversion of shares of Series A Preferred Stock into shares of Common Stock pursuant to Section 5 hereof and no such transferee shall have any of the voting powers, preferences and relative, participating, optional or special rights ascribed to shares of Series A Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of Series A Preferred Stock shall be so converted. Certificates representing shares of Series A Preferred Stock shall be legended to reflect such restrictions on transfer. Notwithstanding the foregoing provisions of this Section 1, shares of Series A Preferred Stock (i) may be converted into shares of Common Stock as provided by Section 5 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided by Sections 6, 7 and 8 hereof. 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, cash dividends ("Preferred Dividends") in an amount per share initially equal to $8.124 per share per annum, subject to adjustment from time to time as hereinafter provided, (such amount, as adjusted from time to time, being hereinafter referred to as the "Preferred Dividend Rate"), payable quarterly, one-fourth on the third day of March, one-fourth on the third day of June, one-fourth on the third day of September, and one-fourth on the third day of December of each year (each a "Dividend Payment Date") commencing on June 3, 1989, to holders of record at the start of business on such Dividend Payment Date, provided that if the Board of Directors has declared since the prior Dividend Payment Date a quarterly dividend on the Common Stock at a rate that exceeds one-fourth of the Preferred Dividend Rate in effect on such day, the holders of record on the start of business on the payment date for such dividend on the Common Stock shall be entitled to receive a cash dividend in an amount per share equal to the quarterly dividend declared on a share of Common Stock, payable on the same date as such dividend on the Common Stock, and provided further that the Dividend Payment Date for the Series A Preferred Stock shall thereafter be the same date as the payment date for the dividend on the Common Stock or if no dividend is declared on the Common Stock in any quarter, the Dividend Payment Date shall be, as appropriate, the fifteenth day of February, May, August or November or if such days are not a day on which the New York Stock Exchange is open for business, then the next preceding day when the New York Stock Exchange is open for business. Preferred Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the date of issuance of such shares of Series A Preferred Stock. Preferred Dividends shall accrue on a daily basis, based on the Preferred Dividend Rate in effect on such day, whether or not the Company shall have earnings or surplus at the time, but Preferred Dividends accrued after March 3, 1989 on the shares of Series A Preferred Stock for any period less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months. A full quarterly dividend payment of $2.034 per share shall accrue for the period from the date of issuance until June 3, 1989. Accumulated but unpaid Preferred Dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid Preferred Dividends. (B)(1) No full dividends shall be declared or paid or set apart for payment on any shares ranking, as to dividends, on a parity with or junior to the Series A Preferred Stock, for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Stock for all Dividend Payment Dates occurring on or prior to the date of payment of such full dividends. When dividends are not paid in full, as aforesaid, upon the shares of Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on Series A Preferred Stock and such other parity shares shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of Series A Preferred Stock and such other parity shares bear to each other. Except as otherwise provided in these Articles, holders of shares of Series A Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends, as herein provided, on Series A Preferred Stock. (2) So long as any shares of Series A Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Common Stock or other shares ranking junior to Series A Preferred Stock as to dividends and other than as provided in paragraph (B)(1) of this Section 2) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other shares ranking junior to or on a parity with Series A Preferred Stock as to dividends, nor shall any Common Stock or any other shares of the Company ranking junior to or on a parity with Series A Preferred Stock as to dividends be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for shares of the Company ranking junior to Series A Preferred Stock as to dividends) unless, in each case, the full cumulative dividends on all outstanding shares of Series A Preferred Stock shall have been paid. (3) Any dividend payment made on shares of Series A Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to shares of Series A Preferred Stock. 3. Liquidation Preference. (A) In the event of any dissolution or liquidation of the Company, whether voluntary or involuntary, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of any series or class or classes of stock of the Company ranking junior to Series A Preferred Stock upon dissolution or liquidation, the holders of Series A Preferred Stock shall be entitled to receive the Liquidation Price (as hereinafter defined) per share in effect at the time of dissolution or liquidation plus an amount equal to all dividends accrued (whether or not accumulated) and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payments. The Liquidation Price per share which holders of Series A Preferred Stock shall receive upon dissolution or liquidation shall be $110.004, subject to adjustment as hereinafter provided. If, upon any dissolution or liquidation of the Company, the assets of the Company, or proceeds thereof, distributable among the holders of Series A Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares ranking as to dissolution or liquidation, on a parity with Series A Preferred Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A Preferred Stock and any such other shares ratably in accordance with the respective amounts which would be payable on such shares of Series A Preferred Stock and any such other shares if all amounts payable thereon were paid in full. For the purposes of this Section 3, a consolidation or merger of the Company with one or more corporations shall not be deemed to be a dissolution or liquidation, voluntary or involuntary. (B) Subject to the rights of the holders of shares of any series or class or classes of stock ranking on a parity with or prior to Series A Preferred Stock upon dissolution or liquidation, upon any dissolution or liquidation of the Company, after payment shall have been made in full to the holders of Series A Preferred Stock as provided in this Section 3, but not prior thereto, any other series or class or classes of stock ranking junior to Series A Preferred Stock upon dissolution or liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series A Preferred Stock shall not be entitled to share therein. 4. Ranking of Shares. Any shares of the Company shall be deemed to rank: (A) prior to Series A Preferred Stock as to dividends or as to distribution of assets upon dissolution or liquidation, if the holders of such class shall be entitled to the receipt of dividends or of amounts distributable upon dissolution or liquidation, as the case may be, in preference or priority to the holders of Series A Preferred Stock; (B) on a parity with Series A Preferred Stock as to dividends or as to distribution of assets upon dissolution or liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share thereof be different from those of Series A Preferred Stock, if the holders of such class of stock and Series A Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution or liquidation, as the case may be, in proportion to their respective dividend or liquidation amounts, as the case may be, without preference or priority one over the other; and (C) junior to Series A Preferred Stock as to dividends or as to the distribution of assets upon dissolution or liquidation, if such shares shall be Common Stock or if the holders of Series A Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution or liquidation, as the case may be, in preference or priority to the holders of such shares. 5. Conversion into Common Stock. (A) A holder of shares of Series A Preferred Stock shall be entitled, at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 6, 7, or 8 hereof, to cause any or all of such shares to be converted into shares of Common Stock. The number of shares of Common Stock into which each share of the Series A Preferred Stock may be converted shall be determined by dividing the Liquidation Price in effect at the time of conversion by the Conversion Price (as hereinafter defined) in effect at the time of conversion. The Conversion Price per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series A Preferred Stock shall be $110.004, subject to adjustment as hereinafter provided. (B) Any holder of shares of Series A Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender, if certificated, the certificate or certificates representing the shares of Series A Preferred Stock being converted, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto), or if uncertificated, a duly executed stock power relating thereto, at the principal executive office of the Company or the offices of the transfer agent for the Series A Preferred Stock or such office or offices in the continental United States or an agent for conversion as may from time to time be designated by notice to the holders of the Series A Preferred Stock by the Company or the transfer agent for the Series A Preferred Stock, accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of Series A Preferred Stock to be converted and the name or names in which such holder wishes the Common Stock and any shares of Series A Preferred Stock not to be so converted to be issued, and (ii) the address to which such holder wishes delivery to be made of a confirmation of such conversion, if uncertificated, or any new certificates which may be issued upon such conversion if certificated. (C) Upon surrender, if certificated, of a certificate representing a share or shares of Series A Preferred Stock for conversion, or if uncertificated, of a duly executed stock power relating thereto, the Company shall issue and send by hand delivery (with receipt to be acknowledged) or by first class mail, postage prepaid, to the holder thereof or to such holder's designee, at the address designated by such holder, if certificated, a certificate or certificates for, or if uncertificated, confirmation of, the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered shares of Series A Preferred Stock, only part of which are to be converted, the Company shall issue and deliver to such holder or such holder's designee, if certificated, a new certificate or certificates representing the number of shares of Series A Preferred Stock which shall not have been converted, or if uncertificated, confirmation of the number of shares of Series A Preferred Stock which shall not have been converted. (D) The issuance by the Company of shares of Common Stock upon a conversion of shares of Series A Preferred Stock into shares of Common Stock made at the option of the holder thereof shall be effective as of the earlier of (i) the delivery to such holder or such holder's designee of the certificates representing the shares of Common Stock issued upon conversion thereof if certificated or confirmation if uncertificated or (ii) the commencement of business on the second business day after the surrender of the certificate or certificates, if certificated, or a duly executed stock power, if uncertificated, for the shares of Series A Preferred Stock to be converted. On and after the effective date of conversion, the person or persons entitled to receive Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record on any date prior to such effective date. The Company shall not be obligated to pay any dividends which shall have been declared and shall be payable to holders of shares of Series A Preferred Stock on a Dividend Payment Date if such Dividend Payment Date for such dividend shall be on or subsequent to the effective date of conversion of such shares. (E) The Company shall not be obligated to deliver to holders of Series A Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of Series A Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law. (F) The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock or treasury Common Stock, solely for issuance upon the conversion of shares of Series A Preferred Stock as herein provided, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series A Preferred Stock then outstanding. 6. Redemption at the Option of the Company. (A) The Series A Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time after March 3, 1994 (or on or before March 3, 1994 if permitted by, and at the redemption price provided in, paragraph (C) of this Section 6) at the following redemption prices per share:

During the Twelve Month Period Beginning Price Per March 4, Share - ------------ --------- 1989 107.3750% of Liquidation Price in effect on date fixed for redemption 1990 106.6375% " 1991 105.9000% " 1992 105.1625% " 1993 104.4250% " 1994 103.6875% " 1995 102.9000% " 1996 102.2125% " 1997 101.4750% " 1998 100.7375% "

and thereafter at 100% of the Liquidation Price per share in effect on the date fixed for redemption, plus, in each case (including in the case of redemptions pursuant to paragraph (C) of this Section 6), an amount equal to all accrued (whether or not accumulated) and unpaid dividends thereon to the date fixed for redemption. Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (D) of this Section 6. From and after the date fixed for redemption, dividends on shares of Series A Preferred Stock called for redemption will cease to accrue, such shares will no longer be deemed to be outstanding and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price. If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the Company shall either redeem a portion of the shares of each holder determined pro rata based on the number of shares held by each holder or shall select the shares to be redeemed by lot, as may be determined by the Board of Directors of the Company. (B) Unless otherwise required by law, notice of redemption will be sent to the holders of Series A Preferred Stock at the address shown on the books of the Company or any transfer agent for Series A Preferred Stock by first class mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each notice shall state: (i) the redemption date; (ii) the total number of shares of the Series A Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates, if certificated, for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Conversion Price and number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock at the time. Upon surrender of the certificates, if certificated, for any shares so called for redemption and not previously converted, or upon the date fixed for redemption if uncertificated, such shares shall be redeemed by the Company at the date fixed for redemption and at the redemption price set forth in this Section 6. (C) In the event of (i) a change in the federal tax law of the United States of America which has the effect of precluding the Company from claiming any of the tax deductions for dividends paid on the Series A Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended and in effect on the date shares of Series A Preferred Stock are initially issued, or (ii) The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, as authorized by the Board of Directors of the Company on January 10, 1989, and as amended from time to time thereafter failing to receive a determination from the Internal Revenue Service that it is a qualified plan within the meaning of Section 401(a) or is an employee stock ownership plan as described in Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended, and in effect on the date shares of Series A Preferred Stock are initially issued, then, in either such event, the Company may, in its sole discretion and notwithstanding anything to the contrary in paragraph (A) of this Section 6, elect to redeem such shares for the Liquidation Price in effect on the date fixed for redemption, plus, in each case, an amount equal to all accrued (whether or not accumulated) and unpaid dividends thereon to the date fixed for redemption. In the event the Company terminates the employee stock ownership plan of The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, the Company may, in its sole discretion and notwithstanding anything to the contrary in paragraph (A) of this Section 6, elect to redeem such shares at the redemption prices per share provided in paragraph (A) of this Section 6. (D) The Company, at its option, may make payment of the redemption price required upon redemption of shares of Series A Preferred Stock in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares of Common Stock to be valued for such purpose at the average of the high and low reported sales price, or, in case no sale takes place on such day, the average reported closing bid and asked price, in either case as reported on the New York Stock Exchange Tape on the date of redemption, or if not listed or admitted to trading on the New York Stock Exchange, in accordance with the valuation methods provided in paragraph 9(F)(2). 7. Redemption at the Option of the Holder. Unless otherwise provided by law, shares of Series A Preferred Stock shall be redeemed by the Company for cash or, if the Company so elects, in shares of Common Stock, or a combination of such shares and cash, any such shares of Common Stock to be valued for such purpose as provided by paragraph (D) of Section 6, at the Liquidation Price per share in effect on the date fixed for redemption plus all accrued (whether or not accumulated) and unpaid dividends thereon to the date fixed for redemption, at the option of the holder, at any time and from time to time upon notice to the Company given not less than five (5) business days prior to the date fixed by the holder in such notice for redemption, when and to the extent necessary for such holder to provide for distributions required to be made under, or to satisfy an investment election provided to participants in accordance with, The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, as the same may be amended, or any successor plan (the "Plan"). 8. Consolidation, Merger, etc. (A) In the event that the Company shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into shares of any successor or resulting company (including the Company) that constitutes "qualifying employer securities" with respect to a holder of Series A Preferred Stock within the meanings of Section 4975(e)(8) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provision of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, then, in such event, the terms of such consolidation or merger or similar transaction shall provide that the shares of Series A Preferred Stock of such holder shall be submitted for and shall become preferred shares of such successor or resulting company, having in respect of such company insofar as possible the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 6, 7, and 8 hereof), and the qualifications, limitations or restrictions thereon, that the Series A Preferred Stock had immediately prior to such transaction; provided, however, that after such transaction each share of the Series A Preferred Stock shall be convertible, pursuant to the terms and conditions provided by Section 5 hereof, into the qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of Series A Preferred Stock could have been converted immediately prior to such transaction (provided that, if the kind or amount of qualifying employer securities receivable upon such transaction is not the same for each non-electing share, then the kind and amount of qualifying employer securities receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares). The rights of the Series A Preferred Stock as preferred shares of such successor or resulting company shall successively be subject to adjustments pursuant to Section 9 hereof after any such transaction as nearly equivalent to the adjustments provided for by such section prior to such transaction. The Company shall not consummate any such merger, consolidation or similar transaction unless all the terms of this paragraph 8(A) are complied with. (B) In the event that the Company shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other shares or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of Series A Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (C) of this Section 8), be deemed converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of Series A Preferred Stock could have been converted at such time and each share of Series A Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of shares, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series A Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of shares, securities, cash or other property receivable upon such transaction (provided that, if the kind or amount of shares, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of shares, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of non-electing shares). (C) In the event the Company shall enter into any agreement providing for any consolidation or merger or similar transaction described in paragraph (B) of this Section 8, then the Company shall as soon as practicable thereafter (and in any event at least ten (10) business days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of Series A Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such Series A Preferred Stock, a cash payment equal to the Liquidation Price in effect on the date set for redemption plus all accrued (whether or not accumulated) and unpaid dividends. No such notice of redemption shall be effective unless given to the Company prior to the close of business on the fifth business day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the fifth business day prior to consummation of such transaction. 9. Anti-dilution Adjustments. (A)(1) Subject to the provisions of paragraph 9(D), in the event the Company shall, at any time or from time to time while any of the shares of the Series A Preferred Stock are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock or (ii) subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares, in each case whether by reclassification of shares, recapitalization of the Company (excluding a recapitalization or reclassification effected by a merger or consolidation to which Section 8 hereof applies) or otherwise, then, in such event, each share of Series A Preferred Stock will automatically, without any action on the part of the holder thereof or the Company, become that number of shares of Series A Preferred Stock (the "Non-dilutive Share Amount") equal to an amount which is a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment pursuant to this paragraph 9(A)(1) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. Concurrently with the automatic adjustment pursuant to this paragraph 9(A)(1), the Conversion Price, the Liquidation Price and the Preferred Dividend Rate of all shares of Series A Preferred Stock shall be adjusted by dividing the Conversion Price, the Liquidation Price and the Preferred Dividend Rate, respectively, in effect immediately before the event by the Non-dilutive Share Amount determined pursuant to this paragraph 9(A)(1). (2) The Company and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are necessary or appropriate for implementation of the automatic adjustment provided in paragraph 9(A)(1). In the event for any reason the Company is precluded from giving full effect to the automatic adjustment provided in paragraph 9(A)(1), then no such automatic adjustment shall occur, but instead the Conversion Price shall automatically be adjusted by dividing the Conversion Price in effect immediately before the event by the Non-dilutive Share Amount determined pursuant to paragraph 9(A)(1), and the Liquidation Price and the Preferred Dividend Rate will not be adjusted. An adjustment to the Conversion Price made pursuant to this paragraph 9(A)(2) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of shareholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. If subsequently the Company is able to give full effect to the automatic adjustment as provided in paragraph 9(A)(1), then such automatic adjustment will proceed in accordance with the provisions of paragraph 9(A)(1) and the adjustment in the Conversion Price as provided in this paragraph 9(A)(2) will automatically be reversed and nullified prospectively. (B)(1) Subject to the provisions of paragraph 9(D), in the event the Company shall, at any time or from time to time while any of the shares of Series A Preferred Stock are outstanding, issue to holders of shares of Common Stock as a dividend or distribution, including by way of a reclassification of shares or a recapitalization of the Company, any right or warrant to purchase shares of Common Stock (but not including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock) at a purchase price per share less than the Fair Market Value (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then, in such event, each share of Series A Preferred Stock will automatically, without any action on the part of the holder thereof or the Company, become that number of shares of Series A Preferred Stock (the "Non-dilutive Share Amount") equal to an amount which is a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon exercise in full of all such rights and warrants and the denominator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such issuance for the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. Concurrently with the automatic adjustment pursuant to this paragraph 9(B)(1), the Conversion Price, the Liquidation Price and the Preferred Dividend Rate of all shares of Series A Preferred Stock shall be adjusted by dividing the Conversion Price, the Liquidation Price and the Preferred Dividend Rate, respectively, in effect immediately before such issuance of rights or warrants by the Non-dilutive Share Amount determined pursuant to this paragraph 9(B)(1). (2) The Company and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are necessary or appropriate for implementation of the automatic adjustment provided in paragraph 9(B)(1). In the event for any reason the Company is precluded from giving full effect to the automatic adjustment provided in paragraph 9(B)(1), then no such automatic adjustment shall occur, but instead the Conversion Price shall automatically be adjusted by dividing the Conversion Price in effect immediately before such issuance of rights or warrants by the Non-Dilutive Share Amount determined pursuant to paragraph 9(B)(1), and the Liquidation Price and Preferred Dividend Rate will not be adjusted. If subsequently the Company is able to give full effect to the automatic adjustment as provided in paragraph 9(B)(1), then such automatic adjustment will proceed in accordance with the provisions of paragraph 9(B)(1) and the adjustment in the Conversion Price as provided in this paragraph 9(B)(2) will automatically be reversed and nullified prospectively. (C)(1) Subject to the provisions of paragraph 9(D), in the event the Company shall, at any time or from time to time while any of the shares of Series A Preferred Stock are outstanding, make an Extraordinary Distribution (as hereinafter defined) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Company (including recapitalization or reclassification effected by a merger or consolidation to which Section 8 hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common Stock, then, in such event, each share of Series A Preferred Stock will automatically, without any action on the part of the holder thereof or the Company, become that number of shares of Series A Preferred Stock (the "Non-dilutive Share Amount") equal to an amount which is a fraction the numerator of which is the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Company multiplied by (b) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, and the denominator of which is (i) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution, or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, minus (ii) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be. The Company shall send each holder of Series A Preferred Stock (i) notice of its intent to make any dividend or distribution and (ii) notice of any offer by the Company to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Company pursuant to such offer, as well as the Conversion Price and the number of shares of Common Stock into which a share of Series A Preferred Stock may be converted at such time. Concurrently with the automatic adjustment pursuant to this paragraph 9(C)(1), the Conversion Price, the Liquidation Price and the Preferred Dividend Rate of all shares of Series A Preferred Stock shall be adjusted by dividing the Conversion Price, the Liquidation Price and the Preferred Dividend Rate, respectively, in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Non-dilutive Share Amount determined pursuant to this paragraph 9(C)(1). (2) The Company and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are necessary or appropriate for implementation of the automatic adjustment provided in paragraph 9(C)(1). In the event for any reason the Company is precluded from giving full effect to the automatic adjustment provided in paragraph 9(C)(1), then no such automatic adjustment shall occur, but instead the Conversion Price shall automatically be adjusted by dividing the Conversion Price in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Non-dilutive Share Amount, and the Liquidation Price and the Preferred Dividend Rate will not be adjusted. If subsequently the Company is able to give full effect to the automatic adjustment as provided in paragraph 9(C)(1), then such automatic adjustment will proceed in accordance with the provisions of paragraph 9(C)(1) and the adjustment in the Conversion Price as provided in this paragraph 9(C)(2) will automatically be reversed and nullified prospectively. (D) Notwithstanding any other provisions of this Section 9, the Company shall not be required to make (i) any adjustment of the number of issued shares of Series A Preferred Stock, the Conversion Price, the Liquidation Price or the Preferred Dividend Rate unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of shares of Series A Preferred Stock outstanding, or, (ii) if no additional shares of Series A Preferred Stock are issued, any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the number of Series A Preferred Shares outstanding or, if no additional shares of Series A Preferred Stock are being issued, an increase or decrease of at least one percent (1%) of the Conversion Price, whichever the case may be. (E) If the Company shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Company or any rights or warrants to purchase or acquire any such security, which transaction does not result in an appropriate adjustment to the number of shares of Series A Preferred Stock outstanding or the Conversion Price pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Company may, in its sole discretion, consider whether such action is of such a nature that some type of equitable adjustment should be made in respect of such transaction. If in such case the Board of Directors of the Company determines that some type of adjustment should be made, an equitable adjustment not repugnant to law and for the protection of the conversion rights of the Series A Preferred Stock shall be made effective as of such date, as determined by the Board of Directors of the Company. The determination of the Board of Directors of the Company as to whether some type of adjustment should be made pursuant to the foregoing provisions of this paragraph 9(E), and, if so, as to what adjustment should be made and when, shall be final and binding on the Company and all shareholders of the Company. The Company shall be entitled to make such additional adjustments, in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Company, subdivision, reclassification or combination of shares of the Company or any recapitalization of the Company shall not be taxable to holders of the Common Stock. (F) For purposes of this Appendix A, the following definitions shall apply: (1) "Extraordinary Distribution" shall mean any dividend or other distribution (effected while any of the shares of Series A Preferred Stock are outstanding) of (i) cash, where the aggregate amount of such cash dividend or distribution together with the amount of all cash dividends and distributions made during the preceding period of twelve (12) months, when combined with the aggregate amount of all Pro Rata Repurchases [for this purpose, including only that portion of the aggregate purchase price of such Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined on the applicable expiration date (including all extensions thereof) of any tender offer or exchange offer which is a Pro Rata Repurchase, or the date of purchase with respect to any other Pro Rata Repurchase which is not a tender offer or exchange offer] made during such period, exceeds twelve and one-half percent (12-1/2%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the record date for determining the shareholders entitled to receive such Extraordinary Distribution and (ii) any shares of capital stock of the Company (other than shares of Common Stock), other securities of the Company (other than securities of the type referred to in paragraph (B) of this Section 9), evidences of indebtedness of the Company or any other person or any other property (including shares of any subsidiary of the Company), or any combination thereof. The Fair Market Value of an Extraordinary Distribution for purposes of paragraph (C) of this Section 9 shall be the sum of the Fair Market Value of such Extraordinary Distribution plus the aggregate amount of any cash dividends or distributions which are not Extraordinary Distributions made during such twelve month period and not included in the calculation of any previous adjustment pursuant to paragraph (C) of this Section 9. (2) "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issuer which are publicly traded, the average of the Current Market Prices (as hereinafter defined) of such shares or securities for each day of the Adjustment Period (as hereinafter defined). "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for a day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Company or the Executive Committee of the Board of Directors of the Company on each trading day during the Adjustment Period. "Adjustment Period" shall mean the period of five (5) consecutive trading days, selected by the Board of Directors or the Executive Committee of the Board of Directors of the Company, during the twenty (20) trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined. The "Fair Market Value" of any security which is not publicly traded or of any other property shall mean the fair value thereof as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board of Directors or the Executive Committee of the Board of Directors of the Company, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors or the Executive Committee of the Board of Directors available to make such determination, as determined in good faith by the Board of Directors or the Executive Committee of the Board of Directors of the Company. (3) "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Company or any subsidiary thereof, whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other person or any other property (including shares of a subsidiary of the Company), or any combination thereof, effected while any of the shares of Series A Preferred Stock are outstanding, pursuant to any tender offer or exchange offer subject to Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock; provided, however, that no purchase of shares by the Company or any subsidiary thereof made in open market transactions shall be deemed a Pro Rata Repurchase. For purposes of this paragraph 9(F), shares shall be deemed to have been purchased by the Company or any subsidiary thereof "in open market transactions" if they have been purchased substantially in accordance with the requirements of Rule 10b-18 as in effect under the Exchange Act on the date shares of Series A Preferred Stock are initially issued by the Company or on such other terms and conditions as the Board of Directors or the Executive Committee of the Board of Directors of the Company shall have determined are reasonably designed to prevent such purchases from having a material effect on the trading market for the Common Stock. (G) Whenever an adjustment increasing the number of shares of Series A Preferred Stock outstanding is required pursuant to this Appendix A, the Board of Directors shall take such action as is necessary so that a sufficient number of shares of Series A Preferred Stock are designated with respect to such increase resulting from such adjustment. Whenever an adjustment to the Conversion Price, the Liquidation Price or the Preferred Dividend Rate of the Series A Preferred Stock is required pursuant to this Appendix A, the Company shall forthwith place on file with the transfer agent for the Common Stock and the Series A Preferred Stock if there be one, and with the Treasurer of the Company, a statement signed by the Treasurer or Assistant Treasurer of the Company stating the adjusted Conversion Price, Liquidation Price and Preferred Dividend Rate determined as provided herein. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Promptly after each adjustment to the number of shares of Series A Preferred Stock outstanding, the Conversion Price, the Liquidation Price or the Preferred Dividend Rate, the Company shall mail a notice thereof and of the then prevailing number of shares of Series A Preferred Stock outstanding, the Conversion Price, the Liquidation Price and the Preferred Dividend Rate to each holder of shares of Series A Preferred Stock. 10. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) business days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Appendix A) with postage prepaid, addressed: (i) if to the Company, to its office at One Procter & Gamble Plaza, Cincinnati, Ohio 45202 (Attention: Treasurer) or to the transfer agent for the Series A Preferred Stock, or other agent of the Company designated as permitted by this Appendix A or (ii) if to any holder of the Series A Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Company (which may include the records of any transfer agent for the Series A Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Company or any such holder, as the case may be, shall have designated by notice similarly given. (B) The term "Common Stock" as used in this Appendix A means the Company's Common Stock without par value, as the same exists at the date of filing of the Amendment to the Company's Amended Articles of Incorporation first designating Series A Preferred Stock, or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to without par value, or from without par value to par value. In the event that, at any time as a result of an adjustment made pursuant to Section 9 of this Appendix A, the holder of any share of the Series A Preferred Stock upon thereafter surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Company other than shares of Common Stock, the anti-dilution provisions contained in Section 9 hereof shall apply in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock, and the provisions of Sections 1 through 8 and 10 of this Appendix A with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. (C) The Company shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series A Preferred Stock or shares of Common Stock or other securities issued on account of Series A Preferred Stock pursuant hereto or certificates representing such shares or securities. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Series A Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series A Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid or is not payable. (D) In the event that a holder of shares of Series A Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series A Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Company shall be entitled to register such shares, and make such payment, in the name of the holder of such Series a Preferred Stock as shown on the records of the Company and to send the certificate or certificates or other documentation representing such shares, or such payment, to the address of such holder shown on the records of the Company. (E) The Company may appoint, and from time to time discharge and change, a transfer agent for the Series A Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Company shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series A Preferred Stock. (4) As a result of three two-for-one stock splits on the Common Stock effective October 10, 1989, May 15, 1992 and August 22, 1997, and the Smucker transaction effective June 1, 2002, the Conversion Price, Liquidation Price and Preferred Dividend Rate were all adjusted in accordance with the terms of paragraph 9(A)(1) of this Appendix A to be as follows: Conversion Price -- $13.64; Liquidation Price -- $13.64; Preferred Dividend Rate -- $1.007215 per share per annum, with a corresponding change in the quarterly dividend payment. (This footnote is not a part of the Company's Amended Articles of Incorporation but is included to provide up-to-date information on the status of Series A ESOP Convertible Class A Preferred Stock.) APPENDIX B(5) SERIES B ESOP CONVERTIBLE CLASS A PREFERRED STOCK (hereinafter referred to as Series B Preferred Stock) 1. Cancellation. All shares of Series B Preferred Stock redeemed or purchased by the Company shall be retired and shall be restored to the status of authorized but unissued shares of Class A Preferred Stock. 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, cash dividends ("Series B Preferred Dividends") in an amount per share initially equal to $4.12(5) per share per annum, subject to adjustment from time to time as hereinafter provided, (such amount, as adjusted from time to time, being hereinafter referred to as the "Series B Preferred Dividend Rate"), payable quarterly, one-fourth on the twenty-seventh day of November, one-fourth on the twenty-seventh day of February, one-fourth on the twenty-seventh day of May, and one-fourth on the twenty-seventh day of August of each year (each a "Series B Dividend Payment Date") commencing on August 27, 1993, to holders of record at the close of business on the second Friday of the relevant Series B Dividend Payment Date month, provided that if the Board of Directors has declared since the prior Dividend Payment Date a quarterly dividend on the Common Stock at a rate that exceeds one-fourth of the Preferred Dividend Rate in effect on such day, the holders of record on the start of business on the payment date for such dividend on the Common Stock shall be entitled to receive a cash dividend in an amount per share equal to the quarterly dividend declared on a share of Common Stock, payable on the same date as such dividend on the Common Stock, and provided further that the Dividend Payment Date for the Series B Preferred Stock shall thereafter be the same date as the payment date for the dividend on the Common Stock or if no dividend is declared on the Common Stock in any quarter, the Dividend Payment Date shall be, as appropriate, the fifteenth day of February, May, August or November or if such days are not a day on which the New York Stock Exchange is open for business, then the next preceding day when the New York Stock Exchange is open for business. Series B Preferred Dividends shall begin to accrue on outstanding shares of Series B Preferred Stock from the date of issuance of such shares of Series B Preferred Stock. Series B Preferred Dividends shall accrue on a daily basis, based on the Series B Preferred Dividend Rate in effect on such day, whether or not the Company shall have earnings or surplus at the time, but Series B Preferred Dividends accrued after June 30, 1993 on the shares of Series B Preferred Stock for any period less than a full quarterly period between Series B Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months. A partial dividend payment of $.64935(5) per share shall accrue for the period from the date of issuance until August 27, 1993. Accumulated but unpaid Series B Preferred Dividends shall cumulate as of the Series B Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid Series B Preferred Dividends. (B)(1) No full dividends shall be declared or paid or set apart for payment on any shares ranking, as to dividends, on a parity with or junior to the Series B Preferred Stock, for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series B Preferred Stock for all Series B Dividend Payment Dates occurring on or prior to the date of payment of such full dividends. When dividends are not paid in full, as aforesaid, upon the shares of Series B Preferred Stock and any other shares ranking, as to dividends, on a parity with Series B Preferred Stock, all dividends declared upon shares of Series B Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on Series B Preferred Stock and such other parity shares shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of Series B Preferred Stock and such other parity shares bear to each other. Except as otherwise provided in these Articles, holders of shares of Series B Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends, as herein provided, on Series B Preferred Stock. (2) So long as any shares of Series B Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Common Stock or other shares ranking junior to Series B Preferred Stock as to dividends and other than as provided in paragraph (B)(1) of this Section 2) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other shares ranking junior to or on a parity with Series B Preferred Stock as to dividends, nor shall any Common Stock or any other shares of the Company ranking junior to or on a parity with Series B Preferred Stock as to dividends be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for shares of the Company ranking junior to Series B Preferred Stock as to dividends) unless, in each case, the full cumulative dividends on all outstanding shares of Series B Preferred Stock shall have been paid. (3) Any dividend payment made on shares of Series B Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to shares of Series B Preferred Stock. 3. Liquidation Preference. (A) In the event of any dissolution or liquidation of the Company, whether voluntary or involuntary, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of any series or class or classes of stock of the Company ranking junior to Series B Preferred Stock upon dissolution or liquidation, the holders of Series B Preferred Stock shall be entitled to receive the Series B Liquidation Price (as hereinafter defined) per share in effect at the time of dissolution or liquidation plus an amount equal to all dividends accrued (whether or not accumulated) and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payments. The Series B Liquidation Price per share which holders of Series B Preferred Stock shall receive upon dissolution or liquidation shall be $52.24(5), subject to adjustment as hereinafter provided. If, upon any dissolution or liquidation of the Company, the assets of the Company, or proceeds thereof, distributable among the holders of Series B Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares ranking as to dissolution or liquidation, on a parity with Series B Preferred Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of Series B Preferred Stock and any such other shares ratably in accordance with the respective amounts which would be payable on such shares of Series B Preferred Stock and any such other shares if all amounts payable thereon were paid in full. For the purposes of this Section 3, a consolidation or merger of the Company with one or more corporations shall not be deemed to be a dissolution or liquidation, voluntary or involuntary. (B) Subject to the rights of the holders of shares of any series or class or classes of stock ranking on a parity with or prior to Series B Preferred Stock upon dissolution or liquidation, upon any dissolution or liquidation of the Company, after payment shall have been made in full to the holders of Series B Preferred Stock as provided in this Section 3, but not prior thereto, any other series or class or classes of stock ranking junior to Series B Preferred Stock upon dissolution or liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series B Preferred Stock shall not be entitled to share therein. 4. Ranking of Shares. Any shares of the Company shall be deemed to rank: (A) prior to Series B Preferred Stock as to dividends or as to distribution of assets upon dissolution or liquidation, if the holders of such class shall be entitled to the receipt of dividends or of amounts distributable upon dissolution or liquidation, as the case may be, in preference or priority to the holders of Series B Preferred Stock; (B) on a parity with Series B Preferred Stock as to dividends or as to distribution of assets upon dissolution or liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share thereof be different from those of Series B Preferred Stock, if the holders of such class of stock and Series B Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution or liquidation, as the case may be, in proportion to their respective dividend or liquidation amounts, as the case may be, without preference or priority one over the other; and (C) junior to Series B Preferred Stock as to dividends or as to the distribution of assets upon dissolution or liquidation, if such shares shall be Common Stock or if the holders of Series B Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution or liquidation, as the case may be, in preference or priority to the holders of such shares. 5. Conversion into Common Stock. (A) A holder of shares of Series B Preferred Stock shall be entitled, at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 6, 7, or 8 hereof, to cause any or all of such shares to be converted into shares of Common Stock. The number of shares of Common Stock into which each share of the Series B Preferred Stock may be converted shall be determined by dividing the Series B Liquidation Price in effect at the time of conversion by the Series B Conversion Price (as hereinafter defined) in effect at the time of conversion. The Series B Conversion Price per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series B Preferred Stock shall be $52.24(5), subject to adjustment as hereinafter provided. (B) Any holder of shares of Series B Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender, if certificated, the certificate or certificates representing the shares of Series B Preferred Stock being converted, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto), or if uncertificated, a duly executed stock power relating thereto, at the principal executive office of the Company or the offices of the transfer agent for the Series B Preferred Stock or such office or offices in the continental United States or an agent for conversion as may from time to time be designated by notice to the holders of the Series B Preferred Stock by the Company or the transfer agent for the Series B Preferred Stock, accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of Series B Preferred Stock to be converted and the name or names in which such holder wishes the Common Stock and any shares of Series B Preferred Stock not to be so converted to be issued, and (ii) the address to which such holder wishes delivery to be made of a confirmation of such conversion, if uncertificated, or any new certificates which may be issued upon such conversion if certificated. (C) Upon surrender, if certificated, of a certificate representing a share or shares of Series B Preferred Stock for conversion, or if uncertificated, of a duly executed stock power relating thereto, the Company shall issue and send by hand delivery (with receipt to be acknowledged) or by first class mail, postage prepaid, to the holder thereof or to such holder's designee, at the address designated by such holder, if certificated, a certificate or certificates for, or if uncertificated, confirmation of, the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered shares of Series B Preferred Stock, only part of which are to be converted, the Company shall issue and deliver to such holder or such holder's designee, if certificated, a new certificate or certificates representing the number of shares of Series B Preferred Stock which shall not have been converted, or if uncertificated, confirmation of the number of shares of Series B Preferred Stock which shall not have been converted. (D) The issuance by the Company of shares of Common Stock upon a conversion of shares of Series B Preferred Stock into shares of Common Stock made at the option of the holder thereof shall be effective as of the earlier of (i) the delivery to such holder or such holder's designee of the certificates representing the shares of Common Stock issued upon conversion thereof if certificated or confirmation if uncertificated or (ii) the commencement of business on the second business day after the surrender of the certificate or certificates, if certificated, or a duly executed stock power, if uncertificated, for the shares of Series B Preferred Stock to be converted. On and after the effective date of conversion, the person or persons entitled to receive Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock of record on any date prior to such effective date. The Company shall not be obligated to pay any dividends which shall have been declared and shall be payable to holders of shares of Series B Preferred Stock on a Series B Dividend Payment Date if such Series B Dividend Payment Date for such dividend shall be on or subsequent to the effective date of conversion of such shares. (E) The Company shall not be obligated to deliver to holders of Series B Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of Series B Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law. (F) The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock or treasury Common Stock, solely for issuance upon the conversion of shares of Series B Preferred Stock as herein provided, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series B Preferred Stock then outstanding. 6. Redemption at the Option of the Company. (A) The Series B Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time after November 27, 1995 (or on or before November 27, 1995 if permitted by, and at the redemption price provided in, paragraph (C) of this Section 6) at the following redemption prices per share:

During the Twelve Month Period Beginning Price per November 28, Share - ------------ --------- 1993 105.5125% of Series B Liquidation Price in effect on date fixed for redemption 1994 104.7250% " 1995 103.9375% " 1996 103.1500% " 1997 102.3625% " 1998 101.5750% " 1999 100.7875% "

and thereafter at 100% of the Series B Liquidation Price per share in effect on the date fixed for redemption, plus, in each case (including in the case of redemptions pursuant to paragraph (C) of this Section 6), an amount equal to all accrued (whether or not accumulated) and unpaid dividends thereon to the date fixed for redemption. Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (D) of this Section 6. From and after the date fixed for redemption, dividends on shares of Series B Preferred Stock called for redemption will cease to accrue, such shares will no longer be deemed to be outstanding and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price. If less than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the Company shall either redeem a portion of the shares of each holder determined pro rata based on the number of shares held by each holder or shall select the shares to be redeemed by lot, as may be determined by the Board of Directors of the Company. (B) Unless otherwise required by law, notice of redemption will be sent to the holders of Series B Preferred Stock at the address shown on the books of the Company or any transfer agent for Series B Preferred Stock by first class mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each notice shall state: (i) the redemption date; (ii) the total number of shares of the Series B Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates, if certificated, for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Series B Conversion Price and number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock at the time. Upon surrender of the certificates, if certificated, for any shares so called for redemption and not previously converted, or upon the date fixed for redemption if uncertificated, such shares shall be redeemed by the Company at the date fixed for redemption and at the redemption price set forth in this Section 6. (C) In the event of (i) a change in the federal tax law of the United States of America which has the effect of precluding the Company from claiming any of the tax deductions for dividends paid on the Series B Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended and in effect on the date shares of Series B Preferred Stock are initially issued, or (ii) The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, as authorized by the Board of Directors of the Company on May 7, 1990, and as amended from time to time thereafter failing to receive a determination from the Internal Revenue Service that it is a qualified plan within the meaning of Section 401(a) or is an employee stock ownership plan as described in Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended, and in effect on the date shares of Series B Preferred Stock are initially issued, then, in either such event, the Company may, in its sole discretion and notwithstanding anything to the contrary in paragraph (A) of this Section 6, elect to redeem such shares for the Series B Liquidation Price in effect on the date fixed for redemption, plus, in each case, an amount equal to all accrued (whether or not accumulated) and unpaid dividends thereon to the date fixed for redemption. In the event the Company terminates the employee stock ownership plan of The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan or the portion thereof associated with retiree medical benefits, the Company may, in its sole discretion and notwithstanding anything to the contrary in paragraph (A) of this Section 6, elect to redeem such shares at the redemption prices per share provided in paragraph (A) of this Section 6. (D) The Company, at its option, may make payment of the redemption price required upon redemption of shares of Series B Preferred Stock in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares of Common Stock to be valued for such purpose at the average of the high and low reported sales price, or, in case no sale takes place on such day, the average reported closing bid and asked price, in either case as reported on the New York Stock Exchange Tape on the date of redemption, or if not listed or admitted to trading on the New York Stock Exchange, in accordance with the valuation methods provided in paragraph 9(F)(2). 7. Redemption to Satisfy Obligations of the Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan. Unless otherwise provided by law, shares of Series B Preferred Stock shall be redeemed by the Company for cash or, if the Company so elects, in shares of Common Stock, or a combination of such shares and cash, any such shares of Common Stock to be valued for such purpose as provided by paragraph (D) of Section 6, at the Series B Liquidation Price per share in effect on the date fixed for redemption plus all accrued (whether or not accumulated) and unpaid dividends thereon to the date fixed for redemption, at the option of the holder, at any time and from time to time upon notice to the Company given not less than five (5) business days prior to the date fixed by the holder in such notice for redemption, when and to the extent necessary for such holder to provide for distributions required to be made under, or to satisfy an investment election provided to participants in accordance with, The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, as the same may be amended, or any successor plan (the "Plan"). 8. Consolidation, Merger, etc. (A) In the event that the Company shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into shares of any successor or resulting company (including the Company) that constitutes "qualifying employer securities" with respect to a holder of Series B Preferred Stock within the meanings of Section 4975(e)(8) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provision of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, then, in such event, the terms of such consolidation or merger or similar transaction shall provide that the shares of Series B Preferred Stock of such holder shall be submitted for and shall become preferred shares of such successor or resulting company, having in respect of such company insofar as possible the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 6, 7, and 8 hereof), and the qualifications, limitations or restrictions thereon, that the Series B Preferred Stock had immediately prior to such transaction; provided, however, that after such transaction each share of the Series B Preferred Stock shall be convertible, pursuant to the terms and conditions provided by Section 5 hereof, into the qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction (provided that, if the kind or amount of qualifying employer securities receivable upon such transaction is not the same for each non-electing share, then the kind and amount of qualifying employer securities receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares). The rights of the Series B Preferred Stock as preferred shares of such successor or resulting company shall successively be subject to adjustments pursuant to Section 9 hereof after any such transaction as nearly equivalent to the adjustments provided for by such section prior to such transaction. The Company shall not consummate any such merger, consolidation or similar transaction unless all the terms of this paragraph 8(A) are complied with. (B) In the event that the Company shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other shares or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of Series B Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (C) of this Section 8, be deemed converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted at such time and each share of Series B Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of shares, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of shares, securities, cash or other property receivable upon such transaction (provided that, if the kind or amount of shares, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of shares, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of non-electing shares). (C) In the event the Company shall enter into any agreement providing for any consolidation or merger or similar transaction described in paragraph (B) of this Section 8, then the Company shall as soon as practicable thereafter (and in any event at least ten (10) business days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of Series B Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such Series B Preferred Stock, a cash payment equal to the Series B Liquidation Price in effect on the date set for redemption plus all accrued (whether or not accumulated) and unpaid dividends. No such notice of redemption shall be effective unless given to the Company prior to the close of business on the fifth business day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the fifth business day prior to consummation of such transaction. 9. Anti-dilution Adjustments. (A)(1) Subject to the provisions of paragraph 9(D), in the event the Company shall, at any time or from time to time while any of the shares of the Series B Preferred Stock are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock or (ii) subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares, in each case whether by reclassification of shares, recapitalization of the Company (excluding a recapitalization or reclassification effected by a merger or consolidation to which Section 8 hereof applies) or otherwise, then, in such event, each share of Series B Preferred Stock will automatically, without any action on the part of the holder thereof or the Company, become that number of shares of Series B Preferred Stock (the "Non-dilutive Share Amount") equal to an amount which is a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment pursuant to this paragraph 9(A)(1) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. Concurrently with the automatic adjustment pursuant to this paragraph 9(A)(1), the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate of all shares of Series B Preferred Stock shall be adjusted by dividing the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate, respectively, in effect immediately before the event by the Non-dilutive Share Amount determined pursuant to this paragraph 9(A)(1). (2) The Company and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are necessary or appropriate for implementation of the automatic adjustment provided in paragraph 9(A)(1). In the event for any reason the Company is precluded from giving full effect to the automatic adjustment provided in paragraph 9(A)(1), then no such automatic adjustment shall occur, but instead the Series B Conversion Price shall automatically be adjusted by dividing the Series B Conversion Price in effect immediately before the event by the Non-dilutive Share Amount determined pursuant to paragraph 9(A)(1), and the Series B Liquidation Price and the Series B Preferred Dividend Rate will not be adjusted. An adjustment to the Series B Conversion Price made pursuant to this paragraph 9(A)(2) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of shareholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. If subsequently the Company is able to give full effect to the automatic adjustment as provided in paragraph 9(A)(1), then such automatic adjustment will proceed in accordance with the provisions of paragraph 9(A)(1) and the adjustment in the Series B Conversion Price as provided in this paragraph 9(A)(2) will automatically be reversed and nullified prospectively. (B)(1) Subject to the provisions of paragraph 9(D), in the event the Company shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, issue to holders of shares of Common Stock as a dividend or distribution, including by way of a reclassification of shares or a recapitalization of the Company, any right or warrant to purchase shares of Common Stock (but not including as such a right or warrant any security convertible into or exchangeable for shares of Common Stock) at a purchase price per share less than the Fair Market Value (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then, in such event, each share of Series B Preferred Stock will automatically, without any action on the part of the holder thereof or the Company, become that number of shares of Series B Preferred Stock (the "Non-dilutive Share Amount") equal to an amount which is a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon exercise in full of all such rights and warrants and the denominator of which is the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such issuance for the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. Concurrently with the automatic adjustment pursuant to this paragraph 9(B)(1), the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate of all shares of Series B Preferred Stock shall be adjusted by dividing the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate, respectively, in effect immediately before such issuance of rights or warrants by the Non-dilutive Share Amount determined pursuant to this paragraph 9(B)(1). (2) The Company and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are necessary or appropriate for implementation of the automatic adjustment provided in paragraph 9(B)(1). In the event for any reason the Company is precluded from giving full effect to the automatic adjustment provided in paragraph 9(B)(1), then no such automatic adjustment shall occur, but instead the Series B Conversion Price shall automatically be adjusted by dividing the Series B Conversion Price in effect immediately before such issuance of rights or warrants by the Non-Dilutive Share Amount determined pursuant to paragraph 9(B)(1), and the Series B Liquidation Price and Series B Preferred Dividend Rate will not be adjusted. If subsequently the Company is able to give full effect to the automatic adjustment as provided in paragraph 9(B)(1), then such automatic adjustment will proceed in accordance with the provisions of paragraph 9(B)(1) and the adjustment in the Series B Conversion Price as provided in this paragraph 9(B)(2) will automatically be reversed and nullified prospectively. (C)(1) Subject to the provisions of paragraph 9(D), in the event the Company shall, at any time or from time to time while any of the shares of Series B Preferred Stock are outstanding, make an Extraordinary Distribution (as hereinafter defined) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Company (including recapitalization or reclassification effected by a merger or consolidation to which Section 8 hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common Stock, then, in such event, each share of Series B Preferred Stock will automatically, without any action on the part of the holder thereof or the Company, become that number of shares of Series B Preferred Stock (the "Non-dilutive Share Amount") equal to an amount which is a fraction the numerator of which is the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Company multiplied by (b) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, and the denominator of which is (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution, or on the applicable expiration date (including all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer, as the case may be, minus (ii) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be. The Company shall send each holder of Series B Preferred Stock (i) notice of its intent to make any dividend or distribution and (ii) notice of any offer by the Company to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Company pursuant to such offer, as well as the Series B Conversion Price and the number of shares of Common Stock into which a share of Series B Preferred Stock may be converted at such time. Concurrently with the automatic adjustment pursuant to this paragraph 9(C)(1), the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate of all shares of Series B Preferred Stock shall be adjusted by dividing the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate, respectively, in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Non-dilutive Share Amount determined pursuant to this paragraph 9(C)(1). (2) The Company and the Board of Directors shall each use its best efforts to take all necessary steps or to take all actions as are necessary or appropriate for implementation of the automatic adjustment provided in paragraph 9(C)(1). In the event for any reason the Company is precluded from giving full effect to the automatic adjustment provided in paragraph 9(C)(1), then no such automatic adjustment shall occur, but instead the Series B Conversion Price shall automatically be adjusted by dividing the Series B Conversion Price in effect immediately before such Extraordinary Distribution or Pro Rata Repurchase by the Non-dilutive Share Amount, and the Series B Liquidation Price and the Series B Preferred Dividend Rate will not be adjusted. If subsequently the Company is able to give full effect to the automatic adjustment as provided in paragraph 9(C)(1), then such automatic adjustment will proceed in accordance with the provisions of paragraph 9(C)(1) and the adjustment in the Series B Conversion Price as provided in this paragraph 9(C)(2) will automatically be reversed and nullified prospectively. (D) Notwithstanding any other provisions of this Section 9, the Company shall not be required to make (i) any adjustment of the number of issued shares of Series B Preferred Stock, the Series B Conversion Price, the Series B Liquidation Price or the Series B Preferred Dividend Rate unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of shares of Series B Preferred Stock outstanding, or, (ii) if no additional shares of Series B Preferred Stock are issued, any adjustment of the Series B Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Series B Conversion Price. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the number of Series B Preferred Shares outstanding or, if no additional shares of Series B Preferred Stock are being issued, an increase or decrease of at least one percent (1%) of the Series B Conversion Price, whichever the case may be. (E) If the Company shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Company or any rights or warrants to purchase or acquire any such security, which transaction does not result in an appropriate adjustment to the number of shares of Series B Preferred Stock outstanding or the Series B Conversion Price pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Company may, in its sole discretion, consider whether such action is of such a nature that some type of equitable adjustment should be made in respect of such transaction. If in such case the Board of Directors of the Company determines that some type of adjustment should be made, an equitable adjustment not repugnant to law and for the protection of the conversion rights of the Series B Preferred Stock shall be made effective as of such date, as determined by the Board of Directors of the Company. The determination of the Board of Directors of the Company as to whether some type of adjustment should be made pursuant to the foregoing provisions of this paragraph 9(E), and, if so, as to what adjustment should be made and when, shall be final and binding on the Company and all shareholders of the Company. The Company shall be entitled to make such additional adjustments, in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Company, subdivision, reclassification or combination of shares of the Company or any recapitalization of the Company shall not be taxable to holders of the Common Stock. (F) For purposes of this Appendix B, the following definitions shall apply: (1) "Extraordinary Distribution" shall mean any dividend or other distribution (effected while any of the shares of Series B Preferred Stock are outstanding) of (i) cash, where the aggregate amount of such cash dividend or distribution together with the amount of all cash dividends and distributions made during the preceding period of twelve (12) months, when combined with the aggregate amount of all Pro Rata Repurchases [for this purpose, including only that portion of the aggregate purchase price of such Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined on the applicable expiration date (including all extensions thereof) of any tender offer or exchange offer which is a Pro Rata Repurchase, or the date of purchase with respect to any other Pro Rata Repurchase which is not a tender offer or exchange offer] made during such period, exceeds twelve and one-half percent (12 1/2%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the record date for determining the shareholders entitled to receive such Extraordinary Distribution and (ii) any shares of capital stock of the Company (other than shares of Common Stock), other securities of the Company (other than securities of the type referred to in paragraph (B) of this Section 9), evidences of indebtedness of the Company or any other person or any other property (including shares of any subsidiary of the Company), or any combination thereof. The Fair Market Value of an Extraordinary Distribution for purposes of paragraph (C) of this Section 9 shall be the sum of the Fair Market Value of such Extraordinary Distribution plus the aggregate amount of any cash dividends or distributions which are not Extraordinary Distributions made during such twelve month period and not included in the calculation of any previous adjustment pursuant to paragraph (C) of this Section 9. (2) "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issuer which are publicly traded, the average of the Current Market Prices (as hereinafter defined) of such shares or securities for each day of the Adjustment Period (as hereinafter defined). "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for a day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Company or the Executive Committee of the Board of Directors of the Company on each trading day during the Adjustment Period. "Adjustment Period" shall mean the period of five (5) consecutive trading days, selected by the Board of Directors or the Executive Committee of the Board of Directors of the Company, during the twenty (20) trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined. The "Fair Market Value" of any security which is not publicly traded or of any other property shall mean the fair value thereof as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board of Directors or the Executive Committee of the Board of Directors of the Company, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors or the Executive Committee of the Board of Directors available to make such determination, as determined in good faith by the Board of Directors or the Executive Committee of the Board of Directors of the Company. (3) "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Company or any subsidiary thereof, whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other person or any other property (including shares of a subsidiary of the Company), or any combination thereof, effected while any of the shares of Series B Preferred Stock are outstanding, pursuant to any tender offer or exchange offer subject to Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock; provided, however, that no purchase of shares by the Company or any subsidiary thereof made in open market transactions shall be deemed a Pro Rata Repurchase. For purposes of this paragraph 9(F), shares shall be deemed to have been purchased by the Company or any subsidiary thereof "in open market transactions" if they have been purchased substantially in accordance with the requirements of Rule 10b-18 as in effect under the Exchange Act on the date shares of Series B Preferred Stock are initially issued by the Company or on such other terms and conditions as the Board of Directors or the Executive Committee of the Board of Directors of the Company shall have determined are reasonably designed to prevent such purchases from having a material effect on the trading market for the Common Stock. (G) Whenever an adjustment increasing the number of shares of Series B Preferred Stock outstanding is required pursuant to this Appendix B, the Board of Directors shall take such action as is necessary so that a sufficient number of shares of Series B Preferred Stock are designated with respect to such increase resulting from such adjustment. Whenever an adjustment to the Series B Conversion Price, the Series B Liquidation Price or the Series B Preferred Dividend Rate of the Series B Preferred Stock is required pursuant to this Appendix B, the Company shall forthwith place on file with the transfer agent for the Common Stock and the Series B Preferred Stock if there be one, and with the Treasurer of the Company, a statement signed by the Treasurer or Assistant Treasurer of the Company stating the adjusted Series B Conversion Price, Series B Liquidation Price and Series B Preferred Dividend Rate determined as provided herein. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Promptly after each adjustment to the number of shares of Series B Preferred Stock outstanding, the Series B Conversion Price, the Series B Liquidation Price or the Series B Preferred Dividend Rate, the Company shall mail a notice thereof and of the then prevailing number of shares of Series B Preferred Stock outstanding, the Series B Conversion Price, the Series B Liquidation Price and the Series B Preferred Dividend Rate to each holder of shares of Series B Preferred Stock. 10. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) business days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Appendix B) with postage prepaid, addressed: (i) if to the Company, to its office at One Procter & Gamble Plaza, Cincinnati, Ohio 45202 (Attention: Treasurer) or to the transfer agent for the Series B Preferred Stock, or other agent of the Company designated as permitted by this Appendix B or (ii) if to any holder of the Series B Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Company (which may include the records of any transfer agent for the Series B Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Company or any such holder, as the case may be, shall have designated by notice similarly given. (B) The term "Common Stock" as used in this Appendix B means the Company's Common Stock without par value, as the same exists at the date of filing of the Amendment to the Company's Amended Articles of Incorporation first designating Series B Preferred Stock, or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to without par value, or from without par value to par value. In the event that, at any time as a result of an adjustment made pursuant to Section 9 of this Appendix B, the holder of any share of the Series B Preferred Stock upon thereafter surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Company other than shares of Common Stock, the anti-dilution provisions contained in Section 9 hereof shall apply in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock, and the provisions of Sections 1 through 8 and 10 of this Appendix B with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. (C) The Company shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series B Preferred Stock or shares of Common Stock or other securities issued on account of Series B Preferred Stock pursuant hereto or certificates representing such shares or securities. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer of the Series B Preferred or Common Stock or other Securities by the holder thereof to a subsequent holder resulting in the issuance or delivery of shares of Series B Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series B Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid or is not payable. (D) In the event that a holder of shares of Series B Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Series B Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Company shall be entitled to register such shares, and make such payment, in the name of the holder of such Series B Preferred Stock as shown on the records of the Company and to send the certificate or certificates or other documentation representing such shares, or such payment, to the address of such holder shown on the records of the Company. (E) The Company may appoint, and from time to time discharge and change, a transfer agent for the Series B Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Company shall send notice thereof by first-class mail, postage prepaid, to each holder of record of Series B Preferred Stock. (5) As a result of the two-for-one stock split on the Common Stock effective August 22, 1997 and the Smucker transaction effective June 1, 2002, the Conversion Price, Liquidation Price and Preferred Dividend Rate were all adjusted in accordance with the terms of paragraph 9(A)(1) of this Appendix B to be as follows: Conversion Price -- $25.92; Liquidation Price -- $25.92; Preferred Dividend Rate -- $2.044 per share per annum, with a corresponding change in the quarterly dividend payment. (This footnote is not a part of the Company's Amended Articles of Incorporation but is included to provide up-to-date information on the status of Series B ESOP Convertible Class A Preferred Stock.) EX-3.2 4 l02788aexv3w2.txt EX-3.2 REGULATION EXHIBIT (3-2) Regulations EXHIBIT (3.2) -1- The Procter & Gamble Company Regulations ------------- ARTICLE I Seal SECTION 1. Form. The seal of the Company shall have upon it the name and words, "The Procter & Gamble Company. Incorporated 1905," arranged in a circle with the trademark of the Company, to wit, a crescent and thirteen stars set within the space thus enclosed. ARTICLE II Shareholders SECTION 1. Place of Meeting. Meetings of shareholders shall be held in Cincinnati, Hamilton County, Ohio, but the shareholders or the Board of Directors shall have authority to provide for the holding of meetings of shareholders elsewhere within or without the State of Ohio, except the annual meeting, or a meeting to elect Directors. SECTION 2. Annual Meeting. The annual meeting of the shareholders shall be held on the second Tuesday of October in each year, at which time there shall be elected in accordance with the laws of the State of Ohio and ARTICLE III of these Regulations, a Board of Directors. Reports of officers, committees and Directors shall be received and considered at such meeting. SECTION 3. Special Meetings. Special meetings of the shareholders may be called and held as provided by law. SECTION 4. Notice of Meetings. A notice, as required by law, of each regular or special meeting of shareholders shall be given in writing by the President or a Vice-President, or the Secretary, or an Assistant Secretary, not less than ten (10) days before the meeting. SECTION 5. Quorum. The shareholders present in person or by proxy at any meeting shall constitute a quorum unless a larger proportion is required to take the action stated in the notice of the meeting, in which case, to constitute a quorum, there shall be present in person or by proxy the -2- holders of record of shares entitling them to exercise the voting power required by the Articles of the Company to take the action stated. SECTION 6. Organization. The Chairman of the Board shall preside at all meetings of the shareholders, but in his absence the Board of Directors may appoint any officer to act as presiding officer at the meeting. The Secretary of the Company shall act as Secretary of all meetings of the shareholders, but in his absence the presiding officer may appoint any person to act as Secretary of the meeting. SECTION 7. Order of Business. At all shareholders' meetings the order of business shall be as follows: 1. Reading minutes of previous meeting and acting thereon. 2. Report of Directors or committees. 3. Reports of officers. 4. Unfinished business. 5. Election of Directors. 6. New or miscellaneous business. ARTICLE III Board of Directors SECTION 1. Number. The Board of Directors shall be composed of seventeen (17) persons unless this number is changed by: (1) the shareholders by the affirmative vote of the holders of shares of the Company entitling them to exercise at least eighty percent (80%) of the voting power of the Company voting as a single class at a meeting of shareholders called for the purpose of electing Directors or (2) the affirmative vote of at least two-thirds (2/3) of the whole authorized number of Directors. The Directors may increase the number to not more than nineteen (19) persons and may decrease the number to not less than fifteen (15) persons. Any Director's office created by the Directors by reason of an increase in their number may be filled by action of a majority of the Directors in office. SECTION 2. Election and Term. Except as otherwise provided by law, the Articles of the Company or these Regulations, Directors shall be -3- elected at the annual meeting of shareholders to serve until the end of the term to which they are elected and until their successors are elected and qualify. The number of Directors of the Company shall be fixed from time to time in accordance with these Regulations and may be increased or decreased as herein provided. The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of Directors constituting the whole Board permits, it not being required that each class have the same number of members if such is mathematically impossible, with the term of office of one class expiring each year. At the annual meeting of shareholders in 1985, Directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, Directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and Directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter, at each annual meeting of shareholders the successors to the class of Directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting after such election. In the event of any increase in the number of Directors of the Company, the additional Director or Directors shall be so classified that all classes of Directors shall be as nearly equal as may be possible. In the event of any decrease in the number of Directors of the Company, all classes of Directors shall be decreased as nearly equally as may be possible. SECTION 3. Removal, Vacancies. Directors may be removed from office, as provided by law, by the vote of the holders of at least eighty percent (80%) of the voting power of the Company, voting as a single class, entitling them to elect Directors in place of those to be removed. Vacancies in the Board of Directors for any unexpired term shall be filled by the remaining Directors, though less than a majority of the whole authorized number of Directors, by the vote of a majority of their number. SECTION 4. Meetings. Unless otherwise determined by the Board of Directors, the Board shall meet once a month, except the month of August, at such times and places, either within or without the State of Ohio, as may be determined by the Board. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President, any other -4- officer who is a member of the Board or by the majority of the Board. SECTION 5. Notice of Meetings. The Board shall decide what notice, if any, shall be given and the length of time prior to the meeting that such notice shall be given of all meetings. Any meeting at which all of the Directors are present shall be a valid meeting whether notice thereof was given or not, and any business may be transacted at such a meeting. SECTION 6. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business, and if at any meeting of the Board there be less than a quorum present, a majority of those present may adjourn the meeting from time to time. SECTION 7. Compensation of Directors and Members of the Executive Committee. The Board of Directors is authorized to fix, from time to time, their own compensation for attendance at the meetings of the Board, and the compensation of members of the Executive Committee for attendance at meetings of such Committee, which may include expenses of attendance when meetings are not held at the place of residence of any attending Director or member. SECTION 8. Indemnification of Directors and Officers. The Company shall indemnify each present and future Director and officer, his heirs, executors and administrators against all costs, expenses (including attorneys' fees), judgments, and liabilities, reasonably incurred by or imposed on him in connection with or arising out of any claim or any action, suit or proceeding, civil or criminal, in which he may be or become involved by reason of his being or having been a Director or officer of the Company, or of any of its subsidiary companies, or of any other company in which he served or serves as a Director or officer at the request of the Company, irrespective of whether or not he continues to be a Director or an officer at the time he incurs or becomes subjected to such costs, expenses (including attorneys' fees), judgments, and liabilities; but such indemnification shall not be operative with respect to any matter as to which in any such action, suit or proceeding he shall have been finally adjudged to have been derelict in the performance of his duties as such Director or officer. Such indemnification shall apply when the adjudication in such action, suit or proceeding is otherwise than on the merits and also shall apply -5- when a settlement or compromise is effected, but in such cases indemnification shall be made only if the Board of Directors of the Company, acting at a meeting at which a majority of the quorum of the Board is unaffected by self interest, shall find that such Director or officer has not been derelict in the performance of his duty as such Director or officer with respect to the matter involved, and shall adopt a resolution to that effect and in cases of settlement or compromise shall also approve the same; in cases of settlement or compromise such indemnification shall not include reimbursement of any amounts which by the terms of the settlement or compromise are paid or payable to the Company itself by the Director or officer (or in the case of a Director or officer of a subsidiary or another company in which such Director or officer is serving at the request of the Company any amounts paid or payable by such Director or officer to such company). If the Board of Directors as herein provided refuses or fails to act or is unable to act due to the self interest of some or all of its members, the Company at its expense shall obtain the opinion of counsel and indemnification shall be had only if it is the opinion of such counsel that the Director or officer has not been derelict in the performance of his duties as such Director or officer with respect to the matter involved. The right of indemnification provided for in this section shall not be exclusive of other rights to which any Director or officer may be entitled as a matter of law and such rights, if any, shall also inure to the benefit of the heirs, executors or administrators of any such Director or officer. ARTICLE IV Executive Committee SECTION 1. Executive Committee. The Board of Directors may, by resolution, designate not less than three (3) of its number to constitute an Executive Committee, but may repeal said resolution and dispense with said Committee at any time. SECTION 2. Powers of Executive Committee. The Executive Committee shall have charge of the management of the business and affairs of the Company in the interim between meetings of the Directors, and generally shall have all of the authority of the Board in the transaction of such business of the Company as in the judgment of the Committee may require action before the next regular meeting of the Board. -6- SECTION 3. Limitation of Powers of Executive Committee. The Board of Directors shall have authority to limit or qualify the powers of the Executive Committee at any time, and may rescind any action of the Executive Committee to the extent that no rights of third persons shall have intervened. SECTION 4. Record of Executive Committee. The Executive Committee shall keep a record of its proceedings and make a report of its acts and transactions to the Board of Directors, all of which shall form part of the records of the Company. ARTICLE V Officers SECTION 1. Number. The officers of the Company shall be a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and a Comptroller. Any two or more of the offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required to be executed, acknowledged or verified by two or more officers. SECTION 2. Other Officers. The Board of Directors is authorized in its discretion to provide for such other officers and agents as it shall deem necessary from time to time and may dispense with any offices and agencies at any time except those required by law. SECTION 3. Election, Term and Removal. At the first meeting of the Board of Directors after their election annually, the Board shall select all officers of the Company. All officers of the Company shall hold their offices during the pleasure of the Board, or until their successor or successors are elected and qualified, and the Board may remove or suspend any officer at any time, without notice, by the affirmative vote of a majority of the entire Board. SECTION 4. Vacancies and Absence. If any office shall become vacant by reason of the death, resignation, disqualification or removal of the incumbent thereof, or other cause the Board of Directors may elect a successor to hold office for the unexpired term in respect to which such vacancy occurred or was created. In case of the absence of any officer of the Company or for any reason that -7- the Board of Directors may determine as sufficient, the said Board may delegate the powers and duties of such officer to any other officer, or to any Director, except where otherwise provided by these Regulations or by statute, for the time being. ARTICLE VI Duties of Officers SECTION 1. Chairman of the Board. The Chairman of the Board of Directors shall preside at all meetings of the Board, appoint all special or other committees (unless otherwise ordered by the Board), shall confer with and advise all other officers of the Company, and shall perform such other duties as may be delegated to him by the Board or the officer designated as Chief Executive. SECTION 2. President. The President shall perform such duties and have such responsibilities as may be delegated or assigned to him by the Board or the officer designated as Chief Executive. SECTION 3. Chief Executive. The Board of Directors shall designate either the Chairman of the Board or the President to be the Chief Executive of the Company. The officer so designated shall be responsible for the supervision, general control and management of all the Company's business and affairs, subject only to the authority of the Board of Directors. He shall make periodic reports to the Board of Directors, making such recommendations as he thinks proper, and shall bring before the Board of Directors such information as may be required relating to the Company's business and affairs. The Board of Directors may designate one of the officers of the Company who is a Director to perform the duties and have the powers of the officer who is the Chief Executive in his absence, and during his absence the officer so designated shall be authorized to exercise all of his responsibilities. SECTION 4. Other Officers. All other officers shall perform such duties and have such responsibilities as may be delegated or assigned to them by the Board of Directors or the officer designated as Chief Executive. SECTION 5. Bonds of Officers. The Board of Directors or the Executive Committee shall determine which officers of the Company shall give bond, and the amount thereof, the expense to be paid by the Company. -8- ARTICLE VII Certificates for Shares of Stock SECTION 1. Mutilated and Lost Certificates. If any certificate for shares of the Company become worn, defaced or mutilated, the Board of Directors upon production or surrender thereof may order the same cancelled, and a new certificate issued in lieu thereof. If any certificate for shares be lost or destroyed, a new certificate may be issued upon such terms and under such regulations as may be adopted by the Board of Directors. ARTICLE VIII General Welfare SECTION 1. Policy. It is declared to be the policy of the Company to recognize that its interests and those of its employees are inseparable, and are best developed and maintained by the adoption of such measures as will assure the employees of the Company of this fact. To this end the Board of Directors is authorized, in its discretion, to inaugurate and maintain a profit-sharing or other similar plan, an adequate pension and benefit plan, and to grant to the employees such voice in the conduct of the business as may seem to the Board to be right and proper. SECTION 2. Stock Ownership by Employees. The Board of Directors is authorized to devise and carry into effect such plans as it may deem advisable, to assist the employees to become shareholders of the Company by the purchase of its shares. ARTICLE IX Amendments SECTION 1. Amendments. These Regulations or any of them, may be altered, amended, added to or repealed as provided by law, except that ARTICLE III, Sections 1, 2, 3 and 8 and this ARTICLE IX may only be altered, amended, added to or repealed at a meeting held for such purpose (1) prior to the date of the annual meeting in 1990, by the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for purposes of this Section 1 as one class; (2) from the date of the annual meeting in 1990 to and including the date of the annual -9- meeting in 2000, by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for purposes of this Section 1 as one class, provided that during such period said vote may be increased at any time to the affirmative vote of at least eighty percent (80%) of the outstanding shares of capital stock of the Company by a resolution adopted by at least two-thirds (2/3) of the members of the whole Board of Directors; and (3) after the date of the annual meeting in 2000, by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, considered for the purposes of this Section 1 as one class. ARTICLE X Assent of Shareholders SECTION 1. Effect. Any person becoming a shareholder in this Company shall be deemed to assent to these Regulations, and any alterations, amendments, or additions thereto, lawfully adopted, and shall designate to the Secretary or appointed Transfer Agents of the Company, the address to which he desires that the notices herein required to be given may be sent, and all notices mailed to such address with postage prepaid, shall be considered as duly given at the date of mailing, provided, however, that in the event that any shareholder shall have failed to so designate an address to which notices shall be sent, then said notices shall be sent to any address where the Secretary believes he may be reached, otherwise to "General Delivery, Cincinnati, Ohio." The mailing of any notice to "General Delivery, Cincinnati, Ohio," shall be conclusive that the Secretary knows of no address where he believes said shareholder may be reached. EX-10.1 5 l02788aexv10w1.txt EX-10.1 2001 STOCK AND INCENTIVE COMPENSATION PLAN EXHIBIT (10-1) The Procter & Gamble 2001 Stock and Incentive Compensation Plan 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 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 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. EX-10.2 6 l02788aexv10w2.txt EX-10.2 1992 STOCK PLAN EXHIBIT (10-2) The Procter & Gamble 1992 Stock Plan THE PROCTER & GAMBLE 1992 STOCK PLAN (as amended December 11, 2001) ARTICLE A - Purpose. The purpose of The Procter & Gamble 1992 Stock Plan (hereinafter referred to as the "Plan) is to encourage those employees of The Procter & Gamble Company (hereinafter referred to as the "Company") and its subsidiaries who are largely responsible for the long-term success and development of the business to strengthen the alignment of interests between employees and the Company's shareholders through the increased ownership of shares of the Company's Common Stock, and to encourage those employees to remain in the employ of the Company and its subsidiaries. This will be accomplished through the granting to employees of options to purchase shares of the Common Stock of the Company, payment of a portion of the employees' remuneration in shares of the Common Stock, and the granting to them by the Company and a subsidiary, if appropriate, of deferred awards related to the increase in the price of the Common Stock of the Company as provided by the terms and conditions set forth in the Plan. ARTICLE B - Administration. 1. The Plan shall be administered by the Compensation Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not less than three (3) members of the Board who are neither officers nor employees, or members of the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (hereinafter referred to as 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. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions, to report thereon not less than once each year to the Board and to make such recommendations of amendments or otherwise as it deems necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority: to grant nonstatutory and incentive stock options; to grant to recipients stock appreciation rights either freestanding, in tandem with simultaneously granted stock options, or in parallel with simultaneously granted stock options; to award a portion of a recipient's remuneration in shares of Common Stock of the Company subject to such conditions or restrictions, if any, as the Committee may determine; to determine all the terms and provisions of the respective stock option, stock appreciation right, and stock 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; and to make all other determinations it deems necessary or advisable for administering this Plan; provided, however, the Committee shall have the further authority at time of grant 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); and (d) impose conditions in lieu of those set forth in Article G, paragraphs 4 through 7, for nonstatutory stock options, stock appreciation rights, and stock award grants which do not increase or extend the rights of the recipient, to take into consideration the differences, limitations, and requirements of foreign laws or conditions including tax regulations, exchange controls or investment restrictions, possible unenforceability of any part of this Plan, or other matters deemed appropriate by it. 4. The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- Participation. The Committee shall select 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 and shall determine the number of shares of the Common Stock of the Company to be transferred under this Plan subject to such conditions or restrictions as the Committee may determine and the number of shares with respect to which stock options or stock appreciation rights will be granted. The Committee may consult with the Chief Executive, but nevertheless the Committee has the full authority to act, and the Committee's actions shall be final. ARTICLE D -- Limitation on Number of Shares for the Plan. 1. Unless otherwise authorized by the shareholders, the maximum aggregate number of shares available for award under this Plan for each calendar year the Plan is in effect shall be one percent (1%) of the total issued shares of Common Stock of the Company as of June 30 of the immediately preceding fiscal year. 2. Any of the authorized shares may be used in respect of any of the types of awards described in this Plan, except that no more than twenty-five percent (25%) of the authorized shares in any calendar year may be issued as restricted or unrestricted stock and no more than 50,000,000 of the authorized shares during the term of the Plan may be issued as incentive stock options. 3. Any authorized shares not used in a calendar year shall be available for awards under this Plan in succeeding calendar years. 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 either authorized but unissued shares or treasury shares, as determined by the Board. 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 this Plan, restricted or unrestricted stock awarded under the terms of this Plan shall be authorized but unissued shares, treasury shares, or shares acquired for purposes of the Plan 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 this Plan, the recipient agrees as follows: (a) The right to exercise any stock option or stock appreciation right shall be conditional upon certification by the recipient at time of exercise that the recipient intends to remain in the employ of the Company or one of its subsidiaries (except in cases of retirement, disability or Special Separation as defined in section 6 of Article G) for at least one (1) year following the date of the exercise of the stock option or stock appreciation right, 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 it subsidiaries' trade secrets and confidential information and thereby help insure the long-term success of the business, the recipient, 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 recipient'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 recipient, as a consequence of the recipient's employment with the Company or one of its subsidiaries, to be in development): (1) with respect to which the recipient'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 recipient, as a consequence of the recipient's job performance and duties, acquired knowledge of trade secrets or other confidential information of the Company or its subsidiaries. For purposes of this section, it shall be conclusively presumed that recipients 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 recipient (which recipient hereby acknowledges) to not use or disclose the Company's or its subsidiaries' trade secrets and confidential information known to the recipient until any particular trade secret or confidential information become generally known (through no fault of the recipient), 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 recipients 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 this Plan, the recipient acknowledges that if the recipient 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 recipient from doing so. The recipient 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 recipient 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 recipient, 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 recipient'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 recipient 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 an employee has been granted a stock option or a stock appreciation right under this Plan shall not limit the right of the employer to terminate the recipient's employment at any time. The Committee is authorized to suspend or terminate any outstanding stock option or stock appreciation right for actions taken prior to termination of employment if the Committee determines the recipient has acted significantly contrary to the best interests of the Company. 3. More than one stock option or stock appreciation right may be granted to any employee under this Plan but the maximum number of shares with respect to which stock options or stock appreciation rights may be granted to any employee in any calendar year shall not exceed five percent (5%) of the number of shares which can be issued or transferred annually hereunder. 4. The aggregate fair market value (determined at the time when the incentive stock option is exercisable for the first time by an employee during any calendar year) of the shares for which any employee may be granted incentive stock options under this 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 or parallel to 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 or parallel 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 of the Company on the date of grant. 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 fifteen (15) years from the date of grant; provided, however, that any stock options or stock appreciation rights with a life of more than ten (10) years from the date of grant that have been conditionally granted to the Chief Executive or to any other executive officer subject to the provisions of Section 162(m) of the Internal Revenue Code and subject to taxation under United States law, as it may be amended from time to time, prior to the annual meeting of shareholders scheduled for October 12, 1999 shall automatically be canceled effective October 12, 1999 if the shareholders do not adopt a resolution at such annual meeting approving grants to such officers with a maximum life of up to fifteen (15) 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 recipient. 3. During the lifetime of the recipient, stock options and stock appreciation rights may be exercised only by the recipient personally, or, in the event of the legal incompetence of the recipient, by the recipient's duly appointed legal guardian. 4. In case a recipient of stock options or stock appreciation rights 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 recipient; (2) any Special Separation (as defined in section 6 of this Article G) 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) pursuant to the authority granted by Article B, paragraph 3. (b) Any exercisable portions thereof are then void, except in the case of death, retirement in accordance with the provisions of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries, or Special Separation (as defined in section 6 of this Article G) of the recipient. 5. In the case of the death of a recipient of stock options or stock appreciation rights while an employee of the Company or any of its subsidiaries, 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 employee, at any time prior to the expiration date of the stock options or stock appreciation rights. 6. Termination of employment under the permanent disability provision of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries shall be deemed the same as retirement. Special Separation means any termination of employment, except a termination for cause or a voluntary resignation that is not initiated or encouraged by the Company, that occurs prior to the time a recipient is eligible to retire. The death of a recipient of stock options or stock appreciation rights subsequent to retirement or Special Separation shall not render exercisable stock options or stock appreciation rights which were unexercisable at the time of the retirement or Special Separation. The persons to whom the exercisable stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising such remaining stock options, stock appreciation rights or parts thereof, at any time prior to the expiration date of the stock options or stock appreciation rights. 7. 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 recipient, the duly appointed executors and administrators of the estate of the deceased recipient 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 recipient's estate. 8. Upon the exercise of stock appreciation rights, the recipient 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 the Common Stock of the Company 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 of the Company 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. The number of shares with respect to which stock appreciation rights are being exercised shall not be available for granting future stock options or stock appreciation rights under this Plan. 9. The Committee may, in its sole discretion, permit a stock option which is being exercised either (a) by an optionee whose retirement is imminent or who has retired or (b) after the death of the optionee, to be surrendered, in lieu of exercise, for an amount equal to the difference between the stock option exercise price and the fair market value of shares of the Common Stock of the Company on the day the stock option is surrendered, payment to be made in shares of the Company's Common Stock which are subject to this Plan valued at their fair market value on such date, cash, or a combination thereof, in such proportion and upon such terms and conditions as shall be determined by the Committee. The difference between the number of shares subject to stock options so surrendered and the number of shares, if any, issued upon such surrender shall represent shares which shall not be available for granting future stock options under this Plan. 10. Time spent on leave of absence shall be considered as employment for the purposes of this 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. 11. 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 it 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. ARTICLE H -- Payment for Stock Options. Upon the exercise of a stock option, payment in full of the exercise price shall be made by the optionee. As determined by the Committee, the stock option exercise price may be paid for by the optionee either in cash, shares of the Common Stock of the Company to be valued at their fair market value on the date of exercise, a combination thereof, or such other method as determined by the Committee. ARTICLE I -- Transfer of Shares. 1. The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and with respect to particular employees or group of employees and may be set forth in agreements between the Company and the employee or in the awards of stock to them, all as the Committee determines. It is contemplated that the conditions and restrictions established by the Committee will be consistent with the objectives of this Plan and may be of the following types. In giving these examples, it is not intended to restrict the Committee's authority to impose other restrictions or conditions, or to waive restrictions or conditions under circumstances deemed by the Committee to be appropriate and not contrary to the best interests of the Company. (a) Restrictions The employee will not be able to sell, pledge, or dispose of the shares during a specified period except in accordance with the agreement or award. Such restrictions will lapse either after a period of, for example, five years, or in fifteen or fewer annual installments following retirement or termination of employment, as the Committee from time to time may determine. However, upon the transfer of shares subject to restrictions, an employee will have all incidents of ownership in the shares, including the right to dividends (unless otherwise restricted by the Committee), to vote the shares, and to make gifts of them to family members (still subject to the restrictions). (b) Lapse of Restrictions In order to have the restrictions lapse, an employee may be required to continue in the employ of the Company or a subsidiary for a prescribed period of time. Exemption from this requirement may be prescribed in the case of death, disability, or retirement, or as otherwise prescribed by the Committee. ARTICLE J -- 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 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 K -- Additional Provisions. 1. The Board may, at any time, repeal this Plan or may amend it from time to time except that no such amendment may amend this paragraph, increase the annual aggregate number of shares subject to this Plan, reduce the price at which stock options or stock appreciation rights may be granted, exercised, or surrendered, 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. The recipient of awards under this Plan 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 affected, notice thereof shall be given to the holders of such stock options and stock appreciation rights and such amendments shall not be applicable to such holder without his or her written consent. If this 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 transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions. 2. In the case of an employee of a subsidiary company, performance under this Plan, including the transfer of shares of the Company, may be by the subsidiary. Nothing in this 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 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 this Plan except as to such shares, if any, as shall have been granted or transferred to him or her. Nothing in this Plan shall preclude the issuance or transfer 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 greater than fifty percent (50%) of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company. In addition, the Board may designate for participation in this 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 less than fifty percent (50%) of the total combined voting power of all classes of such company's stock. 4. Notwithstanding anything to the contrary in the this 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 Section 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 11, 2000 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 this 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. ARTICLE L -- Consent. Every recipient of a stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and of the stock option, stock appreciation right, or transfer of shares agreement referable thereto, and the acceptance of any stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company and its subsidiaries and any successors in interest to any of them. This Plan shall be governed by and construed in accordance with the laws of the State of Ohio, United States of America. ARTICLE M -- Duration of Plan. This Plan will terminate on July 14, 2002 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 this 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. 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, 2001; 2. The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001; 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 Mr. Terry L. Overbey, Secretary, The Procter & Gamble Company, One Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-4463. EX-10.3 7 l02788aexv10w3.txt EX-10.3 EXECUTIVE LIFE INSURANCE POLICY EXHIBIT (10-3) The Procter & Gamble Executive Group Life Insurance Policy MEMORANDUM OF UNDERSTANDING ----------------------------- This memorandum dated as of December 30,1997, reflects the understanding and agreement between The Procter & Gamble Company as policyholder ("Policyholder/P&G") of a Flexible Premium Group Variable Life Insurance Policy (the "Policy") and Metropolitan Life Insurance Company ("Carrier/Metropolitan"). Policyholder and Carrier understand and agree that the following is in no way inconsistent with the Policy: Qualification of the Policy as Life Insurance (IRC Sections 7702 and 101) - ------------------------------------------------------------------------- Assuming insurable interest by the Policyholder, Carrier will administer the Policy to qualify as a life insurance contract under Section 7702 of the Internal Revenue Code (the "IRC"), to have a bona fide element of risk, and to provide death benefits under the Policy that will be excludible from taxable income to the extent provided under IRC section 101(a). On or before the date of this memorandum, Carrier has provided an opinion from outside counsel addressed to Policyholder that the Policy complies with the requirements of section 7702. See Exhibit 1. Qualification of the Policy as a Variable Contract - --------------------------------------------------- Subject to the conditions stated below, Carrier will administer the Policy to (a) be a "Variable contract" within the meaning of Section 817(d) of the Internal Revenue Code and (b) be based on one or more segregated asset accounts, the assets of which are owned by Carrier and are adequately diversified, as required by Internal Revenue Code Section 817(h). Policyholder may determine the percentage of premium payments and/or policy cash value that is allocated to a specific separate account and will have the right to reallocate amounts among the separate accounts as provided in the Policy. The Policyholder shall not have the right to manage the assets of the separate accounts or to direct the purchase or sale of specific investment assets and will not communicate directly or in any manner with respect to these separate accounts with any of the managers or sub investment managers of the separate accounts. Metropolitan will be the investment manager for any Separate Accounts under this Policy. Separate Accounts may have sub-investment managers chosen by Metropolitan. The Policy will state that the assets held in each Separate Account will be maintained solely for the liabilities of the participants in that Separate Account. The Carrier will make provision that the income, gains and losses of each Separate Account shall be credited to or charged against that Separate Account's assets and none of the assets held in a Separate Account will be charged or chargeable with liabilities arising out of any other business of the Carrier or used for purposes unrelated to the terms and provisions of that Separate Account. On or before the date of this memorandum, Carrier has provided a letter from its counsel addressed to Policyholder on these issues. See Exhibit 2. Underwriting - ------------- Based on the census in the November 11,1998 illustrations, current participants who are domestic actives and retirees will be covered under Carrier's Guaranteed Issue program for the plan benefit and cost recovery amounts in effect on the date the Policy is issued. Future new participants will be subject to the following "Active at Work" criteria: - - not been absent from work due to illness or medical treatment for a period of more than 5 consecutive days in the last 3 months; and - - are actively at work, full time performing all duties of regular occupation, at customary place of employment. The guaranteed issue limit upon entry into the plan by new participants will be $2 million. Based on the current plan design, death benefits under the Policy may be increased without additional underwriting: - - by reason of promotional increases verified by P&G, and - - by up to 15% per year (with any unused portion of such increment rolling forward for five years on a cumulative basis) to reflect compensation (salary and bonus) increases, subject to a lifetime guaranteed issue limit of $5,000,000 per life, which limit will be reviewed at least every five years and (absent retention, reinsurance or adverse selection constraints) adjusted to accommodate anticipated plan benefit and cost recovery amounts. Amounts in excess of the guaranteed issue limits will, at Carrier's request, be subject to underwriting. Carrier will not deny claims by reason of the suicide exclusion provision of the Policy. Carrier acknowledges, accepts and agrees to be bound by consents to insurance, beneficiary designations and assignments in effect under P&G's executive life insurance program. Cost of Term Insurance Charges - ------------------------------- The Cost of Term Insurance charges ("COI") for the current active population and new entrants (meeting the "active at work" requirements) will be based on 90% of Carrier's current Corporate Universal Life Guaranteed Issue, Sex Distinct, Unismoker rates. The current retirees will have rates equal to 120% of Carrier's Corporate Universal Life Guaranteed Issue, Sex Distinct, Unismoker rates. - 2 - P & G will have COI rates equal to the foregoing unless Carrier's Corporate Universal Life Guaranteed Issue, Sex Distinct, Unismoker rates are increased to the maximum rates of 1980 CSO table (Table A for males and Table G for females). Only at that time will the rates under this Policy for actives and new entrants be increased to up to 100% of Corporate Universal Life Guaranteed Issue, Sex Distinct, Unismoker rates, with a corresponding change in the COI for current retirees. Any future changes in COI rates will be determined based on changes in Corporate Universal Life Guaranteed Issue Rates. Metropolitan shall inform the Policyholder in writing at least 60 days in advance of any changes in such rates. The Guaranteed Issue, Sex Distinct COI rates are the rates that Metropolitan charges in Individual Executive Pooled Policies which are selected by the Guaranteed Issue Underwriting procedure and are filed with the state Insurance Departments. The Corporate Universal Life Product is one of those policies included in this pool. Any changes in these rates are required to be filed with the state Insurance Departments and must be justifiable in terms of experience of the Guaranteed Issue mortality pool. Therefore, the insured employees of this Policy join the mortality pool which is the aggregate of all insured executives who are selected by the Guaranteed Issue Underwriting procedure. The future determination of the COI of this pool is by the mortality experience of the pool in total and is not by the mortality experience of each case or a subgroup of insured lives of the pool. Any changes in these rates must apply to all policies which are charged the Guaranteed Issue COI rates, including the Policy. Upon reasonable notice from Policyholder, Metropolitan will develop COI charges, retention and retrospective deductions based on the demographics of insured lives in the plan at that time. The guaranteed maximum COI will never exceed those based on the 1980 CSO Table (Table A for males and Table G for females). Enhanced Policy Administration - ------------------------------- At Policyholder's request, Carrier will provide enhanced administrative services with respect to the Policy. Such services will include: A. Program Analysis 1. Prepare feasibility studies and recommendations of various funding level alternatives. 2. Provide financial analysis of the program. B. Program Establishment 1. Provide specimen documents to and reviewing specimen documents with Policyholder's legal counsel and auditors. - 3 - 2. Prepare financial projections and, where applicable, proxy statement text with respect to the program. 3. Coordinate and establish program implementation and administration, and set up records and other systems for the program. 4. Process section 1035 exchange. C. Program Documentation. Provide program documentation, including: 1. Program explanation (including original assumptions). 2. Insurance schedule. 3. Funding assumptions and corporate composite projections. 4. Participant census. 5. Individual participant information. 6. Definition of Payment procedures. a. Premiums b. Death benefits. c. Withdrawals/surrenders. d. Loans D. Program Servicing 1. Provide periodic reports on program and policy financial status. 2. Provide information for possible program modifications. 3. Provide ongoing program coordination. 4. Compile updated program data with assistance from Policyholder. a. New participants b. Terminations c. Retirees d. Deaths 5. Determine current and ongoing folding requirements. - 4 - 6. Assist with enrollment of new participants. 7. Prepare detailed annual reviews of program experience to include: a. Corporate composite projections b. Program participant census including insurance amount 8. Compile composite billing for program. 9. Timely provide assistance to accountants and auditors for reporting program transactions on financial statements and/or tax return and other reports or analyses as reasonably required from time to time by Policyholder. 10. Advise the Policyholder of transactions necessary or desirable to meet program goals and commitments. 11. Execute quarterly social security sweeps. 12. Annually determine and provide to Policyholder the amount of imputed taxable income for each participant. 13. Conduct annual performance review. E. Performance Criteria Carrier's enhanced policy administration will be subject to performance criteria mutually agreed by Carrier and Policyholder from time to time. F. Termination of Enhanced Policy Administration. Policyholder may terminate Carrier's enhanced policy administration at any time on written notice. Policy Expenses - ---------------- - - Front End Load Charges 1. State Premium Tax - state premium tax will be handled as a pass-through. Taxes will be assessed based upon the Insureds' state of residence as of the date of issue of the Policy. 2. Policy DAC Tax -1.20% - 5 - 3. Other Charge - if enhanced policy administration is in effect, a one time set-up charge of $100,000 in the aggregate for all Policies in the program, in the first policy year. - - Mortality and Expense (M&E) Charge The M&E risk charge is assessed against the average monthly value of the total policy cash value in all separate accounts and is deducted monthly. The following M&E risk charge is based upon a 4-tier sliding scale and applies for any period when enhanced policy administration is in effect: First $ 50 million 0.250% Next $200 million 0.150% Next $250 million 0.125% Over $500 million 0.100% Under the foregoing schedule, Carrier will not take into consideration the combined assets in both policies (VEBA Plan and the Split Dollar Plan) for purposes of calculating the monthly M&E expenses for this Policy. Carrier would, however, take the assets under this Policy into consideration when determining the M&E under the VEBA policy. For any period when enhanced policy administration is not in effect, the M&E risk charge is as follows: First $ 250 million 0.175% Next $ 500 million 0.150% Next $ 250 million 0.125% Over $1000 million 0.100% Under this schedule, Carrier will take into consideration the combined assets on both policies (VEBA Plan and the Split Dollar Plan) in calculating the monthly M&E risk charge for both policies. - - Investment Management Fees Investment management fees for each separate account are assessed against the average monthly value of the policy cash value in a separate account. In calculating the monthly fee per separate account Carrier will take into consideration the combined assets in both policies (VEBA Plan and the Split Dollar Plan) which are invested in the same separate account(s). The investment management fees for the current commingled separate accounts can be found in the Offering Memorandum. - 6 - - - Custody and Securities Accounting/Valuation There are no separate charges for these functions for the commingled separate accounts. However, there are pass through charges for these functions for single customer accounts. - - Policy Administration Charge Currently, and as illustrated, the Policy Administration Charge is a per insured life charge of $5.00 per month in all policy years. The current charge may be reduced by the Carrier from time to time, and reductions in the Carrier's costs incurred to service the Policy will be commensurately reflected in the current charge. The guaranteed maximum monthly charge for administration is $5.00 per insured. Changes in Pricing for Other than the Cost of Insurance Charges - ---------------------------------------------------------------- Carrier will not change the charges or fees related to factors under its control. Changes based on external factors may be reflected in the Policy. For purposes of this paragraph, Carrier's profit goals and the contribution of Specialized Benefit Resources organization to overhead are not external factors. The external factors that may be reflected include (i) Federal and State legislation and state insurance statutory and regulatory changes, and (ii) after the first three policy years, increase in investment management, custody and securities accounting/valuation charges pertaining to P&G single-customer accounts by the providers of these services. Any increase in price due to external factors will be documented and the price increase, if appropriate, will be only to recover the increased cost of the Carrier. With respect to any increase in charges pursuant to this section, P&G may audit the relevant records of Metropolitan pursuant to an appropriate nondisclosure document. Governing Law - -------------- The validity, construction, interpretation, and effect of this memorandum of understanding and the Policy shall be governed by the laws of the state of Ohio, without regard to Ohio's choice of law rules. Changes to this Memorandum - --------------------------- Except with respect to changes mandated by state and federal law and as otherwise specifically provided in this Memorandum or the Policy, this Memorandum may be changed only by mutual agreement among the affected parties. - 7 - NOTICES Unless and until the parties give written notice otherwise, whenever this Memorandum provides for notices or consents in writing to be given by one of the parties hereto to the other, such notices or consent will be given when addressed and delivered to the following or their successors: (1) The Procter & Gamble Company (2) Metropolitan Life Insurance Co. Global Pensions Specialized Benefit Resources Two Procter & Gamble Plaza 485B Route One South, Suite 420 Cincinnati, Ohio 45202-3315 Iselin, New Jersey 08830 Attn: Clare Clark, Group Manager Attn: G. Denis Dwyer, Vice President All such notices or consents must be sent by U.S. Certified Mail, Return Receipt Requested. Agreed: THE PROCTER & GAMBLE COMPANY METROPOLITAN LIFE INSURANCE COMPANY By:/s/ C. S. Clark By:/s/ [John J. Ryan] ------------------------------- ------------------------------- Group Manager - Global Pensions [Vice President] (Title) (Title) C. S. Clark [John J. Ryan] (Print or Type Name) (Print or Type Name) Dec. 30, 1997 Dec. 30, 1997 (Date) (Date) - 8 - EX-10.5 8 l02788aexv10w5.txt EX-10.5 DEFERRED COMP EXHIBIT (10-5) The Procter & Gamble Deferred Compensation Plan for Directors DEFERRED COMPENSATION PLAN FOR DIRECTORS ---------------------------------------- Principal Features of Plan -------------------------- 1) Effective Date - October 1, 1980. -------------- 2) Eligibility - All outside Directors. ----------- 3) Amounts Available for Deferral - All or part of retainer. ------------------------------ 4) Period of Deferral - Until retirement as Director or after Director's ------------------ seventy-first birthday, at option of Director. 5) Valuation of Deferred Compensation Account - The amounts deferred will ------------------------------------------ earn hypothetical interest compounded monthly from date of deferral until December 31 of year prior to year of payment. Interest will be payable on the basis of the prime rate in effect at Morgan Guaranty at time of crediting. 6) Payment Options - Lump sum or up to 5 annual installments, paid or --------------- commencing January 15 of year following year of retirement as Director or the January 15 following the Director's 71st birthday, as elected. All payments are in cash. 7) Death of Director - Payment made in lump sum to beneficiary designated ----------------- by Director, or if no designation, to Director's estate. 8) Administration - Administrator is Secretary of Company. -------------- 9) Amendment or Termination - Board of Directors, or Executive Committee ------------------------ of the Board, can amend or terminate at any time so long as vested rights are not interfered with. THE PROCTER & GAMBLE COMPANY ----------------------------- DEFERRED COMPENSATION PLAN FOR DIRECTORS ----------------------------------------- 1. Name and Purpose - This plan shall be known as The Procter & Gamble ---------------- Company Deferred Compensation Plan for Directors ("Plan"). It is the purpose of this Plan to enable certain Directors of The Procter & Gamble Company ("Company") to elect to defer some or all of the fees which may be payable to the Director for future services to be performed by him/her on this Board of Directors or any committee thereof. 2. Eligibility - Any Director of the Company who is not also an employee ----------- of the Company or of a subsidiary of the Company shall be eligible to participate in the Plan. 3. Compensation Eligible for Deferral - Any eligible Director ---------------------------------- ("Participant") may elect to defer receipt of all or a specified portion of the compensation (exclusive of expense reimbursements) otherwise payable to him/her for serving on the Board of Directors of the Company. Such compensation shall be credited to the Participant's Deferred Compensation Account described hereafter on the date the compensation would otherwise be payable. 4. Deferred Compensation Account - There shall be established for each ----------------------------- Participant who so elects a Deferred Compensation Account. Interest shall be credited to such Account on the last day of each month by applying the prime rate of Morgan Guaranty Trust Company of New York then in effect to the balance in such Account on the first day of the month in question. All interest so credited shall become part of the balance of such Account at the close of business on the day of crediting. 5. Value of Deferred Compensation Account - the value of each -------------------------------------- Participant's Deferred Compensation Account will include the compensation deferred plus accumulated interest credited to such Account to the date of withdrawal. For this purpose, the date of withdrawal shall be deemed to be the last day of the month preceding payment in accordance with this Plan. 6. Time of Election of Deferral - An election to defer compensation must ---------------------------- be made prior to the time such compensation is earned. Once made, an election shall continue in effect until the end of the Participant's service as a Director or until the Company is notified in writing of the cancellation of the election, whichever shall occur first. 7. Manner of Electing Deferral - A Participant may elect to defer --------------------------- compensation by giving notice to the Secretary of the Company on a form provided by it. Such notice shall include: A. The amount or percentage of compensation to be deferred. B. An election of a lump sum payment or a number of annual installments (not to exceed 5) for the payment of the deferred compensation. C. The date of the first installment payment, which shall be either January 15 in the year following the year in which service as a Director terminates or the January 15 following the electing Director's 71st birthday. 8. Beneficiary Designation - A Participant may, from time to time, furnish ----------------------- a form to the Secretary of the Company designating any person or persons to whom payments are to be made if the Participant dies before receiving payment of all amounts due hereunder. A beneficiary designation form will be effective only after the signed form is filed with the Secretary of the Company while the Participant is alive but will cancel any beneficiary designation forms signed and filed earlier. 9. Manner of Payment - No withdrawal may be made from the Participant's ----------------- Deferred Compensation Account except as provided in this section. The value of a Participant's Deferred Compensation Account is payable in cash in either a lump sum or in annual installments as provided in paragraph 7. If annual installments are elected, the amount of each payment shall be a fraction of the value of the Participant's Deferred Compensation Account as of December 31 of the year preceding payment, the numerator of which is 1 and the denominator of which is the total number of installments elected minus the number of installments previously paid. In the event of a Participant's death, the value of his/her Deferred Compensation Account (including accrued interest) determined as of the date of death shall be paid in cash in a single payment to the beneficiary previously designated by the Participant, or to his/her estate if no beneficiary has been designated, on the first January 15 or July 15 following such death or as soon as reasonably possible thereafter. 10. Participant's Rights - The right of any Participant to receive payments -------------------- under the provisions of this Plan shall be unsecured claim against the general assets of the Company. The right of a Participant to receive payments of deferred compensation as provided in this Plan shall not be assigned, transferred, pledged or encumbered or be subject in any manner to alienation or anticipation. 11. Statement of Account - Statements will be sent to Participants during -------------------- January of each year as to the value of their Deferred Compensation Accounts as of the end of December of the previous year. 12. Administration - The Administrator of this Plan shall be the Secretary -------------- of the Company. The Administrator shall have authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement provisions thereof. Decisions by the Administrator as to interpretation of the Plan shall be binding and conclusive on all affected parties. 13. Governing Law - The provisions of this Plan shall be interpreted and ------------- construed in accordance with the laws of the State of Ohio. 14. Amendment and Termination - The Plan shall become effective October 1, ------------------------- 1980. It may at any time be amended, modified or terminated by the Board of Directors, or the Executive Committee of the Board of Directors, of the Company. No amendment, modification or termination shall, without the consent of the Participant, adversely affect such Participant's rights with respect to amounts theretofore accrued in his/her Deferred Compensation Account. Attachment THE PROCTER & GAMBLE COMPANY ----------------------------- DEFERRED COMPENSATION PLAN FOR DIRECTORS ----------------------------------------- To: The Procter & Gamble Company In accordance with the provisions of The Procter & Gamble Company Deferred compensation Plan for Directors, I hereby elect to defer future compensation (excluding expense reimbursements) otherwise payable to me for services as a Director of The Procter & Gamble Company. This election shall remain in effect until cancelled by me in writing delivered to the Secretary of the Company. Amount of Deferral (fill in one): $___________________________ (amount per year) or ___________________________ (percentage per year -- up to 100%) _____ _____ Retainer Fee The compensation deferred is to be paid to me in cash in______ (insert number not to exceed five) annual installments, the first of which is to be made on (choose one) _____ _____ the January 15 of the calendar year following the year in which my services terminate. _____ _____ the January 15 following_____________________, 19_______ (my 71st birthday). If I die before receiving all of the deferred payments due me, the value of my deferred compensation account shall be paid in a single payment to the beneficiary(ies) designated by me, or if no beneficiary(ies) has (have) been designated, to my estate. This election is subject to the terms of The Procter & Gamble Company Deferred Compensation Plan for Directors, adopted September 9, 1980 and on file with the records of the Company. Received on the________day ___________________________________ of____________________, 19____, Signature of Director on behalf of The Procter & Gamble Company Date_______________________________ By_______________________________ Secretary THE PROCTER & GAMBLE COMPANY ---------------------------- DEFERRED COMPENSATION PLAN FOR DIRECTORS ----------------------------------------- In case of my death while a Participant in this Plan, I hereby designate as my beneficiary(ies) to whom payments shall be made as provided in the Plan: Name Relationship Address Proportion to Each - ---- ------------ ------- ------------------ I understand that the above designation(s) shall remain in effect until I give written notice of change to the Secretary of The Procter & Gamble Company. NOTE: 1. Many states have laws bearing on beneficiary designations. Participants may desire to consult their advisors before making a designation. 2. Write name of beneficiary in full. If a married woman, show her given, maiden and surname; thus, Mary Williamson Smith, not Mrs. John Smith. 3. Suggested Beneficiary Designations: Mary Williamson Smith Wife 1 Main Ave., Milwaukee, Wis. 100% or Mary Williamson Smith Wife " " 100% If she survives me, otherwise My children, per stirpes* Equally or My Estate *This provides that if any of the children should predecease the Participant or former Participant, that child's share will go to his/her children. I understand that the value of my Deferred Compensation Account (including accrued interest) determined as of the date of death will be paid in cash in a single payment to the beneficiary(ies) designated above in accordance with the terms of the Plan. Signature______________________________ Director Date Signed____________________________ Acknowledgment: Received as of_______________________________ Signature____________________________________ Secretary, The Procter & Gamble Company This Form should be submitted in duplicate. One copy will be returned for your records after acknowledgment by the Secretary. EX-10.6 9 l02788aexv10w6.txt EX-10.6 1993 NON-EMPLOYEE DIRECTORS' STOCK PLAN EXHIBIT (10-6) The Procter & Gamble 1993 Non-Employee Directors' Stock Plan THE PROCTER & GAMBLE 1993 NON-EMPLOYEE DIRECTORS' STOCK PLAN (As Amended September 10, 2002) ARTICLE A -- Purpose. The purpose of The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (hereinafter referred to as the "Plan") is to strengthen the alignment of interests between non-employee Directors (hereinafter referred to as "Participants") and the shareholders of The Procter & Gamble Company (hereinafter referred to as the "Company") through the increased ownership of shares of the Company's Common Stock. This will be accomplished by allowing Participants to elect voluntarily to convert a portion or all of their cash fees for services as a Director into Common Stock, by granting Participants a fixed value of shares of Common Stock restricted until retirement (hereinafter referred to as "Retirement Shares") and by granting Participants non-qualified options to purchase shares of Common Stock (hereinafter referred to as "Stock Options"). ARTICLE B -- Administration. 1. The Plan shall be administered by the Compensation Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. 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, as amended, 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. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions and to make such recommendations of amendments or otherwise as it deems necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority 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 of the Company, or partly in cash and partly in whole shares of the Common Stock of the Company, subject to such conditions or restrictions, if any, as the Committee may determine. The Committee also has the authority to make all other determinations it deems necessary or advisable for administering this Plan. 4. The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- Participation. Participation in the Plan shall be limited to all non-employee Directors of the Company. ARTICLE D -- Limitation on Number of Shares for the Plan. The total number of shares of Common Stock of the Company that may be awarded each year shall not exceed 50,000 shares. ARTICLE E -- Shares Subject to Use under the Plan. Shares of Common Stock to be awarded under the terms of this Plan shall be treasury shares. ARTICLE F -- Retirement Shares 1. On the first business day in January, each Participant shall receive Retirement Shares with a fair market value of $45,000 on the date of grant. 2. All shares awarded under this Article shall be valued as set forth in Article I. ARTICLE G -- Stock Options. 1. The Committee may, from time to time, grant Participants a Stock Option to purchase shares of Common Stock having an exercise price of one hundred percent (100%) of the fair market value of the Common Stock on the date of the grant. 2. The Stock Options shall have a term of ten (10) years from the date of grant, subject to earlier termination as provided herein, and shall be exercisable 100% three (3) years from the date of grant, except in the case of death, in which case the Stock Options shall be immediately exercisable. 3. Stock Options are not transferable other than by will or by the laws of descent and distribution. Legatees, distributees and duly appointed executors and administrators of the estate of a deceased Participant shall have the right to exercise such Stock Options at any time prior to the expiration date of the Stock Options. 4. If a Participant ceases to be a Director while holding unexercised Stock Options, such stock options are then void, except in the case of (i) death, (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 the Participant's retirement from a principal employer under the terms of an appropriate retirement plan or (vi) resignation from the Board for reasons of the antitrust laws or the conflict of interest, corporate governance or continued service policies. 5. 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 the Common Stock of the Company to be valued at their fair market value on the date of exercise, or a combination thereof. ARTICLE H -- 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 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 I -- Transfer of Shares. 1. The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and may be set forth in agreements between the Company and the Participant or in the awards of stock to them, all as the Committee determines. 2. The shares awarded shall be valued at the average of the high and low quotations for Common Stock of the Company on the New York Stock Exchange on the day of the transfer to a Participant. All shares awarded shall be full shares, rounded up to the nearest whole share. ARTICLE J -- Additional Provisions. 1. The Board may, at any time, repeal this Plan or may amend it from time to time except that no such amendment may amend this paragraph, increase the annual aggregate number of shares subject to this Plan, or alter the persons eligible to participate in this Plan. The Participants and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding awards are affected, notice thereof shall be given to the holders of such awards and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore awarded shares subject to conditions or restrictions transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions. 2. Every recipient of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and of the transfer of shares agreement referable thereto, and the acceptance of any transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company. 3. Notwithstanding anything to the contrary in the this 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 Section 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 11, 2000 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 this 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 Mergerconstitute 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 K -- Duration of Plan. This Plan shall be effective as of January 1, 1994. This Plan will terminate on December 31, 2003 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 this Plan of the Company or of anyone to whom shares have been transferred prior to such termination. Plan adopted November 9, 1993 Plan approved by shareholders on October 11, 1994 Plan Amended January 10, 1995 Plan Amended June 11, 1996 Adjusted for August 22, 1997 stock split Plan amended January 12, 1999 Plan amended July 11, 2000 Plan amended December 12, 2000 Plan amended December 11, 2001 Plan amended September 10, 2002 EX-10.7 10 l02788aexv10w7.txt EX-10.7 1992 STOCK OPTION PLAN EXHIBIT (10-7) The Procter & Gamble 1992 Stock Plan (Belgian Version) THE PROCTER & GAMBLE 1992 STOCK PLAN (BELGIAN VERSION) (as amended December 11, 2001) 1,000,000 Shares of Common Stock of The Procter & Gamble Company and 1,000,000 Options to Purchase Common Stock of The Procter & Gamble Company ARTICLE A -- Purpose. The purpose of The Procter & Gamble 1992 Stock Plan (Belgian Version) (hereinafter referred to as the "Plan") is to encourage those employees of The Procter & Gamble Company (hereinafter referred to as the "Company") and its subsidiaries who are largely responsible for the long-term success and development of the business to strengthen the alignment of interests between employees and the Company's shareholders through the increased ownership of shares of the Company's Common Stock, and to encourage those employees to remain in the employ of the Company and its subsidiaries. This will be accomplished through the granting or sale to employees of options to purchase shares of the Common Stock of the Company, payment of a portion of the employees' remuneration in shares of the Common Stock, and the granting to them by the Company and a subsidiary, if appropriate, of deferred awards related to the increase in the price of the Common Stock of the Company as provided by the terms and conditions set forth in the Plan. ARTICLE B -- Administration. 1. The Plan shall be administered by the Compensation Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not less than three (3) members of the Board who are neither officers nor employees, or members of the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (hereinafter referred to as 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. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions, to report thereon not less than once each year to the Board and to make such recommendations of amendments or otherwise as it deem necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority: to grant or offer for sale nonstatutory and incentive stock options; to grant to recipients stock appreciation rights either freestanding, in tandem with simultaneously granted or sold stock options, or in parallel with simultaneously granted or sold stock options; to award a portion of a recipient's remuneration in shares of Common Stock of the Company subject to such conditions or restrictions, if any, as the Committee may determine; to determine all the terms and provisions of the respective stock option, stock appreciation right, and stock 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; and to make all other determinations it deems necessary or advisable for administering this Plan; provided, however, the Committee shall have the further authority at time of grant 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) and (b); and (d) impose conditions in lieu of those set forth in Article G, paragraphs 4 through 7, for nonstatutory stock options, stock appreciation rights, and stock award grants which do not increase or extend the rights of the recipient, to take into consideration the differences, limitations, and requirements of non-United States laws or conditions including tax regulations, exchange controls or investment restrictions, possible unenforceability of any part of this Plan, or other matters deemed appropriate by it. 4. The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- Participation. The Committee shall select 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 and shall determine the number of shares of the Common Stock of the Company to be transferred under this Plan subject to such conditions or restrictions as the Committee may determine and the number of shares with respect to which stock options or stock appreciation rights will be granted or sold. The Committee may consult with the Chief Executive, but nevertheless the Committee has the full authority to act, and the Committee's actions shall be final. ARTICLE D -- Limitation on number of shares for the plan. 1. Unless otherwise authorized by the shareholders, the maximum aggregate number of shares available for award under this Plan for each calendar year the Plan is in effect, when combined with the maximum aggregate number of shares available for award under The Procter & Gamble 1992 Stock Plan in such calendar year, shall be one percent (1%) of the total issued shares of Common Stock of the Company as of June 30 of the immediately preceding fiscal year. 2. Any of the authorized shares may be used in respect of any of the types of awards described in this Plan, except that no more than twenty-five percent (25%) of the authorized shares in any calendar year may be issued as restricted or unrestricted stock and no more than 1,000,000 of the authorized shares during the term of the Plan may be issued as incentive stock options. 3. Any authorized shares not used in a calendar year shall be available for awards under this Plan in succeeding calendar years. 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 either authorized but unissued shares or treasury shares, as determined by the Board. 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 this Plan, restricted or unrestricted stock awarded under the terms of this Plan shall be authorized but unissued shares, treasury shares, or shares acquired for purposes of the Plan 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 or sale of stock options or stock appreciation rights under the terms of this Plan, the recipient agrees as follows: (a) The right to exercise any stock option or stock appreciation right shall be conditional upon certification by the recipient at time of exercise that the recipient intends to remain in the employ of the Company or one of its subsidiaries (except in cases of retirement, disability or Special Separation as defined in section 6 of Article G) for at least one (1) year following the date of the exercise of the stock option or stock appreciation right, 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 it subsidiaries' trade secrets and confidential information and thereby help insure the long-term success of the business, the recipient, 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 recipient'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 recipient, as a consequence of the recipient's employment with the Company or one of its subsidiaries, to be in development): (1) with respect to which the recipient'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 recipient, as a consequence of the recipient's job performance and duties, acquired knowledge of trade secrets or other confidential information of the Company or its subsidiaries. For purposes of this section, it shall be conclusively presumed that recipients 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 recipient (which recipient hereby acknowledges) to not use or disclose the Company's or its subsidiaries' trade secrets and confidential information known to the recipient until any particular trade secret or confidential information become generally known (through no fault of the recipient), 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 recipients 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 or sold under the terms of this Plan, the recipient acknowledges that if the recipient 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 recipient from doing so. The recipient 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 recipient 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 recipient, 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 recipient's acceptance of an offer of the granting or sale 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 recipient 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 an employee has been granted or sold a stock option or a stock appreciation right under this Plan shall not limit the right of the employer to terminate the recipient's employment at any time. The Committee is authorized to suspend or terminate any outstanding stock option or stock appreciation right for actions taken prior to termination of employment if the Committee determines the recipient has acted significantly contrary to the best interests of the Company. 3. More than one stock option or stock appreciation right may be granted or sold to any employee under this Plan but the maximum number of shares with respect to which stock options or stock appreciation rights may be granted or sold to any employee in any calendar year shall not exceed five percent (5%) of the number of shares which can be issued or transferred annually hereunder, when combined with the maximum aggregate number of shares available for award under The Procter & Gamble 1992 Stock Plan in such calendar year. 4. The aggregate fair market value (determined at the time when the incentive stock option is exercisable for the first time by an employee during any calendar year) of the shares for which any employee may be granted or sold incentive stock options under this 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 or sells 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 or sold in tandem with or parallel to 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 or parallel 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 or, in the case of stock options to be sold, at the time of offer of such stock options for sale, and shall be not less than one hundred percent (100%) of the fair market value of the Common Stock of the Company on such date. ARTICLE G -- Exercise of stock options and stock appreciation rights. 1. All stock options and stock appreciation rights granted or sold hereunder shall have a maximum life of no more than fifteen (15) years from the date of grant or, in the case of stock options to be sold, from the date of the offer of such options for sale. 2. No stock options or stock appreciation rights shall be exercisable within one (1) year from their date of grant or, in the case of stock options to be sold, from the date of the offer of such options for sale, except in the case of the death of the recipient. 3. During the lifetime of the recipient, stock options and stock appreciation rights may be exercised only by the recipient personally, or, in the event of the legal incompetence of the recipient, by the recipient's duly appointed legal guardian. 4. In case a recipient of stock options or stock appreciation rights 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 recipient; (2) any Special Separation (as defined in section 6 of this Article G) that occurs more than six months from the date the options were granted or, in the case of stock options to be sold, from the date of the offer of such options for sale; or (3) any option as to which the Committee has waived, at the time of grant or, in the case of stock options to be sold, at the time of the offer of such options for sale, the provisions of this Article G, paragraph 4(a) pursuant to the authority granted by Article B, paragraph 3. (b) Any exercisable portions thereof are then void, except in the case of death, retirement in accordance with the provisions of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries, Special Separation (as defined in section 6 of this Article G) of the recipient, or any option as to which the Committee has waived, at the time of grant or, in the case of stock options to be sold, at the time of offer of such options for sale, the provisions of this Article G, paragraph 4(b) pursuant to the authority granted by Article B, paragraph 3. 5. In the case of the death of a recipient of stock options or stock appreciation rights while an employee of the Company or any of its subsidiaries, 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 employee, at any time prior to the expiration date of the stock options or stock appreciation rights. 6. Termination of employment under the permanent disability provision of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries shall be deemed the same as retirement. Special Separation means any termination of employment, except a termination for cause or a voluntary resignation that is not initiated or encouraged by the Company, that occurs prior to the time a recipient is eligible to retire. The death of a recipient of stock options or stock appreciation rights subsequent to retirement or Special Separation shall not render exercisable stock options or stock appreciation rights which were unexercisable at the time of the retirement or Special Separation. The persons to whom the exercisable stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising such remaining stock options, stock appreciation rights or parts thereof, at any time prior to the expiration date of the stock options or stock appreciation rights. 7. Stock options and stock appreciation rights are not transferable other than by will or by the laws of descent and distribution and they may not be assigned or hypothecated. For the purpose of exercising stock options or stock appreciation rights after the death of the recipient, the duly appointed executors and administrators of the estate of the deceased recipient 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 recipient's estate. 8. Upon the exercise of stock appreciation rights, the recipient 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 the Common Stock of the Company 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 of the Company 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. The number of shares with respect to which stock appreciation rights are being exercised shall not be available for granting or selling future stock options or stock appreciation rights under this Plan. 9. The Committee may, in its sole discretion, permit a stock option which is being exercised either (a) by an optionee whose retirement is imminent or who has retired or (b) after the death of the optionee, to be surrendered, in lieu of exercise, for an amount equal to the difference between the stock option exercise price and the fair market value of shares of the Common Stock of the Company on the day the stock option is surrendered, payment to be made in shares of the Company's Common Stock which are subject to this Plan valued at their fair market value on such date, cash, or a combination thereof, in such proportion and upon such terms and conditions as shall be determined by the Committee. The difference between the number of shares subject to stock options so surrendered and the number of shares, if any, issued upon such surrender shall represent shares which shall not be available for granting or selling future stock options under this Plan. 10. Time spent on leave of absence shall be considered as employment for the purposes of this 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. 11. 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 it 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. ARTICLE H -- Payment for stock options. Upon the exercise of a stock option, payment in full of the exercise price shall be made by the optionee. As determined by the Committee, the stock option exercise price may be paid for by the optionee either in cash, shares of the Common Stock of the Company to be valued at their fair market value on the date of exercise, a combination thereof, or such other method as determined by the Committee. ARTICLE I -- Transfer of shares. 1. The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and with respect to particular employees or group of employees and may be set forth in agreements between the Company and the employee or in the awards of stock to them, all as the Committee determines. It is contemplated that the conditions and restrictions established by the Committee will be consistent with the objectives of this Plan and may be of the following types. In giving these examples, it is not intended to restrict the Committee's authority to impose other restrictions or conditions, or to waive restrictions or conditions under circumstances deemed by the Committee to be appropriate and not contrary to the best interests of the Company. (a) Restrictions The employee will not be able to sell, pledge, or dispose of the shares during a specified period except in accordance with the agreement or award. Such restrictions will lapse either after a period of, for example, five years, or in fifteen or fewer annual installments following retirement or termination of employment, as the Committee from time to time may determine. However, upon the transfer of shares subject to restrictions, an employee will have all incidents of ownership in the shares, including the right to dividends (unless otherwise restricted by the Committee), to vote the shares, and to make gifts of them to family members (still subject to the restrictions). (b) Lapse of Restrictions In order to have the restrictions lapse, an employee may be required to continue in the employ of the Company or a subsidiary for a prescribed period of time. Exemption from this requirement may be prescribed in the case of death, disability, or retirement, or as otherwise prescribed by the Committee. ARTICLE J -- 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 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 K -- Additional provisions. 1. The Board may, at any time, repeal this Plan or may amend it from time to time. The recipient of awards under this Plan 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 affected, notice thereof shall be given to the holders of such stock options and stock appreciation rights and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore granted or sold unexercised stock options or stock appreciation rights shall continue to be exercisable in accordance with their terms and shares subject to conditions or restrictions transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions. 2. In the case of an employee of a subsidiary company, performance under this Plan, including the transfer of shares of the Company, may be by the subsidiary. Nothing in this 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 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 this Plan except as to such shares, if any, as shall have been granted, sold or transferred to him or her. Nothing in this Plan shall preclude the issuance, sale or transfer 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 greater than fifty percent (50%) of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company. In addition, the Board may designate for participation in this Plan as a "subsidiary," except for the granting or selling of incentive stock options, those additional companies affiliated with the Company in which the Company's direct or indirect stock ownership is less than fifty percent (50%) of the total combined voting power of all classes of such company's stock. ARTICLE L -- Consent. Every recipient of a stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and of the stock option, stock appreciation right, or transfer of shares agreement referable thereto, and the acceptance of any stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company and its subsidiaries and any successors in interest to any of them. This Plan shall be governed by and construed in accordance with the laws of the State of Ohio, United States of America. ARTICLE M -- Duration of plan. This Plan will terminate on July 14, 2002 unless a different termination date is fixed by action of the Board of Directors, but no such termination shall affect the prior rights under this Plan of the Company (or any subsidiary) or of anyone to whom stock options or stock appreciation rights were granted or sold prior thereto or to whom shares have been transferred prior to such termination. ADDITIONAL INFORMATION 1. Stock Options Offered for Purchase Stock options may be offered for purchase at a price of one dollar ($U.S. 1.00) per option (the "Purchased Stock Options"). Participants must pay for any Purchased Stock Option within sixty (60) days after the date of acceptance established by the Committee for such Purchased Stock Option by delivering cash or a check to the Company or its applicable subsidiary. Each Purchased Stock Option represents the right to acquire one share of Common Stock upon the exercise of such Purchased Stock Option. The number of stock options, whether Purchased Stock Options or otherwise, issued by the Company and outstanding as of January 31, 1997 is 30,884,517. The Purchased Stock Options are not listed on an exchange. For such Purchased Stock Options, the Committee, pursuant to authority granted by Article B, paragraph 3 of the Plan, has waived the conditions and restrictions of paragraphs 4(a) and (b) of Article G as follows: the Purchased Stock Options will remain exercisable for up to one (1) month following any termination of employment; provided that if termination of employment occurs as a result of death, retirement or Special Separation, the stock option will remain exercisable for its full term until its date of expiration. There is no guarantee that the price of the common stock will exceed the exercise price of any purchased stock option, in which case such purchased stock option would have no value. 2. 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. 3. U.S. Tax Treatment For U.S. Persons 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 sale 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. 4. 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. 5. 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, 2001; 2. The Company's Quarterly Reports on Form 10-Q for the quarter ended September 30, 2001; 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. Ashely, Manager, Shareholder Services, The Procter & Gamble Company, P.O. Box 5572, Cincinnati, Ohio 45201, (513) 983-3413. 6. Additional Information Additional information about the Plan and its administrators may be obtained from Mr. Terry L. Overbey, Secretary, The Procter & Gamble Company, One Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-4463. EX-10.8 11 l02788aexv10w8.txt EX-10.8 FUTURE SHARES PLAN EXHIBIT (10-8) The Procter & Gamble Future Shares Plan THE PROCTER & GAMBLE FUTURE SHARES PLAN CONTENTS

Article 1. Establishment, Objectives, and Duration 1 Article 2. Definitions 1 Article 3. Administration 3 Article 4. Shares Subject to the Plan 3 Article 5. Eligibility and Participation 4 Article 6. Awards 4 Article 7. General Provisions 6

THE PROCTER & GAMBLE FUTURE SHARES PLAN ARTICLE 1. Establishment, Objectives, and Duration 1.1 Establishment of the Plan. The Procter & Gamble Company, an Ohio corporation (hereinafter referred to as the "Company"), hereby establishes a worldwide stock option plan to be known as "The Procter & Gamble Future Shares Plan" (hereinafter referred to as the "Plan"), as set forth herein. 1.2 Purpose. The purpose of the Plan is to advance the interests of the Company by giving substantially all employees a stake in the Company's future growth and success, to increase employee focus on the Company's stock price, to strengthen the alignment of interests between employees and the Company's shareholders through the increased ownership of shares of the Company's common stock, and to encourage employees to remain in the employ of the Company and its Affiliates. 1.3 Duration of the Plan. The Plan shall become effective as of October 14, 1997 (the "Effective Date"). The Plan shall terminate on October 13, 2007. No Award may be granted after the termination date of the Plan, but Awards theretofore granted shall continue in force beyond that date pursuant to their terms. ARTICLE 2. Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized: 2.1 "Affiliate" means any entity in which the Company has an ownership interest of fifty percent (50%) or more. 2.2 "Award" means a grant of an Option, a Modified Option, an SAR, or a Modified SAR under the Plan. 2.3 "Board" or "Board of Directors" means the Board of Directors of the Company. 2.4 "Code" means the Internal Revenue Code of 1986 and the regulations thereunder, as amended from time to time. 2.5 "Committee" means the Compensation Committee of the Board or such other committee appointed by the Board to administer the Plan. 2.6 "Common Stock" means the common stock, without par value, of the Company. 2.7 "Company" means The Procter & Gamble Company, an Ohio corporation, and any successor thereto. 2.8 "Disability" or "Disabled" shall mean qualifying for benefits under a long-term disability pay plan maintained by the Company or any Affiliate, or as required by or available under applicable local law, or in the absence of any such plan or local law, as determined by the Committee. 2.9 "Employee" means a full- or part-time employee on the regular payroll of the Company or any Affiliate as of the Grant Date of an Award. For purposes of this definition, "on the regular payroll" shall mean paid through the payroll department of the Company or an Affiliate (or, if there is no such payroll department, classified as a regular employee on the Company's or Affiliate's employment records), and shall exclude individuals classified by the Company or Affiliate as intermittent or temporary, or as independent contractors, regardless of how such person may be classified by any federal, state, or local, domestic or foreign, government agency or instrumentality thereof, or court. An individual whose only relationship to the Company or an Affiliate is that of a temporary employee (except regular employees on temporary assignment from another unit) or leased employee (as defined in Section 414(n)(2) of the Code) shall not be an Employee unless determined otherwise by the Committee at its sole discretion. The determination of whether an individual is an "employee on the regular payroll" shall be made solely according to the method of paying the individual for services, and such determination shall be within the discretion of the Committee. 2.10 "Fair Market Value" means, unless determined otherwise by the Committee, the average of the high and low prices of a share of Common Stock on the New York Stock Exchange on the date of measurement as determined by the Committee, and if there were no trades on such date, on the day on which a trade occurred next preceding such date, or as otherwise determined by the Committee. 2.11 "Grant Date" means such date, as determined by the Committee, upon which Awards are granted to Participants pursuant to the terms of this Plan. 2.12 "Modified Option" means an Option that must be exercised on the fifth anniversary of the Grant Date or forfeited. 2.13 "Modified SAR" means an SAR that must be exercised on the fifth anniversary of the Grant Date or forfeited. 2.14 "Option" means a right to purchase a specified number of shares of Common Stock at the Option Price, which is not intended to qualify under Code Section 422 as an Incentive Stock Option, except as otherwise provided in Section 6.1(k). 2.15 "Option Price" means the price at which a share of Common Stock may be purchased by a Participant pursuant to an Option or a Modified Option. 2.16 "Participant" means an Employee who has been selected by the Committee in its sole discretion to receive an Award or who has outstanding an Award granted under the Plan. 2.17 "Retirement" means, strictly for purposes of this Plan, the termination of employment on or after the date the Participant has attained age fifty-five (55), except as otherwise determined by the Committee. 2.18 "SAR" means an Award pursuant to which the Participant receives a right to a cash settlement payment upon exercise equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the Fair Market Value of one share of Common Stock on the Grant Date of the SAR, multiplied by the number of SARs granted. 2.19 "Special Separation" means any termination of employment, except a termination for cause or a voluntary resignation that is not initiated or encouraged by the Company, that occurs prior to the time a recipient is eligible to retire. 2.20 "Spread Value" means the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the Fair Market Value of one share of Common Stock on the Grant Date, multiplied by the number of shares of Common Stock underlying the Award. ARTICLE 3. Administration The Plan and all Awards granted pursuant thereto shall be administered by the Compensation Committee of the Board. The Committee may, from time to time, adopt rules and regulations for carrying out the provisions and purposes of the Plan. The Committee, in its absolute discretion, shall have the power to interpret and construe the Plan; provided, however, that the Committee may designate persons other than members of the Committee to carry out such responsibilities of the Committee under the Plan as it may deem appropriate. Any interpretation of construction of any provision of this Plan by the Committee shall be final and conclusive upon all parties. No member of the Committee or the Board shall be liable for any action or determination made hereunder in good faith. ARTICLE 4. Shares Subject to the Plan 4.1 Number of Shares Available for Options. The number of shares of Common Stock available with respect to all Awards granted under the Plan shall not exceed seventeen million (17,000,000) in the aggregate, subject to adjustment under Section 4.2 herein. The shares of Common Stock subject to the Plan shall consist of either authorized but unissued shares or treasury shares, as determined by the Committee. Notwithstanding any terms or conditions contained herein, the shares to be delivered by the Company upon exercise of an Award by a Participant located in Italy shall be authorized but unissued shares. 4.2 Changes in Capitalization. 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 shareholders, appropriate adjustments and changes shall be made by the Committee to the extent necessary to prevent dilution or enlargement of rights under the Plan in (a) the aggregate number of shares of Common Stock subject to the Plan; (b) the number of shares of Common Stock for which Awards may be granted or awarded to any Participant; (c) the number of shares and the Option Price per share of all shares of Common Stock subject to outstanding Options or Modified Options, as applicable; (d) the number of SARs or Modified SARs subject to an Award and the Fair Market Value of a share of Common Stock for purposes of determining the cash settlement payment on exercise of an SAR or Modified SAR, as applicable; and (e) such other provisions of the Plan as may be necessary and equitable to carry out the foregoing purposes. ARTICLE 5. Eligibility and Participation An Award may be granted by the Committee, in its discretion, to an Employee who is actively employed by the Company or any Affiliate on the Grant Date. The granting of Awards under the terms of this Plan is made at the sole discretion of the Committee and does not entitle a Participant to receive future Awards. The adoption of this Plan shall not be deemed to give any Participant any right to be granted an Award, except to the extent as may be determined by the Committee. ARTICLE 6. Awards 6.1 Awards. The Award to each Participant under the Plan shall consist of either Options, Modified Options, SARs, or Modified SARs. The Committee shall determine (i) the number of shares of Common Stock to be covered by each Award; (ii) the terms and conditions of the Awards (including, but not limited to, restrictions upon the Awards, when Awards are first exercisable and the period of exercise, conditions of their exercise, requirements regarding payment of the exercise price, withholding requirements and restrictions on the shares of Common Stock issuable upon the exercise thereof); and (iii) the form of the instruments necessary or advisable in the administration of the Awards. (a) Term of Award. The term of each Award shall be no more than ten (10) years from the Grant Date, except as provided in Section 6.1(k). (b) Option Price. With respect to an Option or Modified Option, the Option Price shall be not less than the Fair Market Value of the Common Stock on the Grant Date. (c) Exercise and Limitations on Exercise. Except as otherwise provided for herein, if a Participant has been in the continuous employ of the Company through the fifth anniversary of the Grant Date, at any time on or after the fifth anniversary of the Grant Date, but in no event later than the tenth anniversary of the Grant Date (except as provided in Section 6.1(j)), the Participant may exercise the Award, and purchase the number of shares of Common Stock covered by the Option (or Modified Option if the Award is exercised on the fifth anniversary of the Grant Date), or receive the cash settlement payment with respect to the SAR (or Modified SAR if the Award is exercised on the fifth anniversary of the Grant Date), as applicable. An Award must be exercised for the full number of shares of Common Stock covered by the Option or Modified Option, or for the entire cash settlement payment with respect to the SAR or Modified SAR, as applicable. Notwithstanding the foregoing, stock options and stock appreciation rights granted hereunder shall vest immediately upon a "Change in Control." A "Change in Control" shall mean the occurrence of any of the following: (i) 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 Section 6.1(c), 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); (ii) The individuals who, as of July 11, 2000 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 this 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 (iii) The consummation of: (A) 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: (1) 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; (2) 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 (3) 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 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; (b) A complete liquidation or dissolution of the Company; or (c) 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. (d) Termination of Employment Generally. (i) If a Participant's employment is terminated on or after the fifth anniversary of the Grant Date, for any reason other than death, Disability, Retirement, or Special Separation the Award shall be exercisable only for thirty (30) calendar days following such termination, and only to the extent such Award was exercisable on the date of such termination, except as may be otherwise determined by the Committee. In no event, however, may an Award be exercised more than ten (10) years after the Grant Date, except as provided in Section 6.1(k). If a Participant's employment is terminated prior to the fifth anniversary of the Grant Date, for any reason other than death, Disability, Retirement, or Special Separation, each Award granted to such Participant shall be immediately canceled and the Participant shall forfeit the Award upon such termination of employment. (ii) Neither the Company nor the Committee shall have any obligation to notify a Participant of the expiration of an Award. (iii) Unless the Committee shall determine otherwise, a Participant employed by an Affiliate or business unit of the Company that is sold or otherwise divested from the Company shall be considered to have his or her employment terminated as of the effective date of the divestiture. (e) Termination of Employment Due to Disability or Retirement. (i) If prior to the fifth anniversary of the Grant Date a Participant's employment is terminated due to Disability or Retirement, the Award may be exercised on or after the fifth anniversary of the Grant Date, but in no event may such an Award be exercised more than ten (10) years after the Grant Date, except as provided in Section 6.1(k). If a Participant's employment is terminated due to Disability or Retirement on or after the fifth anniversary of the Grant Date, the Award may be exercised, to the extent such Award was exercisable on the date of such termination, within the remaining period of the Award. (ii) Notwithstanding the above and except for Participants located in Italy, the Committee reserves the discretionary ability to substitute an immediate cash payment equal to the Spread Value of the Award in full satisfaction of the Award, in the event of a termination of employment due to Disability or Retirement to the extent such payment is permitted by law. (f) Termination of Employment Due to Special Separation. (i) If a Participant's employment is terminated due to Special Separation (except for Participants located in Italy), the Participant will receive an immediate cash payment equal to the Spread Value of the Award in full satisfaction of the Award, to the extent permitted by law. (ii) Notwithstanding the above, the Committee reserves the discretionary ability to waive the above cash payment provision and: (1) for terminations of employment due to Special Separation prior to the fifth anniversary of the Grant Date, specify that the Award may be exercised on or after the fifth anniversary of the Grant Date, but in no event may such an Award be exercised more than ten (10) years after the Grant Date, except as provided in Section 6.1(k); and (2) for terminations of employment due to Special Separation on or after the fifth anniversary of the Grant Date, specify that the Award may be exercised, to the extent such Award was exercisable on the date of such termination, within the remaining period of the Award. (g) Death of a Participant. Upon the death of a Participant, while an Award is still outstanding, regardless of whether the Award is or is not exercisable, a cash payment equal to the Spread Value of the Award, as of the date of the Participant's death, shall be paid as soon as administratively practicable to the Participant's estate, in full satisfaction of the Award. Notwithstanding the above, upon the death of a Participant located in Italy, the outstanding Award granted to such Participant shall be (i) immediately canceled if the death occurs prior to the fifth anniversary of the Grant Date, or (ii) exercisable by the executors, administrators or heirs of the deceased Participant only for six (6) months following such death if the death occurs on or after the fifth anniversary of the Grant Date. (h) Nontransferability. Awards are not transferable and may only be exercised by the Participant. (i) Exercise; Notice Thereof. Awards shall be exercised by delivering written notice of intention to exercise the Award, pursuant to such terms and conditions as may be determined by the Committee. The Committee shall have the authority to establish procedures under any or all methods of exercise, including the designation of the brokerage firm or firms through which exercises may be effected, which need not be the same for each grant or for each Participant. The Committee shall have the authority to change without notice any method of exercise for any reason whatsoever, notwithstanding the fact that the method of exercise had been available to Participants in the past. (j) Rights as Shareholder. A Participant shall have none of the rights of a shareholder with respect to shares of Common Stock covered by any Award until the Participant becomes the record holder of such shares as determined by the records of the Company's transfer agent. (k) Additional Terms. With respect to any Award, the Committee may, in its discretion: (i) determine which Affiliates will be covered by the Plan; (ii) determine which Employees are eligible to participate in the Plan; (iii) modify or restrict any of the terms and conditions of any Awards including but not limited to extending the term of an Award beyond ten (10) years; (iv) modify or restrict exercise procedures and any other Plan procedures; (v) establish local country plans as subplans to this Plan, each of which may be attached as an Appendix hereto; and (vi) take any action, before or after an Award is made, which it deems advisable to obtain or comply with any necessary local government regulatory exemptions or approvals; provided that the Committee may not take any action hereunder which would (1) increase the number of shares of Common Stock covered by the Plan; or (2) violate any securities law, the Code, or any governing statute. (l) Stock Appreciation Rights. The Committee may grant SARs or Modified SARs, as applicable, in lieu of Options or Modified Options under the Plan. 6.2 Refusal of Award. Any Participant may refuse the grant of an Award by notifying the Committee of his or her refusal in writing in a form and pursuant to procedures to be determined by the Committee. ARTICLE 7. General Provisions 7.1 No Additional Rights. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, or confer upon any Participant any right to continue in the employ of the Company. No Employee shall have the right to be selected to receive an Award under this Plan or having been so selected, to be selected to receive a future Award. Neither the Award nor any benefits arising under this Plan shall constitute part of a Participant's employment contract with the Company or any Affiliate, and accordingly, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or any Affiliate for severance payments. 7.2 No Effect on Other Benefits. The receipt of Awards under the Plan shall have no effect on any benefits and obligations to which a Participant may be entitled from the Company or any Affiliate, under another plan or otherwise, or preclude a Participant from receiving any such benefits. 7.3 Binding Effect. Any decision made or action taken by the Company, the Board, or by the Committee arising out of or in connection with the construction, administration, interpretation, and effect of the Plan shall be conclusive and binding upon all persons, including the Company, its shareholders, Employees, Participants, and their estates and beneficiaries. 7.4 Inalienability of Benefits and Interest. No benefit payable under, or interest in, the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any such attempted action shall be void and no such benefits or interest shall be in any manner liable for or subject to debts, liabilities, engagements, or torts of any Participant or beneficiary. 7.5 Requirements of Law. The granting of Awards and the issuance of shares of Common Stock under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 7.6 Governing Law. To the extent not preempted by federal law, the Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the state of Ohio. 7.7 Withholding. The Company shall have the power and the right to deduct or withhold, to require an Affiliate to deduct or withhold, or to require a Participant to remit to the Company or an Affiliate, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan. 7.8 Amendments. Subject to the terms of the Plan, the Committee may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part. Adopted October 14, 1997 Article 2, Paragraph 2.19 added, Article 4, Paragraph 4.1 amended, Article 6, Paragraphs 6.1(d)(i), (e) (i) and (ii) and (f) amended - May 12, 1998 Article 4, Paragraph 4.1 amended - April 11, 2000 Article 2, Paragraph 2.19 amended - June 13, 2000 Article 6, Paragraph 6.1(c) amended and Paragraph 6.1(c)(i), (ii) and (iii) adopted - July 11, 2000 Article 4.2 amended - December 11, 2001 Article 6,Paragraph 6.1(e) changed; Article 6, Paragraph 6.1(f) adopted - March 11, 2003 Article 6, paragraphs 6.1(f)(i) and (ii) amended June 10, 2003 EX-11 12 l02788aexv11.txt EX-11 COMPUTATION OF EPS EXHIBIT (11) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES --------------------------------------------- Computation of Earnings Per Share --------------------------------- Amounts in millions except per share amounts

Years Ended June 30 ------------------------------------------------------------- 1999 2000 2001 2002 2003 -------- -------- --------- --------- --------- BASIC NET EARNINGS PER SHARE - ---------------------------- Net earnings $ 3,763 $ 3,542 $ 2,922 $ 4,352 $ 5,186 Preferred dividends, net of tax benefit 109 115 121 124 125 -------- -------- --------- --------- --------- Net earnings available to common shareholders $ 3,654 $ 3,427 $ 2,801 $ 4,228 $ 5,061 ======== ======== ========= ========= ========= Basic weighted average common shares outstanding 1,328.1 1,313.2 1,300.3 1,297.4 1,296.6 ======== ======== ========= ========= ========= Basic net earnings per common share $ 2.75 $ 2.61 $ 2.15 $ 3.26 $ 3.90 ======== ======== ========= ========= ========= DILUTED NET EARNINGS PER SHARE - ------------------------------ Net earnings $ 3,763 $ 3,542 $ 2,922 $ 4,352 $ 5,186 Deduct preferred dividend impact on funding of ESOP 22 18 15 12 9 -------- -------- --------- --------- --------- Diluted net earnings $ 3,741 $ 3,524 $ 2,907 $ 4,340 $ 5,177 ======== ======== ========= ========= ========= Basic weighted average common shares outstanding 1,328.1 1,313.2 1,300.3 1,297.4 1,296.6 Add potential effect of: Conversion of preferred shares (1) 97.2 94.3 91.9 88.8 85.1 Exercise of stock options (2) 21.5 19.7 13.4 18.7 19.6 -------- -------- --------- --------- --------- Diluted weighted average common shares outstanding 1,446.8 1,427.2 1,405.6 1,404.9 1,401.3 ======== ======== ========= ========= ========= Diluted net earnings per common share $ 2.59 $ 2.47 $ 2.07 $ 3.09 $ 3.69 ======== ======== ========= ========= =========

(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 through 2021. (2) Approximately 33 million in 2003, 36 million in 2002 and 38 million in 2001 of the Company's 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.) EX-12 13 l02788aexv12.txt EX-12 COMPUTATION OF RATIO EXHIBIT (12) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES --------------------------------------------- Computation of Ratio of Earnings to Fixed Charges ------------------------------------------------- Millions of Dollars

Years Ended June 30 ------------------------------------------ 1999 2000 2001 2002 2003 ------ ------ ------ ------ ----- 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 $5,866 $5,474 $4,574 $6,442 $7,760 Fixed charges 751 881 872 687 657 ------ ------ ------ ------ ----- TOTAL EARNINGS, AS DEFINED $6,617 $6,355 $5,446 $7,129 $8,417 ====== ====== ====== ====== ====== FIXED CHARGES, AS DEFINED Interest expense $ 650 $ 792 $ 794 $ 603 $ 561 1/3 of rental expense 101 89 78 84 96 ------ ------ ------ ------ ----- TOTAL FIXED CHARGES, AS DEFINED $ 751 $ 881 $ 872 $ 687 $ 657 ====== ====== ====== ====== ====== RATIO OF EARNINGS TO FIXED CHARGES 8.8 7.2 6.2 10.4 12.8

EX-13 14 l02788aexv13.txt EX-13 ANNUAL REPORT EXHIBIT (13) Annual Report to Shareholders (pages 1-56) SUSTAINING GROWTH 2003 ANNUAL REPORT [COVER PAGE GRAPHIC] P&G'S PROMISE Two billion times a day, P&G brands touch the lives of people around the world. We have one of the largest and strongest portfolios of trusted, quality brands, including Pampers, Tide, Ariel, Always, Whisper, Pantene, Bounty, Pringles, Folgers, Charmin, Downy, Lenor, Iams, Crest, Clairol Nice 'n Easy, Actonel, Dawn and Olay. Nearly 98,000 P&G people working in almost 80 countries worldwide make sure P&G brands live up to their promise to make everyday life just a little better. FINANCIAL HIGHLIGHTS

Years ended June 30 Amounts in millions ------------------------------------ except per share amounts 2003 2002 % Change - ----------------------------------------------------------------------------------------- Net Sales $ 43,377 $ 40,238 8% - --------------------------------------------------------------------------------------- Operating Income 7,853 6,678 18% - --------------------------------------------------------------------------------------- Net Earnings 5,186 4,352 19% - --------------------------------------------------------------------------------------- Per Common Share - --------------------------------------------------------------------------------------- Diluted Net Earnings 3.69 3.09 19% - --------------------------------------------------------------------------------------- Dividends 1.64 1.52 8% - ---------------------------------------------------------------------------------------

Net Sales (in billions of dollars) [BAR CHART] 2001 39.2 2002 40.2 2003 43.4 Operating Cash Flow (in billions of dollars) [BAR CHART] 2001 5.8 2002 7.7 2003 8.7 Diluted Net Earnings (per common share) [BAR CHART] 2001 $2.07 2002 $3.09 2003 $3.69 Additional Earnings Information(1) (per common share, on a diluted basis) [BAR CHART] 2001 $3.27 2002 $3.59 2003 $4.08 - - Reported EPS - - Goodwill - - Restructuring Charges TABLE OF CONTENTS Letter to Shareholders 1 P&G's Billion-Dollar Brands 6 Business Perspective 8 Directors and Corporate Officers 20 Financial Contents 22 Shareholder Information 56 (1)Restructuring charges per share total $1.05 in 2001, $0.50 in 2002 and $0.39 in 2003. 2001 includes charges of $0.15 per share for the amortization of goodwill and indefinite-lived intangibles no longer required under accounting rules beginning in 2002. FELLOW SHAREHOLDERS, [PHOTO OF A.G. LAFLEY] A.G. LAFLEY Chairman of the Board, President and Chief Executive Fiscal 2003 was a year of significant progress for Procter & Gamble - our best overall performance in nearly a decade. - - Volume was up 8%. - - Sales were up 8% to $43.4 billion. - - Earnings were up 19% to $5.2 billion; earnings per share were $3.69, up 19%. - - The Company's multi-year restructuring program is now complete, a full year ahead of schedule. Restructuring program charges for the year were $538 million. - - Earnings per share increased 14%, excluding the impact of the restructuring program. - - Net earnings margins reached the highest level in more than 50 years. - - Total Shareholder Return outperformed the Dow Jones Industrial Average and the S&P 500. - - P&G has declared a dividend increase of 11%, the 48th consecutive year of increased dividend payments. These excellent results represent broad-based strength: - - All five Global Business Units grew earnings. - - Six of seven Market Development Organizations delivered top-line growth. - - 19 of the top 20 global brands grew volume. - - P&G brands worldwide grew share in categories accounting for nearly 80% of sales. Most important, these results were driven from P&G's core existing businesses, in a challenging global economy and political environment. In fact, 100% of this year's growth was organic. The key element of P&G's growth strategy can most simply be described as growth from the core. We are building on P&G's core foundation of categories and brands, customers and countries, capabilities and competencies to deliver long-term, sustainable growth. That, of course, is the key challenge. It's long-term performance that counts. P&G focuses on strategies that do what is right for the long-term health of the business. Over the past 20 years, P&G has delivered an annualized Total Shareholder Return of nearly 17%, ahead of both the Dow Jones Industrial Average and the S&P 500. 2 Unit Volume Growth (% increase versus previous year) [BAR CHART] 2001 0.2% 2002 6.7% 2003 8.3% 100% of P&G's growth this year was organic. The fundamental strengths that have driven this performance over time remain relevant and important. The strategic choices we've made over the past three years remain right. And the capabilities and systems we have developed throughout the Company are key reasons to believe that we can build on what we've done in the past to keep P&G growing in the future. STRATEGIC CHOICES We made five key choices to get P&G back on track. There are considerable opportunities for continued growth within each area of strategic focus. BUILD EXISTING CORE BUSINESSES AND LEADING BRANDS INTO STRONGER LEADERS. P&G's four core categories - Fabric Care, Hair Care, Baby Care and Feminine Care - account for nearly 50% of sales and an even greater percentage of profit. It's essential that we keep these businesses healthy and growing. And we are. In Fabric Care, where P&G is the global leader, we have a worldwide share of over 30%. In Hair Care, we are also the global leader - yet we have only about a 20% share. There's plenty of upside in all four categories. GROW FASTER WITH LEADING CUSTOMERS. In the U.S., the top 10 retailers increased their share of the market from 30% to 55% in the past five years. In Europe, concentration at the country level is even greater. This plays to P&G strengths. We understand shoppers and partner with retailers in ways and on a scale few competitors can match. We're helping retailers grow with joint business plans, P&G's leading brand portfolio, and category-leading new product innovation. As leading retailers grow, so do P&G brands. GROW IN BIG COUNTRIES. More than 80% of P&G sales come from the top 10 markets. We need to keep driving P&G growth in these countries, which are some of the biggest and strongest economies in the world. P&G's business in the top 10 countries taken together is growing at a rate of 11% per year. P&G is a leader in these markets. We have deep understanding of local consumers, strong retail partnerships and important scale advantages. Yet, despite this strength in P&G's 10 largest countries, we still have significant opportunities to grow. In the U.S. for example, P&G is the leader in 23 categories, but we have shares above 30% in only 18. We know we can extend P&G leadership in these big countries. DEVELOP AND INVEST IN FASTER-GROWING, HIGHER-MARGIN BUSINESSES. We're strengthening P&G's leadership in Health Care and Beauty Care, two of the fastest-growing categories in which we compete. We have five billion-dollar health and beauty brands today. The acquisition of Wella will add a sixth. In fact, with the addition of Wella, Health Care and Beauty Care will account for nearly half of P&G sales and profits, up from about one-fourth at the beginning of the 1990s. We expect these two high-growth businesses to represent an increasing share of P&G's total business in the future. BUILD P&G LEADERSHIP IN FAST-GROWING DEVELOPING MARKETS. The consumer products business is driven significantly by three basic demographic factors: population growth, household formation and household income growth. These factors have driven developed-market growth for decades, and are now driving strong growth in many developing markets. China, for example, is now P&G's sixth largest market - up from tenth just three years ago. We've focused decisively on higher-growth, structurally attractive markets where P&G can achieve sustainable growth. 3 P&G's strategic choices are working. We have continued opportunities for substantial growth in every strategic area. We will stay the strategic course. COST AND CASH MANAGEMENT The next plank of P&G's sustained growth strategy is a relentless focus on productivity, cost reduction and cash management. Free Cash Flow (in billions of dollars) [BAR CHART] 2001 3.3 2002 6.1 2003 7.2 - - Over the last three years, we've generated nearly $17 billion in free cash flow, which is cash flow from operations less capital spending. This is two-and-a-half times the amount generated in the previous three years and more than enough to fund dividend growth, share repurchases and acquisitions such as Clairol and Wella. - - We've delivered substantial operating margin progress, excluding restructuring charges. We've been disciplined and delivered both restructuring savings and other structural cost improvements. - - In the past three years, we've reduced annual capital spending by $1.5 billion - without foregoing any strategic investments in capacity or innovation. Capital Spending (as % of sales) [BAR CHART] 2001 6.3% 2002 4.2% 2003 3.4% - - Goal We're not letting up. There are more opportunities in virtually every area. We will continue to improve productivity, to spend capital efficiently, to reduce inventories and to increase the return on investments in marketing and new products. We must conserve cash and control costs to continue to deliver superior consumer and shareholder value. CORE STRENGTHS Three core capabilities set P&G apart from competition: branding, innovation and scale. BRANDING. P&G is one of the world's most successful brand-creation and brand-building companies. Three years ago, we marketed 10 billion-dollar brands. Today, we have 13, with Olay joining this exclusive club in 2003. We are leveraging the advantages created by P&G's brand-building capabilities. Our deep and global consumer research helps us to understand, anticipate and respond to consumer needs and wants. Our expertise enables us to create marketing and advertising innovations more effectively and efficiently than many other companies. P&G's brand leadership, category and country scale helps us implement brand-building innovations with retail and media partners in ways that few companies can match. INNOVATION. P&G creates more new brands and categories than any other consumer goods company. Last year alone, three of the top 10 new non-food products introduced in the U.S. were P&G products. Over the past eight years, P&G has had the #1 or #2 new non-food product in the U.S. every single year.(1) P&G's brand-creation and product development leadership is driven by the Company's enormous innovative capacity. We have nearly 7,500 Ph.D.'s and researchers working in 20 technical centers on four continents. We have more than 29,000 patented technologies for products that are in the market today. We are more focused than ever on turning patents into products that consumers buy and use every day. We're multiplying this capability by collaborating more extensively with external innovation partners. The vision is that 50% of all P&G discovery and invention will come from outside the Company. (1)Source: Information Resources, Inc. New Product Pacesetters Annual Reports, Dollar Sales, top FDMx Non-Food products (excludes Wal-Mart) 4 Total Shareholder Return (indexed versus July 2000) [LINE GRAPH] GLOBAL SCALE. P&G has significant scale advantages. We're the global leader in all four core categories. We know we can leverage these scale advantages for even greater value. We have the resources to interact with retail customers on multiple levels including finance, logistics, marketing, shopper understanding and a wide range of services. We bring deep category understanding with global consumer research. We create greater value through the total supply chain by pooling knowledge, expertise and reach. We've designed the new P&G organization with an eye toward these core capabilities, and are focused more explicitly than ever on getting the greatest value from them. The restructuring program is complete, and the new organization structure is fully implemented. We have created an organization unlike any other in the consumer products industry - and it is producing significant competitive advantage. - - The Global Business Units enhance speed to market. It used to take three years or more to rollout new products around the world. We're now able to expand an initiative worldwide in less than 18 months - as illustrated by the recent Pantene, Head & Shoulders and Pampers Baby Stages of Development rollouts. - - The Market Development Organizations enable us to collaborate better with customers. As the retail industry consolidates, it's more important to add value at multiple levels with key customers. The multi-functional expertise of our global and local MDOs enables us to leverage P&G's brand portfolio and innovation capability in ways that drive retailers' growth as well as our own. As a result, P&G brands are growing faster with the world's largest customers. - - Global Business Services provides best-in-class cost structures and service levels. This organization enables P&G to leverage its global scale, and increases our ability to collaborate with leading-edge business services partners. The recent information technology services and facilities management agreements with Hewlett-Packard and Jones Lang LaSalle are great examples. Partnerships like these enable us to achieve best-in-class costs that would not be possible without the unique combination of P&G's new organization design, global scale and the capabilities of best-in-class partners. As we gain experience with the new organization, we are learning it offers benefits we've only begun to tap. P&G people are delivering the best results this Company has company achieved in years. INSPIRATIONAL LEADERS, UNSUNG HEROES P&G's strategic choices, financial discipline, core strengths and unique organization structure create a platform for growth from the core that is sustainable. This growth is being led by the most diverse group of leaders in P&G history. We've built a substantially new leadership team in the past three years. Two-thirds of the top 38 leaders are new to their present roles. They hail from 13 different countries. Half of the line presidents are from outside the U.S. Most have worked in two or three major regions, in a number of categories and a number of countries. Most of them have experience in developing countries as well as developed markets. They know what it's like to compete against well- entrenched international and local competitors. Most important, they are inspirational leaders deeply committed to developing and energizing the men and women in their organizations. 5 Those men and women - 98,000 unsung heroes - are the heart of our Company. They have demonstrated remarkable dedication in the past three years and have distinguished themselves as one of the strongest generations of P&G people in our Company's 165-year history. I spend time with these professionals every single day. They are inspired. They share a single purpose - to improve the lives of the world's consumers. They focus on common goals and pursue clear strategies. They operate with shared values and principles. They have unleashed their passion for serving consumers - and creating value for shareholders - in a way that is building billion-dollar brands and delivering the best results this Company has achieved in years. It's a privilege to be part of such an extraordinary organization. /s/ A.G. Lafley A.G. Lafley Chairman of the Board, July 31, 2003 President and Chief Executive [TIDE LOGOS] 6 P&G's BILLION-DOLLAR BRANDS [PRODUCTS GRAPHIC] 7 With combined revenues of more than $24 billion, P&G's 13 billion-dollar brands would rank among the top 70 U.S. companies in the Fortune 500.(R) [PRODUCTS GRAPHIC] [GRAPHIC] FABRIC AND HOME CARE Fabric and Home Care is the Company's largest and oldest business - and it continues to grow to record levels with its fastest and most balanced growth in a decade. Key brands include Tide, Ariel, Downy, Lenor, Gain, Cascade, Swiffer and Febreze. - - Fabric and Home Care net sales grew 8% to $12.6 billion. - - Fabric and Home Care net earnings grew 12% to $2.1 billion. Net Sales (in billions of dollars) [BAR CHART] 2001 11.7 2002 11.6 2003 12.6 Net Earnings (in billions of dollars) [BAR CHART] 2001 1.6 2002 1.8 2003 2.1 [GRAPHIC] BOLD P&G launched Bold in Japan in August 2002. Bold achieved nearly a 10% share, and pushed P&G's total detergent category share in Japan to nearly 30%. [GRAPHIC] SWIFFER DUSTERS Swiffer has changed the way we clean our homes and created a new $1.2 billion (retail sales) surface cleaning systems category in North America and Western Europe. More than five out of every $10 spent in this category are for Swiffer products. 9 We're P&G's oldest business and still one of its most important engines of growth. This past year, the growth we generated was nearly the same as adding a very profitable, new billion-dollar brand to P&G. [GRAPHIC] ROBERT A. MCDONALD President P&G's Fabric and Home Care business is focused on growing global scale, market share and profit. Given its size and importance to the Company, Fabric and Home Care's goals are the same as the Company's goals. We're delivering broader, stronger volume and sales growth to strengthen scale advantages and help ensure sustainable double-digit profit growth. This focus is paying off. We delivered record volume, sales and profits in 2002/03 - our third straight year of double-digit profit growth. Volume was up 9% - the highest in over a decade. We grew market share in the majority of categories and countries in which we compete. Two strategies are driving these results: INNOVATION. We're growing our top-line with innovation across a broad portfolio of brands. We have more than doubled the success rate of new product initiatives on the strength of industry-leading product and commercial innovation. Tide and Downy Clean Breeze enable consumers to get the same fresh scent in both their detergent and fabric softener. Improved versions of Ariel and Tide have resulted in our largest worldwide share gains in years. New Gain was the fastest-growing brand in the U.S. Laundry detergent category. Improved dishwashing liquids have broadened P&G's share leadership. At the same time, we're driving overall category growth. Revolutionary products like Swiffer WetJet and Swiffer Dusters are expanding the new surface cleaning systems category. Febreze single-handedly created the new fabric refresher category, creating a brand that generates over $250 million in sales. In addition, we're expanding P&G's portfolio of Fabric and Home Care brands with Mr. Proper in Germany, Bold in Japan and Gain Fabric Enhancer in North America. INCREASING PRODUCTIVITY. We are increasing productivity to sustain double-digit profit growth. This is an equally important strategy that leverages P&G's global scale in the Fabric and Home Care business. We've built this scale through P&G's portfolio of market-leading brands, as well as the size of our worldwide business. This leads to increased productivity, which enables better value and growing profits. In the past year, we have significantly reduced cost of goods sold and have set the industry benchmark for capital spending as a percentage of sales. We have strengthened decision-planning capabilities, reduced overheads as a percentage of sales and improved the way we allocate financial and human resources. Our target benchmarks are the companies that are best-in-class in each area. Innovation and productivity are critical. When Fabric and Home Care grows, P&G grows. In 2002/03, Fabric and Home Care added $941 million in sales and $228 million in Company profit - nearly the same as adding a very profitable, new billion-dollar brand to P&G. P&G's biggest and oldest business is still one of its most important engines of growth. [GRAPHIC] BEAUTY CARE With the addition of Wella, Beauty Care will be one of the largest beauty care companies in the world in sales and profits. Key brands include Pantene, Always, Whisper, Olay, Head & Shoulders, Tampax, Cover Girl and Clairol Nice 'n Easy. - - Beauty Care net sales grew 14% to $12.2 billion. - - Beauty Care net earnings grew 23% to $2.0 billion. Net Sales (in billions of dollars) [BAR CHART] 2001 10.0 2002 10.7 2003 12.2 Net Earnings (in billions of dollars) [BAR CHART] 2001 1.4 2002 1.6 2003 2.0 [GRAPHIC] HEAD & SHOULDERS Head & Shoulders achieved its second consecutive year of double-digit growth with 16% volume growth in Fiscal 2003. [GRAPHIC] TAMPAX PEARL Feminine Care is extending its brands to reach millions of new consumers in developing markets and new segments, such as plastic applicator tampons. Each additional global share point earned in Feminine Care is worth $100 million of P&G sales. 11 We're working to combine the best of P&G and the best of beauty companies to create something better. P&G is now one of the world's largest beauty companies. [GRAPHIC] BRUCE L. BYRNES President Our clear goal is to become the best Beauty Care company in the world - for consumers, customers and shareholders - and to lead the Company's growth. We want to combine the best of P&G with the best of "beauty" companies to create something even better. We're well on our way to achieving this. With the addition of Wella, Beauty Care will be one of the largest beauty care companies in the world in sales and profits. We will have more billion-dollar brands than any competitor and profit margins among the highest in the industry. INNOVATION IS AT THE HEART OF OUR SUCCESS. We've grown Olay to billion-dollar sales behind continuous step-change innovation that better meets women's skin care needs. Daily Facials is the #1 cleansing cloth in the U.S. market - a novel breakthrough that removes makeup, cleanses the skin, exfoliates and conditions in a simple, single step. Total Effects, based on our proprietary VitaNiacin ingredient, established Olay as the anti-aging leader in Skin Care. Regenerist, our latest breakthrough in anti-aging, comes out of wound-healing cellular science and is off to a tremendous start - already the U.S. market leader only three months after launch. In Cosmetics, Cover Girl Outlast and Max Factor Lipfinity products offer patented, longer-wearing lip color and have been the most successful lipstick launches ever. Outlast is now the single largest makeup product in the entire U.S. market. In Feminine Care, we introduced Tampax Pearl. This new plastic tampon was redesigned from top to bottom to better meet consumer needs and wants. We've been very pleased with results to date, and both shipments and share continue to grow. Our two largest brands, Pantene - the world's leading hair care brand - and Head & Shoulders, each grew sales in double digits over the last two-year period behind a series of product and marketing initiatives. Much of the success here reflects hair conditioning technology unsurpassed in the world. WE'RE COMPLEMENTING INNOVATION WITH ACQUISITIONS. We have successfully complemented internal innovation with acquisitions. The Clairol acquisition moved P&G into the faster-growing Hair Colorants segment. Colorants appeal to both aging baby boomers and experimental teens. This business is now fully integrated, and we're launching our first innovations - on Nice 'n Easy and with Herbal Essences Highlighting. At acquisition, Hugo Boss fragrance was a small unknown brand with sales under $50 million. Hugo Boss is now the largest male fine fragrance franchise in the world. At acquisition, SK-II was another small, unknown brand with sales of less than $50 million. SK-II is now the leading prestige skin care brand in Asia. The Wella acquisition will give us access to the large and growing professional hair care market, provide a geographic complement and a strong technology partner to Clairol's colorant business, give us a greater presence in hair styling and a complementary fragrance portfolio. WE'RE MAINTAINING A STRONG COST FOCUS. A strong cost focus underpins all of our activity in Beauty Care, which enables us to earn attractive margins while providing value to consumers. We're excited about the growth Beauty Care will continue to bring to the Company as we go forward. [GRAPHIC] BABY AND FAMILY CARE Baby and Family Care is home to the Company's single largest billion-dollar brand, Pampers, and two other billion-dollar brands, Bounty and Charmin. Other brands include Luvs, Puffs, Tempo and Dodot. - - Baby and Family Care net sales grew 8% to $9.9 billion. - - Baby and Family Care net earnings grew 20% to $882 million. Net Sales (in billions of dollars) [BAR CHART] 2001 9.2 2002 9.2 2003 9.9 Net Earnings (in millions of dollars) [BAR CHART] 2001 658 2002 738 2003 882 [GRAPHIC] BABY STAGES OF DEVELOPMENT Around the world, parents bought 1.5 billion more Pampers diapers in 2002/03 than the previous year. [GRAPHIC] CHARMIN Charmin was introduced in Germany/Austria/Switzerland in February 2002, and has contributed over 25% of the total worldwide volume growth of Charmin since. 13 The challenge in Baby and Family Care is to be consumer- and customer-friendly on the outside while managing complex innovation inside. We're meeting this challenge. [GRAPHIC] MARK D. KETCHUM President Our goal is to delight consumers through better-performing products at a good value, while delivering superior shareholder returns. The challenge in Baby and Family Care is to do this in an environment of much higher capital costs and longer innovation lead times. Our approach to managing complex innovation in this environment is paying dividends with consumers and shareholders alike. Baby and Family Care includes three of the Company's most recognizable billion-dollar brands: Pampers, Bounty, and Charmin. Industry consolidation and consumer expectations have increased competition and the importance of staying in front on innovation. Babies are only in diapers about three years, so one-third of our Baby Care consumer base turns over every year. New moms are very interested in finding the latest and greatest performance and value. We're focused on four strategies: BETTER AND CHEAPER DESIGNS. Historically, we invented product improvements first and cost-saved them later. We asked consumers to pay for this inefficiency with higher prices. Today, we build structural cost reduction into original designs. It's working. In the past year, unit costs have declined by more than $300 million. While delivering strong profit progress, we've still invested a substantial portion of this cost reduction into more innovation and lower prices to improve consumer value and grow market share. 360 degree INNOVATION. We're getting more out of every initiative by what we call "360 degree innovation." We expect innovation in all elements that impact consumer value: product, design, package, in-store presentation, price, and clear, compelling marketing communication. We've developed a new research technique to evaluate how these elements interact with each other for each new initiative. Pampers Baby Stages of Development doubled the size of P&G's premium diaper business, and Charmin was successfully launched in Mexico and Germany leveraging 360 degree innovation. INNOVATION-FRIENDLY EQUIPMENT. Consumers don't care what kind of equipment we use to make products, but they will switch brands if we fall behind on performance or value. This is why we invested $1 billion in a sustainable capital standardization program over the past several years to make it easier and more cost effective to innovate in Baby Care. Diaper production lines that were different in every part of the world were replaced with a standard modular converter. We can now innovate off-line and then quickly replace one or two modules. Today, we make more diapers than we did five years ago with 30% fewer lines - and our capital needs in the future will be lower. Total capital spending in Baby and Family Care finished 2002/03 below 6% of sales, better than key competition and well below our historical average. VIRTUAL DESIGN. Designing physical prototypes of products and equipment is expensive and time-consuming. Again, consumers don't want to pay for this. We've expanded our capability to use computer-aided virtual design for everything from better-fitting diapers to faster, more efficient paper machines. This has cut development costs and accelerated time to market. Baby Care and Family Care are very large categories that present significant opportunities for category growth, share growth, geographic expansion and improved shareholder returns. Being consumer- and customer-friendly on the outside while managing complex innovation inside is the key to success. [GRAPHIC] HEALTH CARE Health Care is the Company's fastest growing business, with innovations over the last three years representing more than $1 billion in new sales. Key brands include Crest, Iams, Eukanuba, Vicks, Actonel, Asacol, Scope, Pepto-Bismol and ThermaCare. - - Health Care net sales grew 16% to $5.8 billion. - - Health Care net earnings grew 35% to $706 million. Net Sales (in billions of dollars) [BAR CHART] 2001 4.4 2002 5.0 2003 5.8 Net Earnings (in millions of dollars) [BAR CHART] 2001 390 2002 521 2003 706 [GRAPHIC] ACTONEL Actonel delivered $650 million in global alliance sales worldwide. [GRAPHIC] PRILOSEC Prilosec, the world's #1 selling drug in its class, is now available over the counter to treat frequent heartburn. 15 We expect the future of Health Care to be one of continued high growth. We've built a fast-growing, profitable business with breakthrough innovation, strategic acquisitions and partnerships, and operating cost discipline. [GRAPHIC] BRUCE L. BYRNES President Our objective in Health Care is to lead Company growth by helping people and pets live longer, healthier lives. We've built a rapidly growing, profitable Health Care business by focusing on the successful commercialization of breakthrough innovation, strategic acquisitions and partnerships, and operating cost discipline. INNOVATION. Successful innovations include Actonel, our prescription osteoporosis drug, which reached $650 million in worldwide alliance sales after only three years in the market. In Oral Care, Crest Whitestrips has reached almost $300 million in sales and continues to grow. We've added another whitening innovation with Night Effects, a "liquid strip" that whitens your teeth while you sleep. In Personal Health Care, we created a new category with ThermaCare, a therapeutic heat wrap that is 33% more effective than ibuprofen in reducing lower back pain. We've grown our Pet Health and Nutrition business behind breakthroughs such as Iams and Eukanuba Dental Defense. In just the last three years, we've introduced innovations across Health Care that represent well over $1 billion in new sales. ACQUISITIONS, PARTNERSHIPS AND ALLIANCES. We actively seek to add to our own innovation by identifying and effectively executing strategic acquisitions, partnerships and alliances. We look for opportunities where the combination of an external brand, product or technology and P&G's capabilities can create significant incremental value for shareholders. We bought the Iams Company four years ago. Since then, we've nearly doubled sales to $1.5 billion. Iams is now the #1 dog and cat food brand in both the U.S. and Canada, up from #5 at acquisition. We acquired the Dr. John's SpinBrush business in January of 2001 and more than doubled this business to more than $200 million, stimulating growth of the power brush segment, which is increasing 25% per year. We're creating a growing water purification business with PUR, which we bought three years ago and have grown by more than 50%. COST CONTROL. Innovations are successfully commercialized only if they provide meaningful value to consumers. To ensure that we can offer good value to retail customers and consumers day in and day out, and at the same time create value for shareholders, we maintain constant focus on cost control. Our capital spending as a percentage of sales in 2003 was 2.5% - among the lowest in the Company and the industry in which we compete. Margins have improved over the last two years, as profit growth has outpaced sales growth. We believe the future for Health Care is one of continued high growth. We're currently launching Prilosec OTC for the treatment of frequent heartburn. Prescription-strength Prilosec was the top-selling pharmaceutical drug in the world. Actonel continues to build share in major markets, including the U.S., Germany, France, Canada and the UK - and the prescription market for osteoporosis treatments continues to grow. Less than 25% of consumers who have osteoporosis are currently diagnosed. We have an exciting pipeline of innovation across Health Care that we'll be commercializing in the months and years ahead. We'll continue to develop this with smart acquisitions, partnerships and alliances. With ongoing cost optimization, we expect that profits will continue to grow ahead of sales. [GRAPHIC] SNACKS AND BEVERAGES Snacks and Beverages is focused on salted snacks and coffee. Folgers is the #1 coffee brand in North America. Pringles is P&G's most global franchise, sold in over 140 countries. - - Snacks and Beverages net sales were flat at $3.2 billion. - - Snacks and Beverages net earnings grew 1% to $306 million. Net Sales (in billions of dollars) [BAR CHART] 2001 3.5 2002 3.2 2003 3.2 Net Earnings (in millions of dollars) [BAR CHART] 2001 242 2002 303 2003 306 [GRAPHIC] FOLGERS PLASTIC PACKAGING Folgers new AromaSeal(TM) Canister preserves freshness and has an easy-grip handle and peel-off seal for greater convenience. [GRAPHIC] PRINGLES SNACK STACKS Snack Stacks is one of the most successful initiatives in P&G's North America snacks history. 17 We're providing sustained cash flow with rigorous cost discipline and a strong innovation program supporting Folgers and Pringles, our two billion-dollar brands. [GRAPHIC] JORGE P. MONTOYA President In Snacks and Beverages, the goal is to build our focused brands and provide strong, sustained cash flow. Behind the strength of two billion-dollar brands - Folgers and Pringles - rigorous cost discipline and a strong innovation program, we're positioned to deliver. We have faced a number of challenges over the past three years, but we have responded to them squarely. Recognizing the need to deliver growth, we have streamlined our Snacks and Beverages portfolio. Last year, we spun off the Jif and Crisco brands, and we recently announced that we're exploring strategic options for the juice business. We're now sharply focused on salted snacks and coffee. These are the categories in which P&G can leverage leadership to deliver value to consumers, customers and shareholders. Folgers is the #1 coffee brand in North America. It has strong retailer support and deep consumer loyalty. Pringles - P&G's most global franchise - is one of the leading salted snack brands, sold in over 140 countries. Three strategies will drive the growth of these big brands: INNOVATION. P&G brings significant innovation scale to this business. Because of the breadth of P&G businesses, our brands can access a broader portfolio of relevant product and packaging technologies - inside and outside P&G - than many competitors. For example, we recently introduced the new plastic AromaSeal(TM) Canister on Folgers in the U.S., leveraging both technology and supplier partnerships from elsewhere in the Company. This new package - a category first - - is easier to carry and provides fresh aroma and taste day after day. Pringles' innovations include Snack Stacks (a 23-gram lunchbox size) and customized solutions for retailers: unique colors, flavors and sizes. ENHANCED GO TO MARKET CAPABILITY. Our goal is for Folgers and Pringles to be available to consumers whenever and wherever they shop. To do this, we're developing stronger go to market capability. We're combining the scale and leverage of P&G's Market Development Organizations with external distribution and merchandising partners. New distribution alliances with Meiji in Japan and Arnott's Snackfoods in Australia are expanding Pringles' presence in immediate consumption channels. COST DISCIPLINE. We continue to focus on improving the financial strength of Snacks and Beverages. P&G Coffee margins are among the best-in-class. While we've improved over the past four years, P&G Snacks margins remain below best-in-class. We intend to close this gap by focusing on more efficient asset utilization and ongoing cost reduction. We want to acknowledge the heroic achievements of P&G employees, both active and retired, during this past year. The Pringles plant in Jackson, Tennessee was struck by a devastating tornado in May. Homes and businesses near the plant were destroyed and virtually every tree surrounding the plant was snapped in two. Fortunately, none of our employees was injured. Once safety had been assured, these unsung heroes mounted an extraordinary effort to get the plant back up and running. They worked in 24-hour shifts and, remarkably, in only two weeks, plant lines had started producing again. The Jackson plant story is a profile in P&G courage and dedication. The Snacks and Beverages business is more focused today than ever. We have hard work ahead of us. We must respond to aggressive competitive coffee discounting and merchandising with better consumer value and category-leading innovation. We must continue to improve margins in Snacks, while sustaining the pace of consumer innovation and retailer customization. These are significant challenges, but I'm convinced we have the brands, strategies and organization to meet them head-on. [GRAPHIC] MARKET DEVELOPMENT ORGANIZATION P&G's Market Development Organization is the Company's on-the-ground connection to local consumers and customers. The global organization includes seven regions: - - ASEAN, Australasia and India - - Central and Eastern Europe, Middle East and Africa - - Greater China - - Latin America - - North America - - Northeast Asia - - Western Europe - - P&G's top 10 countries grew volume 11% in fiscal 2003. - - P&G grew volume 13% with its top 10 customers in fiscal 2003. Top Ten Countries Volume Growth [BAR CHART] 2002 7% 7% 2003 7% 11% Top Ten Customers Volume Growth [BAR CHART] 2002 5% 12% 2003 6% 13% - - Balance - - Top Ten 19 We combine deep brand and consumer knowledge with local market knowledge. We're confident we have only scratched the surface of what this organization is capable of delivering. [GRAPHIC] R. KERRY CLARK President P&G's Market Development Organization (MDO) is a unique, growing source of competitive advantage. MDO professionals lead retailer and country business teams to build P&G brands in the local markets, ranging from North America to Greater China. We combine deep brand and consumer knowledge embedded in P&G's Global Business Units (GBUs) with local market knowledge in the MDOs. We bring together initiatives from every GBU and create business-building plans for retail partners in more than 160 countries. As a result, we go to market as one company in every country to help leverage scale and get the full benefit of understanding what works and what doesn't work across categories. The Market Development Organization focuses primarily on winning the first moment of truth - when the consumer chooses P&G brands at the retail shelf. We have four key priorities: FOCUS ON THE BIG OPPORTUNITIES. We focus on top P&G brands in top countries with top retailers that account for most of P&G's business. Over the last year, the top 10 countries grew volume four percentage points faster than the balance, and top 10 customers grew seven percentage points faster. CREATE VALUE FOR CONSUMERS. We know we must provide brands that represent good value for consumers. Three years ago, too many P&G brands were failing this test. Their prices were higher than competition, and not justified by performance advantages that warranted the premium. We've fixed that. Our brand pricing and promotion strategies have been reviewed, changes made and progress tracked. While there will always be strong price competition, the vast majority of top brands in major markets are now priced competitively, and will stay priced competitively. CREATE VALUE FOR RETAILERS. We've deepened P&G's extensive database of shopper research to help retailers better understand the needs of shoppers and provide shopping experiences that earn loyalty and generate profitable sales. We've customized go to market plans around the world to reflect the unique needs of retail customers. For large global, regional and local customers, we organize around geographic scope; we have individual programs in place with virtually all our top retailers. For developing markets, we tailor programs for very small stores that are part of each retail landscape. As a result, we're seeing very positive business results in both developed and developing markets. MAKE SURE P&G PRODUCTS ARE AVAILABLE. We're improving availability and replenishment of P&G products on store shelves. We've reduced the number of incomplete orders by two-thirds. We're developing in-store programs to reduce out-of-stock products. Our vision is to create a retail customer supply chain driven by consumer purchases rather than factory production schedules. P&G's Market Development Organization is gaining momentum. We have learned a great deal since designing this unique organization in 1999. This knowledge is resulting in better business plans, tighter customer relationships and stronger, sustainable growth for P&G. We're confident we've only scratched the surface of what this organization is capable of delivering. 20 DIRECTORS [PHOTO OF DIRECTORS] In order, from left to right: 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. Director since 1994. Age 63. Member of the Finance and Public Policy 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. Age 65. Member of the Compensation, Executive and Finance Committees. CHARLES R. LEE Chairman of the Board of Directors, Verizon Communications (telecommunication services). Director since 1994. Age 63. Member of the Audit, Compensation and Governance and Nominating Committees. MARINA V.N. WHITMAN Professor of Business Administration and Public Policy, University of Michigan. Director since 1976. Age 68. Chairman of the Governance and Nominating Committee, and member of the Compensation and Finance Committees. ROBERT D. STOREY Partner in the law firm of Thompson Hine, L.L.P. Director since 1988. Age 67. Chairman of the Public Policy Committee and member of the Finance Committee. BRUCE L. BYRNES Vice Chairman of the Board and President - Global Beauty and Feminine Care and Global Health Care. Director since 2002. Age 55. W. JAMES MCNERNEY, JR. Chairman of the Board and Chief Executive Officer, 3M Company (diversified technology). Director since 2003. Age 54. Member of the Audit and Governance and Nominating Committees. SCOTT D. COOK Chairman of the Executive Committee of the Board, Intuit Inc. (a software and web services firm). Director since 2000. Age 51. Member of the Compensation and Innovation and Technology Committees. A.G. LAFLEY Chairman of the Board, President and Chief Executive. Director since 2000. Age 56. Chairman of the Executive Committee. 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. Age 68. Chairman of the Compensation Committee and member of the Executive and Innovation and Technology Committees. JOHN F. SMITH, JR. Retired Chairman of the Board and CEO, General Motors Corporation (automobile and related businesses). Director since 1995. Age 65. Chairman of the Audit Committee and member of the Governance and Nominating and Public Policy Committees. MARGARET C. WHITMAN President and Chief Executive Officer, eBay Inc. (a global online marketplace for the sale of goods and services). Director since 2003. Age 47. Member of the Compensation and Governance and Nominating Committees. JOHN E. PEPPER Retired Chairman of the Board (retired from the Board on July 1, 2003). R. KERRY CLARK Vice Chairman of the Board and President - Global Market Development and Business Operations. Director since 2002. Age 51. RICHARD J. FERRIS Retired Co-Chairman, Doubletree Corporation. Director since 1979. Age 66. Chairman of the Finance Committee and member of the Executive and Public Policy Committees. DOMENICO DESOLE President and Chief Executive Officer and Chairman of the Management Board, Gucci Group N.V. (multibrand luxury goods company). Director since 2001. Age 59. Member of the Audit 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. Age 51. Member of the Finance and Public Policy Committees. RALPH SNYDERMAN Chancellor for Health Affairs and Executive Dean, School of Medicine at Duke University, and President/CEO of Duke University Health Systems. Director since 1995. Age 63. Chairman of the Innovation and Technology Committee. JOHNATHAN A. RODGERS President and Chief Executive Officer, TV One (media and communications). Director since 2001. Age 57. Member of the Innovation and Technology 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 21 CORPORATE OFFICERS A.G. LAFLEY Chairman of the Board, President and Chief Executive BRUCE L. BYRNES Vice Chairman of the Board and President - Global Beauty and Feminine Care and Global Health Care R. KERRY CLARK Vice Chairman of the Board and President - Global Market Development and Business Operations FERNANDO AGUIRRE President - Special Projects JEFFREY P. ANSELL President - Global Pet Health and Nutrition SUSAN E. ARNOLD President - Global Personal Beauty Care and Global Feminine Care CHARLES V. BERGH President - ASEAN, Australasia and India MARK A. COLLAR President - Global Pharmaceuticals FABRIZIO FREDA President - Global Snacks WERNER GEISSLER President - Northeast Asia MICHAEL J. GRIFFITH President - Global Beverage DEBORAH A. HENRETTA President - Global Baby Care MARK D. KETCHUM President - Global Baby and Family Care ROBERT A. MCDONALD President - Global Fabric and Home Care JORGE S. MESQUITA President - Global Home Care JORGE P. MONTOYA President - Global Snacks and Beverages and Latin America TOM A. MUCCIO President on Special Assignment MARTIN J. NUECHTERN President - Global Hair Care DIMITRI PANAYOTOPOULOS President - Central and Eastern Europe, Middle East and Africa LAURENT L. PHILIPPE President - Greater China CHARLES E. PIERCE President - Global Family Care PAUL POLMAN President - Western Europe ROBERT A. STEELE President - North America RICHARD G. PEASE Senior Vice President - Human Resources, Global Baby and Family Care NABIL Y. SAKKAB Senior Vice President - Research and Development, Global Fabric and Home Care RICHARD L. ANTOINE Global Human Resources Officer G. GILBERT CLOYD Chief Technology Officer CLAYTON C. DALEY, JR. Chief Financial Officer STEPHEN N. DAVID Chief Information Officer and Business-to-Business Officer R. KEITH HARRISON, JR. Global Product Supply Officer JAMES J. JOHNSON Chief Legal Officer MARIANO MARTIN Global Customer Business Development Officer CHARLOTTE R. OTTO Global External Relations Officer FILIPPO PASSERINI Global Business Services Officer JAMES R. STENGEL Global Marketing Officer JUAN PEDRO HERNANDEZ Vice President and Treasurer JOHN K. JENSEN Vice President and Comptroller SHARON E. ABRAMS Secretary 22 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING At Procter & Gamble, our actions - the actions of all employees - are governed by our Purpose, Values and Principles. These core values set a tone of integrity for the entire Company - one that is reinforced consistently at all levels and in all countries. We have maintained strong governance policies and practices for many years. The management of Procter & Gamble is responsible for the objectivity and integrity of the accompanying Consolidated Financial Statements. The Board of Directors has engaged independent auditors, Deloitte & Touche LLP, to audit our financial statements and they have expressed an unqualified opinion. We are committed to providing timely, accurate and understandable information to investors. This encompasses: Maintaining a strong internal control environment. Our system of internal controls includes written policies and procedures, segregation of duties and a careful selection and development of employees. The system is designed to provide reasonable assurance that transactions are executed as authorized and accurately recorded, that assets are safe-guarded 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 maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the specified time periods. We monitor these internal controls through self-assessments and an ongoing program of internal audits. Key employee responsibilities are reinforced through the Company's "Worldwide Business Conduct Manual," which sets forth management's commitment to conduct its business affairs with high ethical standards. Focusing on financial stewardship. We maintain a specific program 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 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 and financial performance. The intent is to ensure we remain objective in our assessments, constructively challenge the approach to business opportunities and potential issues and monitor results and controls. Engaging our Disclosure Committee. Last fall, we formalized a Disclosure Committee, a group of senior level executives responsible for ensuring that significant business activities and events are appropriately identified, reported to management and the Board of Directors and disclosed, as appropriate. 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 key accounting policies and financial reporting and internal control matters with them and encourage their independent discussions with Deloitte & Touche LLP, our independent auditors. Providing investors with financial results that are complete and under- standable. The Consolidated Financial Statements and financial information included in this report are the responsibility of management. This includes preparing the financial statements in accordance with accounting principles generally accepted in the United States of America, which require estimates based on management's best judgment. 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. /s/ A.G. Lafley /s/ Clayton C. Daley, Jr. - --------------- ------------------------- A.G. Lafley Clayton C. Daley, Jr. Chairman of the Board, Chief Financial Officer President and Chief Executive The Procter & Gamble Company and Subsidiaries 23 TABLE OF CONTENTS FINANCIAL REVIEW Results of Operations 23 Segment Results 25 Financial Condition 28 Key Accounting Policies 29 Hedging and Derivative Financial Instruments 31 Restructuring Program 31 Forward-Looking Statements 33 INDEPENDENT AUDITORS' REPORT 34 AUDITED CONSOLIDATED FINANCIAL STATEMENTS Earnings 35 Balance Sheets 36 Shareholders' Equity 38 Cash Flows 39 Notes to Consolidated Financial Statements 40 FINANCIAL REVIEW RESULTS OF OPERATIONS The Company markets nearly 300 products in more than 160 countries around the world in five distinct business segments: Fabric and Home Care, Beauty Care, Baby and Family Care, Health Care and Snacks and Beverages. The Company's results for the fiscal year ended June 30, 2003 reflect broad-based business strength, with four of the five segments delivering top-line sales growth and all five business segments delivering net earnings growth. The Company continues to make clear choices about where to play and how to win. The framework for these decisions is grounded in focus areas that include: building core categories and leading brands, growing with leading customers and in the biggest geographic markets, investing in faster-growing, higher-margin businesses and building leadership in fast-growing developing markets. Consistent with this framework, in March 2003 the Company reached an agreement with the controlling shareholders of Wella AG to acquire 77.6% of the voting class shares. In June 2003, the Company completed a tender offer for the remaining outstanding voting class shares and preference shares, securing approximately 81% of the total outstanding Wella AG shares (99% of the voting class shares and 45% of the preference shares). This acquisition is expected to close in the first quarter of fiscal 2004. Wella AG 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. This framework also requires some difficult decisions, including the Company's announcement in July 2003 to seek strategic alternatives for its Sunny Delight and Punica juice drink brands. Another example is the Company's continuing evaluation of outsourcing arrangements in areas where the Company can leverage industry expertise and scale to obtain high quality services at a lower cost. The Company has announced plans to outsource real estate and facilities management, information technology and certain other administrative and manufacturing processes. Volume and Net Sales The Company achieved record sales of $43.38 billion in 2003, 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. In fact, 19 of the Company's top 20 brands increased volume as compared to the prior year. Excluding the impacts of acquisitions and divestitures, volume was also up 8%, as the impact of the Clairol acquisition in November 2001 was offset by the impact of the Jif and Crisco spin-off in May 2002. 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 stimulate growth and remain competitive in key categories, including diapers, tissue, hair care, feminine care, teeth whitening and coffee. Future pricing activities will be aimed at providing value to both consumers and customers and will be influenced by competitive activity and the Company's product initiative program. 24 The Procter & Gamble Company and Subsidiaries Financial Review Fiscal year 2002 sales were $40.24 billion, an increase of 3%, compared to $39.24 billion in 2001, on volume growth of 7% driven by Health Care and Beauty Care. Net sales grew less than volume due to a 1% impact for exchange effects, a 1% impact for pricing and a 2% impact for mix. Net Earnings Net earnings were $5.19 billion in 2003, an increase of 19% compared to $4.35 billion in 2002. Reported results included after-tax restructuring charges of $538 million in 2003 and $706 million in 2002. 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 costs and lower manufacturing costs as a percentage of net sales. Net earnings in 2001 were $2.92 billion, including after-tax restructuring charges of $1.48 billion. Net earnings in 2002 exceeded 2001 due to volume growth, manufacturing savings and lower restructuring charges. The restructuring program covered enrollment reductions, manufacturing consolidations and portfolio choices to scale back or discontinue under-performing businesses and initiatives and was substantially complete at June 30, 2003. It is discussed in more detail in the Restructuring Program section and Note 2 to the Consolidated Financial Statements. Diluted net earnings per share were $3.69 in 2003 compared to $3.09 in 2002 and $2.07 in 2001, including the restructuring charge impact of $0.39, $0.50 and $1.05 per share, respectively. Operating Costs Cost of products sold was $22.14 billion in 2003 compared to $20.99 billion in 2002 and $22.10 billion in 2001. Before-tax restructuring charges included in cost of products sold were $381 million in 2003, $508 million in 2002 and $1.14 billion in 2001. Gross margin in 2003 improved to 49.0%, an increase of 120 basis points versus the previous year. Lower restructuring costs accounted for 40 basis points of the improvement with the remainder achieved behind lower material costs and the benefits of restructuring and base business savings delivered outside the restructuring program. Gross margin of 47.8% in 2002 improved versus 43.7% in 2001, which was more significantly impacted by restructuring charges. Marketing, research, administrative and other expense (MRA&O) was $13.38 billion in 2003 versus $12.57 billion in 2002 and $12.41 billion in 2001. MRA&O included before-tax restructuring charges of $374 million in 2003, $519 million in 2002 and $583 million in 2001. The increase in MRA&O in 2003 versus 2002 was driven by additional marketing investments behind new product launches and expansions of existing brands, including Tide with Bleach, Swiffer Duster, Crest Whitestrips and Olay Regenerist. Marketing investments were partially offset by lower research and administrative costs, reflecting savings from the Company's restructuring program. As a percent of net sales, MRA&O has improved with 2003 down 30 basis points to 30.9%. Marketing expenses as a percentage of net sales increased 75 basis points due to the marketing investments discussed in the preceding paragraph as well as other product launches and brand equity building activities. This was more than offset by lower research and administrative expenses as a percentage of net sales due to scale efficiencies and lower restructuring costs. MRA&O was 31.2% of net sales in 2002 versus 31.6% in 2001, with higher marketing investments more than offset by lower restructuring costs. Non-Operating Items Interest expense was $561 million in 2003, compared to $603 million in 2002 and $794 million in 2001. The decline in interest expense in 2003 was driven by lower interest rates and debt balances. The decline in 2002 versus 2001 was driven by lower interest rates partially offset by an increase in debt to fund the Clairol acquisition in November 2001. Other non-operating income, which consists primarily of interest and investment income and divestitures, contributed $238 million in 2003 compared to $308 million in 2002 and $674 million in 2001. This decline was driven by significantly lower gains from divestitures and asset sales in 2003 and 2002 versus 2001, as the Company's activity to divest non-strategic brands declined. The Company's effective tax rate for 2003 was 31.1%, a reduction of 70 basis points compared to the 2002 rate of 31.8%. The effective tax rate for 2001 was 36.7%. The decline in the current year was driven primarily by the country mix impact of foreign operations, as earnings increased in countries with lower overall tax rates. The declining rate since 2001 also reflected the impact of lower restructuring charges and amortization of goodwill and indefinite-lived intangibles prior to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Net Earnings Margins Net earnings margin was 12.0% in 2003 versus 10.8% in 2002 and 7.4% in 2001. The margin increase in 2003 was primarily driven by higher volume, lower unit cost of products sold due to lower materials costs, the benefits of restructuring, as well as base business savings, and a reduction in restructuring charges. In 2002, the margin increase reflected a reduction in restructuring charges, the benefit of base and restructuring cost savings projects on both manufacturing and overhead costs and the benefits of lower interest expense. Financial Review The Procter & Gamble Company and Subsidiaries 25 2003 Net Sales by Business Segment (1) [PIE CHART] Fabric and Home Care 29% Beauty Care 28% Baby and Family Care 23% Health Care 13% Snacks and Beverages 7% (1) Excludes net sales and net earnings held in Corporate 2003 Net Earnings by Business Segment (1) Fabric and Home Care 35% Beauty Care 33% Baby and Family Care 15% Health Care 12% Snacks and Beverages 5%

Percentage Change in Net Sales vs. Prior Year --------------------------------------------------- Foreign Total Volume Exchange Pricing Mix/Other Net Sales - ----------------------------------------------------------------------------- Fabric and Home Care 9% 1% -1% -1% 8% - ----------------------------------------------------------------------------- Beauty Care 15% 3% -2% -2% 14% - ----------------------------------------------------------------------------- Baby and Family Care 7% 3% -3% 1% 8% - ----------------------------------------------------------------------------- Health Care 18% 2% -2% -2% 16% - ----------------------------------------------------------------------------- Snacks and Beverages -2% 3% -2% 1% -% - ----------------------------------------------------------------------------- Total Company 8% 2% -2% -% 8% - -----------------------------------------------------------------------------

SEGMENT RESULTS The following pages provide perspective on the Company's business segments. To reflect management and business changes, the Company realigned its reporting segments. Effective July 1, 2002, the feminine care business is included in the Beauty Care segment and the former Baby, Feminine and Family Care segment was renamed the Baby and Family Care segment. Prior year operating information has been restated to conform to this change. In addition, the Food and Beverage segment was renamed Snacks and Beverages to reflect its remaining businesses. The historical results for the elements of the former Food and Beverage segment that have been divested or spun off (i.e., Jif, Crisco and commercial shortening and oils) are now reflected in Corporate. Product-based segment results exclude items that are not included in measuring business performance for management reporting purposes, most notably certain financing, investing, employee benefit and restructuring costs. Investments in companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are managed as integral parts of the Company's business units. Consistent with internal management reporting, these investments are accounted for as if they were consolidated subsidiaries in segment reporting, with 100% recognition of the income statement and separate elimination of minority interest. Entries to eliminate the individual revenue and expense line items, adjusting the method of accounting to the equity method as required by accounting principles generally accepted in the United States of America (U.S. GAAP), are included in Corporate. Taxes are reflected in the business segments at estimated local statutory tax rates. The effects of this convention are also eliminated in Corporate to adjust management reporting conventions to U.S. GAAP. Fabric and Home Care Fabric and Home Care delivered balanced top and bottom line growth behind a program of new product launches and cost reductions. Volume growth of 9% was balanced across both fabric care and home care as well as across regions, with particular strength in developing markets. Net sales increased 8% to $12.56 billion. Foreign exchange contributed a positive impact of 1% to overall sales, driven primarily by the strong Euro. Sales were negatively impacted by 1% due to pricing investments to deliver improved in-store presence and increased merchandising, 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, including the launches of Mr. Proper in Western Europe and Bold in Japan. 26 The Procter & Gamble Company and Subsidiaries Financial Review Net earnings were up 12% to $2.06 billion, driven primarily by strong volume growth, with additional benefits from lower manufacturing costs. Approximately half of the manufacturing cost savings were achieved from restructuring and base cost reduction programs, with the remainder coming from a combination of lower material costs and commodity prices. The impact of strong volumes and lower manufacturing costs on earnings was partially offset by increased marketing spending in support of new product launches and expansion of existing brands, including Bold in Japan, Mr. Proper in Western Europe, and Tide with Bleach and Swiffer in North America. For fiscal year 2002, unit volume grew 3%, with growth across every geographic region. Net sales for the year were flat at $11.62 billion, and were negatively impacted by 1% of foreign exchange and 2% of negative price and mix. The negative price and mix was the result of growth in lower-priced products, including mid-tier brands, larger sizes and developing market business. Net earnings were $1.83 billion in 2002, up 11% behind lower material prices, cost savings from product reformulations and manufacturing plant efficiencies. Beauty Care Beauty Care delivered double-digit unit volume, sales and net earnings growth in 2003. Unit volume grew 15%. Excluding the impacts of the Clairol acquisition, unit volume increased 8% behind solid growth in hair care. Net sales grew 14% to $12.22 billion, as volume and a positive 3% impact from foreign exchange were partially offset by a negative 2% impact from pricing and 2% from mix. The pricing impact was driven by price reductions taken to expand the Company's 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 results also benefited from the Clairol acquisition, which was completed in the second quarter. Unit volume increased 13%, driving sales growth of 7% to $10.72 billion. Excluding the impact of the Clairol acquisition, unit volume increased 3%, primarily behind the base hair care business and fine fragrances and cosmetics. Sales were negatively impacted by 2% of foreign exchange, pricing of 1% and product mix of 3%, driven by lower revenue per unit for the Clairol brands and higher volume growth in developing regions. Earnings were $1.61 billion, up 18%, driven by more efficient marketing spending against a growing business and a continued focus on cost reductions. Baby and Family Care Baby and Family Care delivered volume growth of 7%. Baby care growth was driven by the continued success of the Baby Stages of Development initiative launch. Family care growth was driven by strength in the North American Bounty and Charmin businesses. Net sales grew 8% to $9.93 billion as 3% positive foreign exchange impact and 1% positive mix impact were partially offset by a 3% negative impact from pricing. Positive mix was driven by increased sales of higher priced, premium tier diapers behind the Baby Stages of Development initiative launch. 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 grew 20% to $882 million behind continued cost reductions, primarily achieved through increased scale from volume growth and lower product cost behind base business and restructuring savings. In 2002, Baby and Family Care delivered earnings progress driven by volume growth and extensive cost reductions. Volume grew 5%, with increases in both baby care and family care. Net sales for the year were essentially flat at $9.23 billion versus 2001 as volume growth was offset by commodity driven price declines and pricing adjustments on Luvs in North America and diapers in Western Europe and a negative 2% impact from foreign exchange. Net earnings were $738 million, up 12%, behind an ongoing program of product and overhead cost reductions, including benefits from restructuring activities that streamlined manufacturing operations. Health Care Health Care delivered 18% volume growth with every geographic region and category contributing, led by oral care and pharmaceuticals. Oral care grew behind Crest Whitestrips and Crest Night Effects. Pharmaceutical volume growth continued behind Actonel, including the Once-a-week dosage. Net sales for the year were $5.80 billion, an increase of 16% as compared to 2002. A favorable foreign exchange impact of 2%, driven primarily by the strength of the Euro, was more than offset by a negative pricing impact of 2%, primarily driven by lower pricing on Crest Whitestrips to match a competitive entry, and a Financial Review The Procter & Gamble Company and Subsidiaries 27 negative mix impact of 2%. The negative product mix impact was primarily driven by growth in developing regions and a shift in Actonel volume mix, which is sold under an alliance agreement, to support the global Once-a-week dosage launch. Under the agreement, the sales rate differs based upon geography. Net earnings for Health Care were $706 million, an increase of 35%. The majority of the increase was driven by volume growth and the shift to higher margin products, partially offset by additional marketing investments to support product initiatives, including Actonel, Crest Whitestrips and Crest Night Effects. In 2002, Health Care delivered a 15% increase in unit volume, driven by growth in the oral care and pharmaceutical businesses. Net sales increased 14% to $4.98 billion, including a 1% negative impact of foreign exchange. Health Care's volume growth from high-margin products funded increased marketing investments while still delivering a net earnings increase of 34% to $521 million. Snacks and Beverages Snacks and Beverages 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 prior year, as a positive 3% impact from foreign exchange and 1% from mix were partially offset by a negative 2% impact from pricing, primarily driven by price declines in the coffee category in response to increased competitive promotional spending. Despite the impact of the tornado and lower volume, net earnings increased 1% to $306 million, driven by reductions in cost of products sold, reflecting the impact of both base business and restructuring savings. In 2002, Snacks and Beverages delivered earnings growth despite top-line challenges. Unit volume declined 2% and sales declined 6% to $3.25 billion driven by commodity-related pricing actions in coffee and negative foreign exchange impacts. Net earnings grew 25%, to $303 million, as broad-based cost reductions more than offset declining volumes. In July 2003, the Company announced it was exploring strategic alternatives with respect to the global juice business, which could include the sale of its brands and related assets. The impacts of any potential sale of this business are not currently determinable. While clearly a significant portion of Snacks and Beverages, the ongoing impacts of a potential divestiture are not expected to be material to the Company's operations or financial condition. Corporate Corporate includes certain operating and non-operating activities 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 line item results for companies over which the Company exerts significant influence, but does not control the operations. Operating elements also include intangible asset amortization charges, restructuring program charges, 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 net sales in 2003 primarily reflected the elimination of sales by companies over which the Company exerts significant influence, but does not control. Sales in 2002 included these eliminations along with net sales of the divested businesses of the former Food and Beverage segment. 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 financing elements of employee benefit plans and hedging impacts from a stronger Euro, partially offset by decreased restructuring costs. In 2002, Corporate earnings reflected lower restructuring costs, lower interest expense and the discontinuation of amortization of goodwill and indefinite-lived intangibles. These were partially offset by reduced gains from hedging. 28 The Procter & Gamble Company and Subsidiaries Financial Review FINANCIAL CONDITION The Company's financial condition remains solid, particularly as demonstrated by cash flow generation. One of the Company's key focus areas is cash management, including capital spending targets, to achieve superior shareholder return. Cash Operating cash flow provides the primary source of funds to finance operating needs, capital expenditures and shareholder dividends. This is supplemented by additional borrowings to provide funds to finance the share repurchase program and acquisitions. The overall cash position of the Company reflects a global strategy to optimize cash management while considering offshore funding needs, liquidity management objectives and other economic considerations. The Company continues to generate strong operating cash flow. In 2003, operating cash flow was $8.70 billion, up $958 million from $7.74 billion in 2002. The increase in 2003 was primarily driven by higher earnings. Changes in working capital also contributed, primarily behind an increase in current liabilities. Operating cash flow in 2002 was up $1.94 billion from $5.80 billion in 2001, driven by higher earnings as adjusted for lower depreciation and amortization charges, and an increase in taxes payable. Operating cash flow less capital spending, or free cash flow, was $7.22 billion for 2003, a 19% increase over the prior year. The majority of the year-over-year improvement was driven by increased earnings with lower capital spending also contributing. Free cash flow was $6.06 billion in 2002 and $3.32 billion in 2001. Free Cash Flow (in billions of dollars) [BAR CHART] 2001 3.32 2002 6.06 2003 7.22 Net cash used for acquisitions in 2003 was $61 million. This compares to $5.47 billion in cash used in 2002, primarily for the Clairol acquisition, and $138 million in 2001. The pending acquisition of Wella AG will be funded using a combination of debt and available cash balances. Proceeds from the divestiture of certain non-strategic brands and other asset sales generated $143 million in cash flow in the current year, compared to $227 million generated in 2002. Divestitures in both years reflect historical levels, but represent a significant decline when compared to the $788 million generated in 2001 during the Company's program to divest minor brands. The Company maintains a share repurchase program, which authorizes the purchase of shares of Company stock annually on the open market. A primary purpose of the program is to mitigate the dilutive impact of stock option grants, effectively prefunding the exercise obligation. Additionally, there is a discretionary component under which the Company may repurchase additional outstanding shares. Current year purchases under the combined programs were $1.24 billion, reflecting a return to historical levels, compared to $568 million in 2002 and $1.25 billion in 2001. The decline in 2002 was primarily due to cash requirements associated with the Clairol acquisition. Common share dividends grew 8% to $1.64 per share in 2003 versus $1.52 in 2002 and $1.40 in 2001. The annual dividend rate will increase 11% to $1.82 per common share in 2004, marking the 48th consecutive fiscal year of increased common share dividend payments. Total dividend payments, to both common and preferred shareholders, were $2.25 billion, $2.10 billion and $1.94 billion in 2003, 2002 and 2001, respectively. Total debt decreased from $14.93 billion in 2002 to $13.65 billion in 2003, a reduction of $1.28 billion. Total debt in 2001 was $12.02 billion. The decrease in 2003 was primarily due to the utilization of cash flow from operations to pay down existing balances. The increase in debt in 2002 was primarily driven by the Clairol acquisition. Long-term borrowing available under the Company's current shelf registration statement filed in March 2002 was $3.50 billion at June 30, 2003. Additionally, due to strong credit ratings, the Company is able to issue commercial paper at favorable rates and to readily access general bank financing. The Company's Standard & Poor's (S&P) and Moody's short-term credit ratings are A-1+ and P-1, respectively. Capital Spending Capital spending efficiency continues to be a focus area for the Company. Total capital spending in 2003 was $1.48 billion, a decrease of $197 million compared to 2002 spending of $1.68 billion. Capital spending in 2001 was $2.49 billion. Capital spending in 2003 as a percentage of net sales was 3.4%, the lowest level in over a decade. Capital spending was 4.2% and 6.3% of net sales in 2002 and 2001, Financial Review The Procter & Gamble Company and Subsidiaries 29 respectively. This is a result of the systemic interventions the Company has made to improve capital spending efficiencies and asset utilization and is primarily the result of lower spending in Baby and Family Care. On an ongoing basis, while there may be exceptional years when specific business circumstances, such as capacity additions, may lead to higher spending, the Company's goal is to maintain capital spending at about 4% of net sales. Capital Spending (in billions of dollars) [BAR CHART] [PLOT POINTS TO COME] Guarantees and Other Off-Balance Sheet Arrangements The Company does not have guarantees or other off-balance sheet financing arrangements that the Company believes could have a material impact on financial condition or liquidity. Purchase Commitments The Company has purchase commitments for materials, supplies, services and fixed assets 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 either early termination or failure to purchase contracted quantities. The Company does not expect potential payments under these provisions to materially affect results of operations or financial condition. This conclusion is made based upon reasonably likely outcomes assumed by reference to historical experience and current business plans. Liquidity As discussed previously, the Company's primary source of liquidity is cash generated from operations. Additionally, the Company is able to support its short-term liquidity, if necessary, through agreements with a diverse group of creditworthy financial institutions. The Company has never drawn on these facilities and does not intend to do so in the foreseeable future. However, should the facilities be needed, when combined with cash on hand, the Company believes they would provide sufficient credit funding to meet any short-term financing requirements. The Company does not have other commitments or related party transactions that are considered material to the Consolidated Financial Statements. KEY ACCOUNTING POLICIES The Company applies certain key accounting policies as required by accounting principles generally accepted in the United States of America. These key accounting policies govern revenue recognition, restructuring, income taxes, certain employee benefits and goodwill and intangible assets. These accounting policies, and others set forth in Note 1 to the Consolidated Financial Statements, are integral to understanding the results of operations and financial condition of the Company. Inherent in the application of accounting principles are necessary estimates, judgments and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Due to the nature of the Company's 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 the Company's results of operations or financial condition in any given year. The Company has discussed the selection of key accounting policies and the effect of estimates with the Audit Committee of the Company's Board of Directors. Revenue Recognition Sales are recognized when revenue is realized or realizable and earned. Most revenue transactions represent sales of inventory, and revenue is recognized when risk and title to the product 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. Given the nature of the Company's business, revenue recognition practices do not contain estimates that materially affect results of operations. Restructuring Restructuring charges relate to the restructuring program that began in 1999 and was substantially complete at the end of 2003. The Company provides forward-looking information about the overall program, including estimated savings and costs. Such disclosures represent management's best estimate and do require significant estimates about the program. The specific reserves related to the restructuring program also require judgment and estimation, but are not considered highly uncertain. See Note 2 to the Consolidated Financial Statements. 30 The Procter & Gamble Company and Subsidiaries Financial Review Income Taxes Under SFAS No. 109, "Accounting for Income Taxes," income taxes are recorded based on the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities based on differences in how those events are treated for tax purposes (see Note 10 to the Consolidated Financial Statements). The Company bases its estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws and rates, and their related interpretations, may affect the Company's ability to successfully manage regulatory matters around the world, and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. The Company's accounting for deferred tax consequences represents management's best estimate of future events that can be appropriately reflected in the accounting estimates. Certain changes or future events, such as changes in legislation, tax rates or the geographic mix of earnings, could have an impact on the Company's estimates. Employee Benefits The Company sponsors 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. The expected rates of return on the various defined benefit pension plans' assets are based on the asset allocation of each plan and the long-term projected return of those assets, which represent a diversified mix of U.S. and international corporate equities and government and corporate debt securities. For 2003, the average return on assets assumption is 7.7%. A change in the rate of return of 1% would impact annual benefit expense by approximately $10 million after tax. The rate of return on OPEB assets, comprised primarily of Company stock, also is based on the long-term projected return and reflects the historical pattern of favorable returns on the Company's stock relative to broader market indices (e.g., S&P 500). For 2003, the return on assets assumption is 9.5%. A 1% change in the rate of return would impact annual benefit expense by approximately $20 million after tax. 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 5.1% represents a weighted average of local rates in countries where such plans exist. A 1% reduction in the discount rate would increase annual benefit expense by approximately $50 million after tax. The rate on the OPEB plan of 5.8% reflects the higher interest rates generally available in the U.S., which is where a majority of the plan participants receive benefits. A 1% reduction in the discount rate would increase annual benefit expense by approximately $20 million after tax. Certain defined contribution pension and OPEB benefits in the U.S. are funded by the Employee Stock Ownership Plan (ESOP), as described in Note 9 to the Consolidated Financial Statements. The ESOP is accounted for under the provisions of the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) No. 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans." Series A shares are used to fund a portion of the defined contribution plan. Series B shares, used to fund a portion of retiree health care benefits, a component of OPEB, are considered plan assets (net of related debt) under SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." The Company also has 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 cost 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 SFAS No. 123, "Accounting for Stock-Based Compensation." That methodology yields an estimate of fair value based in part on a number of management estimates, including estimated option life and future volatility. Changes in these assumptions could significantly impact the estimated fair value of the stock options. Goodwill and Intangible Assets The Company has significant goodwill and intangible assets. Management's assessment of the recovery of these assets involves a number of estimates. The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually. For intangible assets subject to amortization, the Company reviews 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 Company's assessments to date have indicated that goodwill and indefinite-lived intangible assets have not been impaired. Financial Review The Procter & Gamble Company and Subsidiaries 31 HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS 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 prices. To manage the volatility relating to these exposures, the Company evaluates its exposures on a global basis to take advantage of the netting opportunities that exist. For the remaining exposures, the Company enters into various derivative transactions in accordance with the Company's hedging policies. The financial impacts of these hedging instruments are offset in part or in whole by corresponding changes in the underlying exposures being hedged. The Company does not hold or issue derivative financial instruments for speculative trading purposes. Note 7 to the Consolidated Financial Statements includes a detailed discussion of the Company's 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 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, 2003. In cases where data is unavailable in RiskMetrics(TM), a reasonable proxy is included. The Company's market risk exposures relative to interest and currency rates, as discussed below, have not changed materially versus the previous reporting period. In addition, the Company is not aware of any facts or circumstances that would significantly impact such exposures in the near term. Interest Rate Exposure Interest rate swaps are used to hedge underlying debt obligations. Certain currency interest rate swaps are designated as hedges of the Company's foreign net investments. Based on the Company's overall interest rate exposure as of and during the year ended June 30, 2003, including derivative and other instruments sensitive to interest rates, the Company does not believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would materially affect the Company's financial statements. Currency Rate Exposure The Company manufactures and sells products in a number of countries throughout the world and, as a result, is 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 the Company's financial position will be adversely affected by short-term changes in exchange rates. Corporate policy prescribes the range of allowable hedging activity. The Company primarily uses forward exchange contracts and purchased options with maturities of less than 18 months. In addition, the Company enters into certain currency swaps with maturities of up to five years to hedge 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 the Company's overall currency rate exposure as of and during the year ended June 30, 2003, including derivative and other instruments sensitive to currency movements, the Company does not believe a near-term change in currency rates, at a 95% confidence level based on historical currency rate movements, would materially affect the Company's financial statements. Commodity Price Exposure Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. The Company uses futures, options and swap contracts to manage the volatility related to the above exposures. Commodity hedging activity is not considered material to the Company's financial statements. 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. The program was designed to accelerate growth and deliver cost reductions by streamlining management decision-making, manufacturing and other work processes and discontinuing under-performing businesses and initiatives. Charges for the program are reflected in Corporate because they are corporate-driven decisions and are not reflected in the operating results used internally to measure and evaluate the operating segments. 32 The Procter & Gamble Company and Subsidiaries Financial Review The program was substantially complete at the end of 2003. Cumulative charges through June 30, 2003 totaled $4.85 billion before tax ($3.79 billion after tax), below the initial estimate of $5.60 billion before tax ($4.40 billion after tax). Because the program is substantially complete, the Company intends to discontinue separate reporting of the program in future periods. The Company will continue to undertake projects to maintain a competitive cost structure, including manufacturing consolidation and work force rationalization, as a part of its normal operations. Summary of Restructuring Charges

Years ended June 30 ---------------------------------- Amounts in millions 2003 2002 2001 - -------------------------------------------------------------------------- Separations $ 351 $ 393 $ 341 - -------------------------------------------------------------------------- Accelerated Depreciation 87 135 276 - -------------------------------------------------------------------------- Asset Write-Downs 190 208 731 - -------------------------------------------------------------------------- Other 123 222 502 - -------------------------------------------------------------------------- TOTAL (BEFORE TAX) 751 958 1,850 - -------------------------------------------------------------------------- TOTAL (AFTER TAX) 538 706 1,475 ==========================================================================

Separations represent the cost of packages offered to employees, which generally are accrued upon employee acceptance. The separation packages are predominantly voluntary and are formula driven based on salary levels and past service. Separation costs are charged to cost of products sold for manufacturing employees and marketing, research, administrative and other expense for all other employees. Approximately 21,600 separation packages have been provided for through June 30, 2003: 5,000 in 2003, 7,400 in 2002, 6,000 in 2001 and 3,200 from 1999 to 2000. While all geographies and businesses are impacted by the enrollment reduction programs, a higher number of United States employees are affected, given the concentration of operations. The changes in the net enrollment for the Company are different from the total separations, as terminations have been offset by increased enrollment at remaining sites, acquisitions and other impacts. Accelerated depreciation relates to long-lived assets that will be taken out of service prior to the end of their normal service period due to manufacturing consolidations, technology standardization, plant closures or strategic choices to discontinue initiatives. The Company has shortened the estimated useful lives of such assets, resulting in incremental depreciation expense. For segment and management reporting purposes, normal depreciation expense is reported by the business segments, with the incremental accelerated depreciation reported in Corporate. Accelerated depreciation is charged to cost of products sold for manufacturing assets and marketing, research, administrative and other expense for all other assets. Asset write-downs relate to establishment of new fair-value bases for assets held for sale or disposal and for assets whose future cash flow expectations have declined significantly as a direct result of restructuring decisions. Assets held for sale or disposal represent excess capacity that is in the process of being removed from service as well as businesses held for sale within the next 12 months. Such assets are written down to the net amount expected to be realized upon sale or disposal. Assets continuing in operation, but whose nominal cash flows are no longer sufficient to recover existing book values, are written down to estimated fair value, generally determined by reference to the discounted expected future cash flows. Write-downs of assets that will continue to be used were approximately $60 million before tax ($40 million after tax) in 2003, $45 million before tax ($33 million after tax) in 2002 and $160 million before tax ($133 million after tax) in 2001. Asset writedowns are not expected to significantly impact future annual depreciation expense. Other contains charges incurred as a direct result of restructuring decisions including relocation, training, discontinuation of initiatives and the establishment of global business services and the new legal and organization structure. These costs are charged to the applicable income statement line item based on the underlying nature of the charge. Restructuring accruals are classified as current liabilities. Reserve balances were $335 million, $245 million and $460 million at June 30, 2003, 2002 and 2001, respectively. Approximately 60% of restructuring charges incurred during 2003 are expected to be settled with cash, compared to 60% in 2002 and 40% in 2001. Savings from the restructuring program are difficult to estimate, given the nature of the activities, the corollary benefits achieved, timing and the degree of reinvestment. Overall, the program is expected to deliver nearly $1.65 billion in after-tax annual savings, including additional after-tax savings of approximately $200 million in 2004 as a result of charges incurred in the current year. Estimated after-tax incremental savings delivered were $450 million in 2003, $700 million in 2002, $235 million in 2001 and $65 million in 2000. While the total charges and incremental savings for the program are less than previous estimates, the ratio of savings to charges is in line with the original expectations. Financial Review The Procter & Gamble Company and Subsidiaries 33 FORWARD-LOOKING STATEMENTS The Company has made and will make certain forward-looking statements in the Annual Report and in other contexts relating to volume and sales growth, increases in market shares, financial goals and reduction of costs, 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 necessary to achieve the Company's goals are: (1) the ability to achieve business plans, including growing existing sales and volume profitably and successfully managing and integrating key acquisitions (including Wella) and completing planned divestitures (including a potential sale of the Company's juice business), despite high levels of competitive activity, especially with respect to the product categories and geographical markets (including developing markets) on which the Company has chosen to focus; (2) the ability to manage and maintain key customer relationships; (3) the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources); (4) the ability to successfully manage regulatory, tax and legal matters (including product liability matters), and to resolve pending matters within current estimates; (5) the ability to successfully implement, achieve and sustain cost improvement plans in manufacturing and overhead areas, including successful completion of the Company's outsourcing projects; (6) the ability to successfully manage currency (including currency issues in volatile countries), interest rate and certain commodity cost exposures; (7) the ability to manage the continued global political and/or economic uncertainty, especially in the Company's significant geographical markets, as well as any political and/or economic uncertainty due to terrorist activities; and (8) the ability to successfully manage increases in the prices of raw materials used to make the Company's products. If the Company's assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of these key factors, then the Company's actual performance could vary materially from the forward-looking statements made herein. 34 The Procter & Gamble Company and Subsidiaries INDEPENDENT AUDITORS' REPORT Deloitte & Touche 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 as of June 30, 2003 and 2002 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2003. 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 auditing standards generally accepted in the United States of America. 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, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at June 30, 2003 and 2002 and the results of its operations and cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP 250 East Fifth Street July 31, 2003 Cincinnati, Ohio 45202 The Procter & Gamble Company and Subsidiaries 35 CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended June 30 ---------------------------------- Amounts in millions except per share amounts 2003 2002 2001 - --------------------------------------------------------------------------------------------------- Net Sales $ 43,377 $ 40,238 $ 39,244 - --------------------------------------------------------------------------------------------------- Cost of products sold 22,141 20,989 22,102 - --------------------------------------------------------------------------------------------------- Marketing, research, administrative and other expense 13,383 12,571 12,406 =================================================================================================== Operating Income 7,853 6,678 4,736 =================================================================================================== Interest expense 561 603 794 - --------------------------------------------------------------------------------------------------- Other non-operating income, net 238 308 674 - --------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 7,530 6,383 4,616 - --------------------------------------------------------------------------------------------------- Income taxes 2,344 2,031 1,694 =================================================================================================== NET EARNINGS $ 5,186 $ 4,352 $ 2,922 =================================================================================================== BASIC NET EARNINGS PER COMMON SHARE $ 3.90 $ 3.26 $ 2.15 - --------------------------------------------------------------------------------------------------- DILUTED NET EARNINGS PER COMMON SHARE $ 3.69 $ 3.09 $ 2.07 - --------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ 1.64 $ 1.52 $ 1.40 ===================================================================================================

See accompanying Notes to Consolidated Financial Statements 36 The Procter & Gamble Company and Subsidiaries CONSOLIDATED BALANCE SHEETS ASSETS

June 30 ---------------------- Amounts in millions 2003 2002 - ---------------------------------------------------------------------- Current Assets - ---------------------------------------------------------------------- Cash and cash equivalents $ 5,912 $ 3,427 - ---------------------------------------------------------------------- Investment securities 300 196 - ---------------------------------------------------------------------- Accounts receivable 3,038 3,090 - ---------------------------------------------------------------------- Inventories - ---------------------------------------------------------------------- Materials and supplies 1,095 1,031 - ---------------------------------------------------------------------- Work in process 291 323 - ---------------------------------------------------------------------- Finished goods 2,254 2,102 ====================================================================== Total Inventories 3,640 3,456 ====================================================================== Deferred income taxes 843 521 - ---------------------------------------------------------------------- Prepaid expenses and other receivables 1,487 1,476 ====================================================================== TOTAL CURRENT ASSETS 15,220 12,166 ====================================================================== Property, Plant and Equipment - ---------------------------------------------------------------------- Buildings 4,729 4,532 - ---------------------------------------------------------------------- Machinery and equipment 18,222 17,963 - ---------------------------------------------------------------------- Land 591 575 ====================================================================== 23,542 23,070 - ---------------------------------------------------------------------- Accumulated depreciation (10,438) (9,721) ====================================================================== NET PROPERTY, PLANT AND EQUIPMENT 13,104 13,349 ====================================================================== Goodwill and Other Intangible Assets - ---------------------------------------------------------------------- Goodwill 11,132 10,966 - ---------------------------------------------------------------------- Trademarks and other intangible assets, net 2,375 2,464 ====================================================================== NET GOODWILL AND OTHER INTANGIBLE ASSETS 13,507 13,430 ====================================================================== Other Non-Current Assets 1,875 1,831 ====================================================================== TOTAL ASSETS $ 43,706 $ 40,776 ======================================================================

See accompanying Notes to Consolidated Financial Statements The Procter & Gamble Company and Subsidiaries 37 CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY

June 30 ------------------------ Amounts in millions 2003 2002 - ------------------------------------------------------------------------ Current Liabilities - ------------------------------------------------------------------------ Accounts payable $ 2,795 $ 2,205 - ------------------------------------------------------------------------ Accrued and other liabilities 5,512 5,330 - ------------------------------------------------------------------------ Taxes payable 1,879 1,438 - ------------------------------------------------------------------------ Debt due within one year 2,172 3,731 ======================================================================== TOTAL CURRENT LIABILITIES 12,358 12,704 ======================================================================== Long-Term Debt 11,475 11,201 - ------------------------------------------------------------------------ Deferred Income Taxes 1,396 1,077 - ------------------------------------------------------------------------ Other Non-Current Liabilities 2,291 2,088 ======================================================================== TOTAL LIABILITIES 27,520 27,070 ======================================================================== Shareholders' Equity - ------------------------------------------------------------------------ Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) 1,580 1,634 - ------------------------------------------------------------------------ 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: 2003 - 1,297.2, 2002 - 1,300.8) 1,297 1,301 - ------------------------------------------------------------------------ Additional paid-in capital 2,931 2,490 - ------------------------------------------------------------------------ Reserve for ESOP debt retirement (1,308) (1,339) - ------------------------------------------------------------------------ Accumulated other comprehensive income (2,006) (2,360) - ------------------------------------------------------------------------ Retained earnings 13,692 11,980 ======================================================================== TOTAL SHAREHOLDERS' EQUITY 16,186 13,706 ======================================================================== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,706 $ 40,776 ========================================================================

See accompanying Notes to Consolidated Financial Statements 38 The Procter & Gamble Company and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Accumulated Common Additional Reserve for Other Total Dollars in millions/ Shares Common Preferred Paid-In ESOP Debt Comprehensive Retained Comprehensive Shares in thousands Outstanding Stock Stock Capital Retirement Income Income Total Income - ------------------------------------------------------------------------------------------------------------------------------------ Balance June 30, 2000 1,305,867 $1,306 $ 1,737 $ 1,794 $ (1,418) $ (1,842) $10,710 $12,287 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings 2,922 2,922 $ 2,922 - ---------------------------------------------------------------------------------------------------------------------------------- Other comprehensive income: - ---------------------------------------------------------------------------------------------------------------------------------- Financial statement translation (715) (715) (715) - ---------------------------------------------------------------------------------------------------------------------------------- Net investment hedges, - ---------------------------------------------------------------------------------------------------------------------------------- net of $276 tax 460 460 460 - ---------------------------------------------------------------------------------------------------------------------------------- Other, net of tax benefit (23) (23) (23) - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 2,644 - ---------------------------------------------------------------------------------------------------------------------------------- Dividends to shareholders: - ---------------------------------------------------------------------------------------------------------------------------------- Common (1,822) (1,822) - ---------------------------------------------------------------------------------------------------------------------------------- Preferred, net of tax benefit (121) (121) - ---------------------------------------------------------------------------------------------------------------------------------- Treasury purchases (18,238) (18) 6(1) (1,238) (1,250) - ---------------------------------------------------------------------------------------------------------------------------------- Employee plan issuances 5,924 6 223 229 - ---------------------------------------------------------------------------------------------------------------------------------- Preferred stock conversions 2,185 2 (36) 34 - - ---------------------------------------------------------------------------------------------------------------------------------- ESOP debt guarantee reduction 43 43 - ---------------------------------------------------------------------------------------------------------------------------------- Balance June 30, 2001 1,295,738 1,296 1,701 2,057 (1,375) (2,120) 10,451 12,010 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings 4,352 4,352 $ 4,352 - ---------------------------------------------------------------------------------------------------------------------------------- Other comprehensive income: - ---------------------------------------------------------------------------------------------------------------------------------- Financial statement translation 263 263 263 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment hedges, - ---------------------------------------------------------------------------------------------------------------------------------- net of $238 tax (397) (397) (397) - ---------------------------------------------------------------------------------------------------------------------------------- Other, net of tax benefits (106) (106) (106) - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 4,112 - ---------------------------------------------------------------------------------------------------------------------------------- Dividends to shareholders: - ---------------------------------------------------------------------------------------------------------------------------------- Common (1,971) (1,971) - ---------------------------------------------------------------------------------------------------------------------------------- Preferred, net of tax benefits (124) (124) - ---------------------------------------------------------------------------------------------------------------------------------- Spin-off of Jif and Crisco (150) (150) - ---------------------------------------------------------------------------------------------------------------------------------- Treasury purchases (7,681) (8) 18(1) (578) (568) - ---------------------------------------------------------------------------------------------------------------------------------- Employee plan issuances 8,323 9 352 361 - ---------------------------------------------------------------------------------------------------------------------------------- Preferred stock conversions 4,390 4 (67) 63 - - ---------------------------------------------------------------------------------------------------------------------------------- ESOP debt guarantee reduction 36 36 - ---------------------------------------------------------------------------------------------------------------------------------- Balance June 30, 2002 1,300,770 1,301 1,634 2,490 (1,339) (2,360) 11,980 13,706 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings 5,186 5,186 $ 5,186 - ---------------------------------------------------------------------------------------------------------------------------------- Other comprehensive income: - ---------------------------------------------------------------------------------------------------------------------------------- Financial statement translation 804 804 804 - ---------------------------------------------------------------------------------------------------------------------------------- Net investment hedges, - ---------------------------------------------------------------------------------------------------------------------------------- net of $251 tax (418) (418) (418) - ---------------------------------------------------------------------------------------------------------------------------------- Other, net of tax benefits (32) (32) (32) - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 5,540 - ---------------------------------------------------------------------------------------------------------------------------------- Dividends to shareholders: - ---------------------------------------------------------------------------------------------------------------------------------- Common (2,121) (2,121) - ---------------------------------------------------------------------------------------------------------------------------------- Preferred, net of tax benefit (125) (125) - ---------------------------------------------------------------------------------------------------------------------------------- Treasury purchases (14,138) (14) 6(1) (1,228) (1,236) - ---------------------------------------------------------------------------------------------------------------------------------- Employee plan issuances 7,156 7 384 391 - ---------------------------------------------------------------------------------------------------------------------------------- Preferred stock conversions 3,409 3 (54) 51 - - ---------------------------------------------------------------------------------------------------------------------------------- ESOP debt guarantee reduction 31 31 - ---------------------------------------------------------------------------------------------------------------------------------- Balance June 30, 2003 1,297,197 $1,297 $ 1,580 $ 2,931 $ (1,308) $ (2,006) $13,692 $16,186 - ----------------------------------------------------------------------------------------------------------------------------------

(1) Premium on equity put options. See accompanying Notes to Consolidated Financial Statements The Procter & Gamble Company and Subsidiaries 39 CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30 --------------------------------- Amounts in millions 2003 2002 2001 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 3,427 $ 2,306 $ 1,415 - -------------------------------------------------------------------------------------------------- Operating Activities - -------------------------------------------------------------------------------------------------- Net earnings 5,186 4,352 2,922 - -------------------------------------------------------------------------------------------------- Depreciation and amortization 1,703 1,693 2,271 - -------------------------------------------------------------------------------------------------- Deferred income taxes 63 389 (102) - -------------------------------------------------------------------------------------------------- Change in accounts receivable 163 96 (122) - -------------------------------------------------------------------------------------------------- Change in inventories (56) 159 (67) - -------------------------------------------------------------------------------------------------- Change in accounts payable, accrued and other liabilities 936 684 801 - -------------------------------------------------------------------------------------------------- Change in other operating assets and liabilities 178 (98) 57 - -------------------------------------------------------------------------------------------------- Other 527 467 44 - -------------------------------------------------------------------------------------------------- TOTAL OPERATING ACTIVITIES 8,700 7,742 5,804 - -------------------------------------------------------------------------------------------------- Investing Activities - -------------------------------------------------------------------------------------------------- Capital expenditures (1,482) (1,679) (2,486) - -------------------------------------------------------------------------------------------------- Proceeds from asset sales 143 227 788 - -------------------------------------------------------------------------------------------------- Acquisitions (61) (5,471) (138) - -------------------------------------------------------------------------------------------------- Change in investment securities (107) 88 (7) - -------------------------------------------------------------------------------------------------- TOTAL INVESTING ACTIVITIES (1,507) (6,835) (1,843) - -------------------------------------------------------------------------------------------------- Financing Activities - -------------------------------------------------------------------------------------------------- Dividends to shareholders (2,246) (2,095) (1,943) - -------------------------------------------------------------------------------------------------- Change in short-term debt (2,052) 1,394 (1,092) - -------------------------------------------------------------------------------------------------- Additions to long-term debt 1,230 1,690 1,356 - -------------------------------------------------------------------------------------------------- Reductions of long-term debt (1,060) (461) (226) - -------------------------------------------------------------------------------------------------- Proceeds from the exercise of stock options 269 237 141 - -------------------------------------------------------------------------------------------------- Treasury purchases (1,236) (568) (1,250) - -------------------------------------------------------------------------------------------------- TOTAL FINANCING ACTIVITIES (5,095) 197 (3,014) - -------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents 387 17 (56) - -------------------------------------------------------------------------------------------------- CHANGE IN CASH AND CASH EQUIVALENTS 2,485 1,121 891 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,912 $ 3,427 $ 2,306 - -------------------------------------------------------------------------------------------------- Supplemental Disclosure - -------------------------------------------------------------------------------------------------- Cash payments for: - -------------------------------------------------------------------------------------------------- Interest $ 538 $ 629 $ 735 - -------------------------------------------------------------------------------------------------- Income taxes 1,703 941 1,701 - -------------------------------------------------------------------------------------------------- Non-cash spin-off of Jif and Crisco businesses - 150 - - -------------------------------------------------------------------------------------------------- Liabilities assumed in acquisitions - 571 108 - --------------------------------------------------------------------------------------------------

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 Basis of Presentation The Consolidated Financial Statements include The Procter & Gamble Company and its controlled subsidiaries (the Company). Intercompany transactions are eliminated in consolidation, except for certain translation impacts resulting from the application of Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." Investments in companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are managed as integral parts of the Company's business units. Consistent with internal management reporting, these investments are accounted for as if they were consolidated subsidiaries in segment reporting, with 100% recognition of the individual income statement line items and separate elimination of the minority interest. Entries to eliminate the individual revenues and expenses, adjusting the method of accounting to the equity method as required by accounting principles generally accepted in the United States of America (U.S. GAAP), are included in Corporate. Use of Estimates Preparation of financial statements in conformity with 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 under take in the future. Actual results may ultimately differ from estimates, although management does not believe such changes will 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 risk and title to the product transfers 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 within 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 (see Note 5). 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. Reimbursements of shipping and handling costs charged to customers are included in net sales. Marketing, Research, Administrative and Other Marketing, research, administrative and other expenses primarily include: the cost of media, advertising and related marketing costs; selling expenses; research and development; corporate, administrative and other indirect overhead costs; and other miscellaneous operating items. Currency Translation Financial statements of subsidiaries outside the United States 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 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 cash flows arising from investing and financing activities, which are 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 cash flows from 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. Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 41 Cash Equivalents Highly liquid investments with maturities of three months or less when purchased are considered cash equivalents and recorded at cost, which approximates fair value. Investment Securities Investment securities consist of short-term readily marketable instruments that mature within one year. 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. Inventory Valuation Inventories are valued at cost, which is not in excess of current market prices. Product-related inventories are primarily maintained on the first-in, first-out method. Minor amounts of product inventories, including certain pet health, cosmetics and commodities are maintained on the last-in, first-out method. The replacement cost of last-in, first-out inventories exceeded carrying value by approximately $26 and $27 at June 30, 2003 and 2002, respectively. 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. The Company's policy is to amortize trademarks with determinable lives over periods ranging from 5 to 40 years. Patents, technology and other intangibles with contractual terms are amortized over the respective contractual lives, with the remainder generally amortized over periods ranging from 5 to 20 years. Goodwill and indefinite-lived intangibles are not amortized, but are evaluated annually for impairment. The annual evaluation is based on valuation models that incorporate expected future cash flows and profitability projections. To date, there has been no impairment of these assets. Prior to 2002, goodwill was amortized over periods not exceeding 40 years. 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 (3 to 5-year lives), manufacturing equipment (3 to 20-year lives) and building services (20-year life). Buildings are depreciated over an estimated useful life of 40 years. Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. Fair Values of Financial Instruments Fair values of cash equivalents, short-term and long-term investments and short-term debt approximate cost. The estimated fair values of other financial instruments, including debt, equity and financial 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. 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 cost has resulted. Had compensation cost 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 ----------------------------- 2003 2002 2001 - ------------------------------------------------------------------ Net Earnings - ------------------------------------------------------------------ As reported $5,186 $4,352 $2,922 - ------------------------------------------------------------------ Pro forma adjustments (398) (442) (310) - ------------------------------------------------------------------ PRO FORMA 4,788 3,910 2,612 - ------------------------------------------------------------------ Net Earnings Per Common Share - ------------------------------------------------------------------ Basic - ------------------------------------------------------------------ As reported $ 3.90 $ 3.26 $ 2.15 - ------------------------------------------------------------------ Pro forma adjustments (0.30) (0.34) (0.23) - ------------------------------------------------------------------ PRO FORMA 3.60 2.92 1.92 - ------------------------------------------------------------------ Diluted - ------------------------------------------------------------------ As reported 3.69 3.09 2.07 - ------------------------------------------------------------------ Pro forma adjustments (0.28) (0.32) (0.22) - ------------------------------------------------------------------ PRO FORMA 3.41 2.77 1.85 - ------------------------------------------------------------------

Millions of dollars except per share amounts 42 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reclassifications Certain reclassifications of prior years' amounts have been made to conform to the current year presentation. New Pronouncements On July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived intangible assets and initiates an annual review for impairment. Identifiable intangible assets with determinable useful lives continue to be amortized. On July 1, 2002, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Adoption of this Statement did not have a material impact on the Company's financial statements. SFAS No. 144 addresses the financial accounting and re porting for the impairment or disposal of long-lived assets. This Statement did not have a material impact on the Company's financial statements. The Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," for exit or disposal activities that were initiated after December 31, 2002. This Statement requires these costs to be recognized pursuant to specific guidance on when the liability is incurred and not at project initiation. This Statement did not have a material impact on the Company's financial statements. In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This Statement amends the transition alter- natives for companies choosing to adopt the fair value method of accounting for the compensation cost of options issued to employees and requires additional disclosure on all stock-based compensation plans. The Company has adopted the disclosure provisions. In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 addresses the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and clarifies the need for a guarantor to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the Interpretation were adopted by the Company for guarantees issued or modified after December 31, 2002. Adoption of FIN No. 45 did not have a material impact on the Company's financial statements. In January 2003, the FASB is issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 addresses the requirements for business enterprises to consolidate related entities in which they are determined to be the primary economic beneficiary as a result of their variable economic interests. The adoption of FIN No. 46 on July 1, 2003 did not have a material impact on the Company's financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Company will adopt both SFAS No. 149 and SFAS No. 150 on July 1, 2003 and does not expect these Statements to materially impact the Company's financial statements. 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. The program was designed to accelerate growth and deliver cost reductions by streamlining management decision making, manufacturing and other work processes and discontinuing under-performing businesses and initiatives. Costs include separation-related costs, asset write-downs, accelerated depreciation and other costs directly related to the restructuring effort. Since inception, the overall program resulted in total charges of $4.85 billion before tax ($3.79 billion after tax). At the end of 2003, this restructuring program was substantially complete. Many restructuring charges are not recognized at project initiation, but rather are charged to expense as established criteria for recognition are met. This accounting yields ongoing charges over the entire restructuring period, rather than a large reserve at initiation. Charges for the program are reflected in Corporate because they are corporate-driven decisions and are not reflected in the operating results used internally to measure and evaluate the operating segments. Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 43 Before-tax restructuring activity was as follows:

Asset Accelerated Separations Write-Downs Depreciation Other Total - ----------------------------------------------------------------------------------------- RESERVE BALANCE JUNE 30, 2000 $ 88 $ - $ - $ - $ 88 - ----------------------------------------------------------------------------------------- 2001 - ----------------------------------------------------------------------------------------- Charges 341 731 276 502 1,850 - ----------------------------------------------------------------------------------------- Cash spent (186) - - (199) (385) - ----------------------------------------------------------------------------------------- Charged against assets - (731) (276) (86) (1,093) - ----------------------------------------------------------------------------------------- RESERVE BALANCE JUNE 30, 2001 243 - - 217 460 - ----------------------------------------------------------------------------------------- 2002 - ----------------------------------------------------------------------------------------- Charges 393 208 135 222 958 - ----------------------------------------------------------------------------------------- Cash spent (477) - - (336) (813) - ----------------------------------------------------------------------------------------- Charged against assets - (208) (135) (17) (360) - ----------------------------------------------------------------------------------------- RESERVE BALANCE JUNE 30, 2002 159 - - 86 245 - ----------------------------------------------------------------------------------------- 2003 - ----------------------------------------------------------------------------------------- Charges 351 190 87 123 751 - ----------------------------------------------------------------------------------------- Cash spent (265) - - (94) (359) - ----------------------------------------------------------------------------------------- Charged against assets - (190) (87) (25) (302) - ----------------------------------------------------------------------------------------- RESERVE BALANCE JUNE 30, 2003 245 - - 90 335 - -----------------------------------------------------------------------------------------

Separation Costs Employee separation charges relate to severance packages for approximately 5,000 people in 2003, 7,400 people in 2002 and 6,000 people in 2001. The packages are predominantly voluntary and are formula driven based on salary levels and past service. Severance costs related to voluntary separations are charged to earnings when the employee accepts the offer. The separations span the entire organization, including manufacturing, selling, research and administrative positions across substantially all geographies. Separation costs are charged to cost of products sold for manufacturing employees and marketing, research, administrative and other expense for all other employees. Asset Write-Downs Asset write-downs relate to the establishment of new carrying values for assets held for sale or disposal. These assets represent excess capacity in the process of being removed from service or disposed of, as well as assets held for sale in the next 12 months. These assets are written down to the amounts expected to be realized upon sale or disposal, less minor disposal costs. Such before-tax charges were $130 in 2003, $163 in 2002 and $571 in 2001 and are generally included in cost of products sold. Additionally, asset write-downs include certain manufacturing assets that are expected to operate at levels significantly below their planned capacity, primarily capital expansions related to recent initiatives that have not met expectations. The projected cash flows from such assets over their remaining useful lives are no longer estimated to be greater than their current carrying values; therefore, they are written down to estimated fair value, generally determined by reference to discounted expected future cash flows. Such before-tax charges were $60 in 2003, $45 in 2002 and $160 in 2001 and generally are included in cost of products sold. Accelerated Depreciation Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period due to manufacturing consolidations, technology standardization, plant closures or strategic choices to discontinue initiatives. The Company has shortened the estimated useful lives of such assets, resulting in incremental depreciation expense. Accelerated depreciation is charged to cost of products sold for manufacturing assets and marketing, research, administrative and other expense for all other assets. Other Restructuring Charges Other costs incurred as a direct result of the program include relocation, training, certain costs associated with discontinuation of initiatives and the establishment of global business services, and the new legal and organization structure. These costs are charged to the applicable income statement line item based on the underlying nature of the charge. NOTE 3 ACQUISITIONS AND SPIN-OFF 2003 Acquisitions In March 2003, the Company reached an agreement with the controlling shareholders of Wella AG, a beauty and hair care company based in Darmstadt, Germany, to acquire 77.6% of the voting class shares. In June 2003, the Company completed a tender offer for the remaining outstanding voting class shares and preference shares, securing approximately 81% of the outstanding Wella shares (99% of the voting class shares and 45% of the preference shares). Total consideration for shares to be acquired under the agreement with the controlling shareholders and the tender offer is 4.65 billion Euros (approximately $5.35 billion based on June 30, 2003 exchange rates). The acquisition will be financed with a combination of available cash and debt. Completion of the transaction is expected to occur in the first quarter of fiscal 2004. Millions of dollars except per share amounts 44 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2002 Acquisitions In 2002, purchase acquisitions, primarily the Clairol business, totaled $5.47 billion and resulted in additions to goodwill of $3.61 billion and other intangible assets of $1.73 billion. 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 years ended June 30, 2002 and 2001 as if Clairol had been acquired as of the beginning of each fiscal year presented. Pro forma information for 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 debt and amortization of intangible assets, excluding goodwill and indefinite-lived intangibles. 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.

Years ended June 30 ------------------- Pro forma results 2002 2001 - ----------------------------------------------------------- Net Sales $40,780 $40,801 - ----------------------------------------------------------- Net Earnings 4,406 2,927 - ----------------------------------------------------------- Diluted Net Earnings per Common Share $ 3.13 $ 2.07 - -----------------------------------------------------------

The following table presents the allocation of purchase price related to the Clairol business as of the date of acquisition.

Opening Balance - -------------------------------------------------- Current assets $ 487 - -------------------------------------------------- Property, plant and equipment 184 - -------------------------------------------------- Intangible assets 1,533 - -------------------------------------------------- Goodwill (1) 3,300 - -------------------------------------------------- Other non-current assets 18 - -------------------------------------------------- TOTAL ASSETS ACQUIRED 5,522 - -------------------------------------------------- Current liabilities 450 - -------------------------------------------------- Non-current liabilities 47 - -------------------------------------------------- TOTAL LIABILITIES ASSUMED 497 - -------------------------------------------------- NET ASSETS ACQUIRED 5,025 - --------------------------------------------------

(1) Approximately $2,600 in goodwill is deductible for tax purposes. The Company finalized the purchase price allocation of Clairol in the second quarter of 2003. There were no significant changes to the initial allocation. The Clairol acquisition resulted in $3,330 in goodwill, all of which was allocated to the Beauty Care segment, and $1,533 in total intangible assets acquired with $1,220 allocated to trademarks with indefinite lives. The remaining $313 of acquired intangibles have determinable useful lives and were assigned to trademarks ($128), patents and technology ($146) and other intangible assets ($39). Total intangible assets acquired with determinable lives have a weighted average useful life of 9 years (11 years for trademarks, 9 years for patents and technology and 5 years for other intangible assets). The Company completed a buyout of the purchase price contingency associated with the prior acquisition of Dr. John's Spinbrush during 2002. The total adjusted purchase price approximates $475, with the incremental payment resulting in additional goodwill in the Health Care segment. 2001 Acquisitions In 2001, purchase acquisitions totaled $246 resulting in additions to goodwill and other intangibles of $208. 2002 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. NOTE 4 GOODWILL AND INTANGIBLE ASSETS The change in the net carrying amount of goodwill for the years ended June 30, 2003 and 2002 was allocated by reportable business segment as follows: Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 45

2003 2002 - --------------------------------------------------------------------- Fabric and Home Care, beginning of year $ 451 $ 457 - --------------------------------------------------------------------- Translation and other 9 (6) - --------------------------------------------------------------------- END OF YEAR 460 451 - --------------------------------------------------------------------- Baby and Family Care, beginning of year 830 987 - --------------------------------------------------------------------- Translation and other 54 (157) - --------------------------------------------------------------------- END OF YEAR 884 830 - --------------------------------------------------------------------- Beauty Care, beginning of year 6,542 3,163 - --------------------------------------------------------------------- Acquisitions - 3,330 - --------------------------------------------------------------------- Translation and other 58 49 - --------------------------------------------------------------------- END OF YEAR 6,600 6,542 - --------------------------------------------------------------------- Health Care, beginning of year 2,866 2,544 - --------------------------------------------------------------------- Acquisitions - 284 - --------------------------------------------------------------------- Translation and other 42 38 - --------------------------------------------------------------------- END OF YEAR 2,908 2,866 - --------------------------------------------------------------------- Snacks and Beverages, beginning of year 277 278 - --------------------------------------------------------------------- Translation and other 3 (1) - --------------------------------------------------------------------- END OF YEAR 280 277 - --------------------------------------------------------------------- Goodwill, Net, beginning of year 10,966 7,429 - --------------------------------------------------------------------- Acquisitions - 3,614 - --------------------------------------------------------------------- Translation and other 166 (77) - --------------------------------------------------------------------- END OF YEAR 11,132 10,966 - ---------------------------------------------------------------------

Feminine care goodwill was moved from Baby and Family Care to Beauty Care for all periods presented, consistent with the segment realignment discussed in Note 12. Identifiable intangible assets as of June 30, 2003 and 2002 were composed of:

June 30, 2003 June 30, 2002 ------------------------------------------------- Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization - ----------------------------------------------------------------------------- Intangible Assets with Determinable Lives Trademarks $ 499 $ 85 $ 457 $ 48 - ----------------------------------------------------------------------------- Patents and technology 492 204 494 160 - ----------------------------------------------------------------------------- Other 316 140 385 173 - ----------------------------------------------------------------------------- 1,307 429 1,336 381 - ----------------------------------------------------------------------------- Trademarks with Indefinite Lives 1,666 169 1,678 169 - ----------------------------------------------------------------------------- 2,973 598 3,014 550 - -----------------------------------------------------------------------------

The amortization of intangible assets for the years ended June 30, 2003, 2002 and 2001 was $100, $97 and $80, respectively. Amortization of intangibles is determined based on the estimated useful life of the underlying asset as more fully discussed in Note 1. Estimated amortization expense over the next five years is as follows: 2004 - $95, 2005 - $92, 2006 - $91, 2007 - $61 and 2008 - $51. Such estimates do not reflect the impact of future foreign exchange rate changes or the pending acquisition of Wella AG (see Note 3). The following table provides pro forma disclosure of net earnings and earnings per common share for the year ended June 30, 2001 as if goodwill and indefinite-lived intangible assets had not been amortized.

Pro forma results 2001 - ------------------------------------------------------------- Net earnings $ 2,922 - ------------------------------------------------------------- Amortization, net of tax (1) 218 - ------------------------------------------------------------- ADJUSTED NET EARNINGS 3,140 - ------------------------------------------------------------- Basic net earnings per common share $ 2.15 - ------------------------------------------------------------- Amortization, net of tax (1) 0.15 - ------------------------------------------------------------- ADJUSTED BASIC NET EARNINGS PER COMMON SHARE 2.30 - ------------------------------------------------------------- Diluted net earnings per common share 2.07 - ------------------------------------------------------------- Amortization, net of tax (1) 0.15 - ------------------------------------------------------------- ADJUSTED DILUTED NET EARNINGS PER COMMON SHARE 2.22 - -------------------------------------------------------------

(1) Amortization of goodwill and indefinite-lived in tangible assets. NOTE 5 SUPPLEMENTAL FINANCIAL INFORMATION Selected components of current and non-current liabilities were as follows:

June 30 --------------- 2003 2002 - --------------------------------------------------------- Accrued and Other Current Liabilities Marketing and promotion $1,802 $1,658 - --------------------------------------------------------- Compensation expenses 804 771 - --------------------------------------------------------- Restructuring reserves 335 245 - --------------------------------------------------------- Other 2,571 2,656 - --------------------------------------------------------- 5,512 5,330 - --------------------------------------------------------- Other Non-Current Liabilities Pension benefits $1,301 $1,158 - --------------------------------------------------------- Other postretirement benefits 181 344 - --------------------------------------------------------- Other 809 586 - --------------------------------------------------------- 2,291 2,088 - ---------------------------------------------------------

Millions of dollars except per share amounts 46 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Selected Operating Expenses Research and development costs are charged to earnings as incurred and were $1,665 in 2003, $1,601 in 2002 and $1,769 in 2001. Advertising costs are charged to earnings as incurred and were $4,373 in 2003, $3,773 in 2002 and $3,612 in 2001. Both of these are components of marketing, research, administrative and other expense. NOTE 6 SHORT-TERM AND LONG-TERM DEBT

June 30 ------------------- 2003 2002 - -------------------------------------------------------------------- Short-Term Debt USD commercial paper $ 717 $2,142 - -------------------------------------------------------------------- Non-USD commercial paper 147 461 - -------------------------------------------------------------------- Current portion of long-term debt 1,093 618 - -------------------------------------------------------------------- Other 215 510 - -------------------------------------------------------------------- 2,172 3,731 - --------------------------------------------------------------------

The weighted average short-term interest rates were 3.6% and 2.9% as of June 30, 2003 and 2002, respectively. The rate increase reflected a change in mix between short-term debt and the current portion of long-term debt.

June 30 ---------------------- 2003 2002 - ------------------------------------------------------------------------- Long-Term Debt 5.25% USD note due September, 2003 $ 750 $ 750 - ------------------------------------------------------------------------- 8.00% USD note due November, 2003 200 200 - ------------------------------------------------------------------------- 6.60% USD note due December, 2004 1,000 1,000 - ------------------------------------------------------------------------- 4.00% USD note due April, 2005 400 400 - ------------------------------------------------------------------------- 5.75% EUR note due September, 2005 1,725 1,478 - ------------------------------------------------------------------------- 1.50% JPY note due December, 2005 459 459 - ------------------------------------------------------------------------- 3.50% CHEF note due February, 2006 222 201 - ------------------------------------------------------------------------- 4.75% USED note due June, 2007 1,000 1,000 - ------------------------------------------------------------------------- 6.13% USD note due May, 2008 500 500 - ------------------------------------------------------------------------- 4.30% USD note due August, 2008 500 - - ------------------------------------------------------------------------- 6.88% USD note due September, 2009 1,000 1,000 - ------------------------------------------------------------------------- 2.00% JPY note due June, 2010 417 417 - ------------------------------------------------------------------------- 9.36% Series B ESOP debentures due 2007-2021 1,000 1,000 - ------------------------------------------------------------------------- 8.00% USD note due September, 2024 200 200 - ------------------------------------------------------------------------- 6.45% USD note due January, 2026 300 300 - ------------------------------------------------------------------------- 6.25% GBP note due January, 2030 827 763 - ------------------------------------------------------------------------- 5.25% GBP note due January, 2033 331 - - ------------------------------------------------------------------------- All other long-term debt 1,737 2,151 - ------------------------------------------------------------------------- Current portion of long-term debt (1,093) (618) - ------------------------------------------------------------------------- 11,475 11,201 - -------------------------------------------------------------------------

Long-term weighted average interest rates were 3.7% and 4.0% as of June 30, 2003 and 2002, respectively, and included the effects of related interest rate swaps discussed in Note 7. The fair value of the long-term debt was $12,396 and $11,673 at June 30, 2003 and 2002, respectively. Long-term debt maturities during the next five fiscal years are as follows: 2004-$1,093; 2005-$1,495; 2006-$2,463; 2007-$1,091 and 2008-$804. The Company has no material obligations that are secured. 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 in accordance with the Company's policies in areas such as counterparty exposure and hedging practices. For all periods presented, such derivative transactions 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. Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 47 Interest Rate Management The Company's policy is to manage interest cost using a mix 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. Accordingly, the changes in the fair value of these agreements are immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are recorded 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 $322 at June 30, 2003 and $231 at June 30, 2002. 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 five 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. The fair value of these instruments at June 30, 2003 and June 30, 2002 was $27 and $60 in assets and $92 and $29 in liabilities, respectively. The effective portion of the changes in fair value for these instruments, which have been designated as cash flow hedges, are reported in OCI and reclassified in 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. The Company also utilizes the same instruments for purposes that do not meet the requirements for hedge accounting treatment. In these cases, the change in value of the instruments offsets 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, 2003 and 2002 was $113 and $93 in assets and $26 and $25 in liabilities, respectively. The gain or loss on these instruments is immediately recognized in earnings. The net impact included in marketing, research, administrative and other expense was $264, $50 and $38 of gains in 2003, 2002 and 2001, respectively, which substantially offset foreign currency transaction losses of the items being hedged. Net Investment Hedging The Company hedges its net investment position in major currencies and generates foreign currency interest payments that offset other transactional exposures in these 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 $418 and $397 after-tax loss in 2003 and 2002, respectively. Accumulated net balances were a $238 after-tax loss in 2003 and a $180 after-tax gain in 2002. 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 the years ended June 30,2003,2002 and 2001. 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 convertible preferred stock (see Note 9). Millions of dollars except per share amounts 48 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net earnings and common shares balances used to calculate basic and diluted net earnings per share were as follows:

Years ended June 30 ----------------------------------- 2003 2002 2001 - --------------------------------------------------------------------------------- Net Earnings $ 5,186 $ 4,352 $ 2,922 - --------------------------------------------------------------------------------- Preferred dividends, net of tax benefit (125) (124) (121) - --------------------------------------------------------------------------------- NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS 5,061 4,228 2,801 - --------------------------------------------------------------------------------- Preferred dividends, net of tax benefit 125 124 121 - --------------------------------------------------------------------------------- Preferred dividend impact on funding of ESOP (9) (12) (15) - --------------------------------------------------------------------------------- DILUTED NET EARNINGS 5,177 4,340 2,907 - ---------------------------------------------------------------------------------

Years ended June 30 ----------------------------------- Shares in millions 2003 2002 2001 - --------------------------------------------------------------------------------- Basic weighted average common shares outstanding 1,296.6 1,297.4 1,300.3 - --------------------------------------------------------------------------------- Effect of dilutive securities - --------------------------------------------------------------------------------- Conversion of preferred shares (1) 85.1 88.8 91.9 - --------------------------------------------------------------------------------- Exercise of stock options (2) 19.6 18.7 13.4 - --------------------------------------------------------------------------------- DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,401.3 1,404.9 1,405.6 - ---------------------------------------------------------------------------------

(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 through 2021. (2) Approximately 33 million in 2003, 36 million in 2002 and 38 million in 2001 of the Company's 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 and 2001. 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 grants to employees, for which vesting terms and option lives differ. 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 in 2003 and 2002, the Company has estimated the fair value of each grant using the Black-Scholes option-pricing model. The fair value of grants issued in 2001 was estimated using the binomial options-pricing model. The fair value estimates of these models is not materially different. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. The following assumptions were used:

Years ended June 30 ------------------------------- Options Granted 2003 2002 2001 - ------------------------------------------------------------------------------- Interest rate 3.9% 5.4% 5.8% - ------------------------------------------------------------------------------ Dividend yield 1.8% 2.2% 2.0% - ------------------------------------------------------------------------------ Expected volatility 20% 20% 26% - ------------------------------------------------------------------------------ Expected life in years 8 12 9 - ------------------------------------------------------------------------------

The following table summarizes stock option activity during 2003, 2002 and 2001:

June 30 ----------------------------------- Options in Thousands 2003 2002 2001 - --------------------------------------------------------------------------------- Outstanding, beginning of year 120,163 104,196 82,744 - --------------------------------------------------------------------------------- Granted 17,880 25,040 28,400 - --------------------------------------------------------------------------------- Jif and Crisco spin-off adjustment - 811 - - --------------------------------------------------------------------------------- Exercised (6,952) (8,149) (5,709) - --------------------------------------------------------------------------------- Canceled (1,292) (1,735) (1,239) - --------------------------------------------------------------------------------- OUTSTANDING, END OF YEAR 129,799 120,163 104,196 - --------------------------------------------------------------------------------- Exercisable 59,101 46,332 48,805 - --------------------------------------------------------------------------------- Available for grant 101,797 114,536 27,994 - --------------------------------------------------------------------------------- Average price - --------------------------------------------------------------------------------- Outstanding, beginning of year $ 66.68 $ 63.64 $ 61.73 - --------------------------------------------------------------------------------- Granted 91.37 70.19 62.20 - --------------------------------------------------------------------------------- Exercised 38.70 29.07 24.77 - --------------------------------------------------------------------------------- Outstanding, end of year 71.50 66.68 63.64 - --------------------------------------------------------------------------------- Exercisable, end of year 70.87 56.99 49.14 - --------------------------------------------------------------------------------- Weighted average fair value of options granted during the year 21.99 21.14 22.45 - ---------------------------------------------------------------------------------

Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter and Gamble Company and Subsidiaries 49 Stock options outstanding at June 30, 2003 were in the following exercise price ranges:

Outstanding Options -------------------------------------------------- Weighted Avg. Number Remaining Outstanding Weighted Avg. Contractual Range of Prices (Thousands) Exercise Price Life Years - -------------------------------------------------------------------------------------------- $28 to 46 15,847 $ 35.78 2.0 - ----------------------------------------------------------------------------------------- 54 to 66 36,470 61.35 10.2 - ----------------------------------------------------------------------------------------- 67 to 85 40,575 74.85 9.7 - ----------------------------------------------------------------------------------------- 85 to 106 36,907 93.17 10.0 - -----------------------------------------------------------------------------------------

Stock options exercisable at June 30, 2003 were in the following exercise price ranges:

Exercisable Options -------------------------------- Number Weighted Exercisable Average Range of Prices (Thousands) Exercise Price - ----------------------------------------------------------------------------------------- $28 to 46 15,847 $ 35.78 - --------------------------------------------------------------------------------------- 54 to 66 7,938 59.77 - --------------------------------------------------------------------------------------- 67 to 85 16,826 82.63 - --------------------------------------------------------------------------------------- 85 to 106 18,490 95.02 - ---------------------------------------------------------------------------------------

As a component of its treasury share repurchase program, the Company generally repurchases common shares to fund the stock options granted. 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 insignificant. 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 United States as well as employees in certain other countries. These plans are fully funded. Under the defined contribution plans, the Company generally makes annual contributions to participants' accounts based on individual base salaries and years of service. In the United States, the Company makes annual contributions to participants' accounts that do not exceed 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 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 serves to reduce the Company's cash contribution required to fund the profit sharing plan contributions earned. Under the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 76-3, shares of the ESOP are allocated at original cost based on debt service requirements, net of advances made by the Company to the Trust. Defined contribution expense pursuant to this plan was $286, $279 and $303 in 2003, 2002 and 2001, respectively, which approximates the amount funded by the Company. Defined Benefit Retirement Plans and Other Retiree Benefits Certain other employees, primarily outside the United States, are covered by local defined benefit pension, 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 contributions from 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. Millions of dollars except per share amounts 50 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the aggregate change in benefit obligation for the Company's defined benefit and other retiree benefit plans:

Years ended June 30 ------------------------------------------------------- Pension Benefits Other Retiree Benefits ------------------------------------------------------- 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------- Benefit obligation at beginning of year $ 2,970 $ 2,567 $ 2,135 $ 1,577 - ---------------------------------------------------------------------------------------------- Service cost 124 114 62 49 - ---------------------------------------------------------------------------------------------- Interest cost 173 153 150 116 - ---------------------------------------------------------------------------------------------- Participants' contributions 7 7 27 22 - ---------------------------------------------------------------------------------------------- Amendments (33) 1 (2) 5 - ---------------------------------------------------------------------------------------------- Actuarial loss 138 72 645 401 - ---------------------------------------------------------------------------------------------- Acquisitions 42 40 - 32 - ---------------------------------------------------------------------------------------------- Curtailments and settlements (29) (101) - (1) - ---------------------------------------------------------------------------------------------- Special termination benefits 1 9 7 37 - ---------------------------------------------------------------------------------------------- Currency translation 305 255 13 5 - ---------------------------------------------------------------------------------------------- Benefit payments (155) (147) (123) (108) - ---------------------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR 3,543 2,970 2,914 2,135 - ----------------------------------------------------------------------------------------------

The following table sets forth the aggregate change in plan assets, as well as the cash contributions made for each plan:

Years ended June 30 ------------------------------------------------------- Pension Benefits Other Retiree Benefits ------------------------------------------------------- 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------- Fair value of plan assets at beginning of year $ 1,332 $ 1,432 $ 2,347 $ 1,449 - ---------------------------------------------------------------------------------------------- Actual return on plan assets (36) (150) 1 947 - ---------------------------------------------------------------------------------------------- Acquisitions 1 18 - - - ---------------------------------------------------------------------------------------------- Employer contributions 337 116 25 38 - ---------------------------------------------------------------------------------------------- Participants' contributions 7 7 27 22 - ---------------------------------------------------------------------------------------------- Settlements (27) (22) - - - ---------------------------------------------------------------------------------------------- Currency translation 99 78 - (1) - ---------------------------------------------------------------------------------------------- Benefit payments (155) (147) (123) (108) - ---------------------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR 1,558 1,332 2,277 2,347 - ----------------------------------------------------------------------------------------------

Pension plan assets comprise a diversified mix of assets including corporate equities, government securities and corporate debt securities. The asset allocation is based on the structure of the liability. Other retiree plan assets were comprised of Company stock, net of Series B ESOP debt (see Note 6), of $2,182 and $2,243, as of June 30, 2003 and 2002, respectively. The accrued pension and other retiree benefit costs recognized in the accompanying Consolidated Balance Sheets were computed as follows:

Years ended June 30 ------------------------------------------------------- Pension Benefits Other Retiree Benefits ------------------------------------------------------- 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------- Funded status - ---------------------------------------------------------------------------------------------- at end of year $ (1,985) $ (1,638) $ (637) $ 212 - ---------------------------------------------------------------------------------------------- Unrecognized net actuarial loss (gain) 930 571 435 (579) - ---------------------------------------------------------------------------------------------- Unrecognized transition amount 13 14 - - - ---------------------------------------------------------------------------------------------- Unrecognized prior service cost (9) 21 (2) (1) - ---------------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED (1,051) (1,032) (204) (368) - ---------------------------------------------------------------------------------------------- Prepaid benefit cost 173 94 2 2 - ---------------------------------------------------------------------------------------------- Accrued benefit cost (1,407) (1,250) (206) (370) - ---------------------------------------------------------------------------------------------- Intangible asset 31 18 - - - ---------------------------------------------------------------------------------------------- Accumulated other comprehensive income 152 106 - - - ---------------------------------------------------------------------------------------------- NET LIABILITY RECOGNIZED (1,051) (1,032) (204) (368) - ----------------------------------------------------------------------------------------------

The underfunding of pension benefits primarily is a function of the different funding incentives that exist outside of the United States. In certain countries where the Company has major operations, there are no legal requirements or financial incentives provided to companies for pension fund contributions. In these instances, the associated pension liabilities are typically financed directly from the Company's cash as they become due, rather than through the creation of a separate pension fund. Both the benefit and the financing costs have been reflected in net earnings. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $2,945, $2,310 and $979, respectively, as of June 30, 2003, and $1,718, $1,385 and $276, respectively, as of June 30, 2002. The recent underfunding of other retiree benefits is primarily due to changes in the assumed discount and health care cost trend rates. Benefit obligations exceed the fair value of plan assets for each retiree benefit plan. Annual funding requirements are met through cash from operations. Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 51 The Company evaluates its actuarial assumptions on an annual basis. These assumptions are revised based on an evaluation of long-term trends and market conditions in each country that may have an impact on the cost of providing retirement benefits. Assumptions for the defined benefit and other retiree benefit calculations, which are reflected on a weighted average basis of individual country plans, were as follows:

Years ended June 30 ------------------------------------------------------- Pension Benefits Other Retiree Benefits ------------------------------------------------------- 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------- Discount rate 5.1% 5.6% 5.8% 7.0% - ---------------------------------------------------------------------------------------------- Expected return on plan assets 7.7% 8.6% 9.5% 9.5% - ---------------------------------------------------------------------------------------------- Rate of compensation increase 3.1% 3.5% - - - ---------------------------------------------------------------------------------------------- Initial health care cost trend rate (1) - - 11.4% 11.3% - ----------------------------------------------------------------------------------------------

(1) Trend rate assumption was adjusted in 2003 to reflect market trends. Rate is assumed to decrease to 5.0% by 2010 and remain at that level thereafter. Rate is applied to current plan costs net of Medicare; estimated initial rate for "gross eligible charges" (charges inclusive of Medicare) is 8.8% for 2003 and 9.1% for 2002. Components of the net periodic benefit cost were as follows:

Years ended June 30 -------------------------------------------------------------------- Pension Benefits Other Retiree Benefits -------------------------------------------------------------------- 2003 2002 2001 2003 2002 2001 - ------------------------------------------------------------------------------------------------------ Service cost $ 124 $ 114 $ 115 $ 62 $ 49 $ 40 - ------------------------------------------------------------------------------------------------------ Interest cost 173 153 149 150 116 101 - ------------------------------------------------------------------------------------------------------ Expected return on plan assets (127) (133) (127) (333) (320) (317) - ------------------------------------------------------------------------------------------------------ Amortization of prior service cost 2 4 5 (1) (1) (1) - ------------------------------------------------------------------------------------------------------ Amortization of prior transition amount 2 3 3 - - - - ------------------------------------------------------------------------------------------------------ Settlement loss 5 - 6 - - - - ------------------------------------------------------------------------------------------------------ Curtailment loss (gain) - 1 (13) - (1) - - ------------------------------------------------------------------------------------------------------ Recognized net actuarial loss (gain) 13 9 3 (27) (64) (85) - ------------------------------------------------------------------------------------------------------ GROSS BENEFIT COST 192 151 141 (149) (221) (262) - ------------------------------------------------------------------------------------------------------ Dividends on ESOP preferred stock - - - (74) (76) (76) - ------------------------------------------------------------------------------------------------------ NET PERIODIC BENEFIT COST 192 151 141 (223) (297) (338) - ------------------------------------------------------------------------------------------------------

In addition to the net periodic benefit cost, additional expense of $8 and $46 was recognized during the fiscal years ended June 30, 2003 and 2002, respectively, for special termination benefits provided as part of early retirement packages in connection with the Company's restructuring program. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:

One-Percentage One-Percentage Point Increase Point Decrease - ------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 37 $ (30) - ------------------------------------------------------------------------------------- Effect on postretirement benefit obligation 435 (422) - -------------------------------------------------------------------------------------

Employee Stock Ownership Plan The Company maintains the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs. The ESOP borrowed $1,000 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 United States. Principal and interest requirements are $117 per year, paid by the Trust from dividends on the preferred shares and from cash contributions and advances from the Company. Each share is convertible at the option of the holder into one share of the Company's common stock. The liquidation value is $13.64 per share. In 1991, the ESOP borrowed an additional $1,000. 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 $94 per year, 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 liquidation value is $25.92 per share. The number of preferred shares outstanding at June 30 was as follows:

June 30 -------------------------------- Shares in Thousands 2003 2002 2001 - -------------------------------------------------------------------------------- Allocated 32,246 33,095 34,459 - -------------------------------------------------------------------------------- Unallocated 15,767 17,687 19,761 - -------------------------------------------------------------------------------- TOTAL SERIES A 48,013 50,782 54,220 - -------------------------------------------------------------------------------- Allocated 10,324 9,869 9,267 - -------------------------------------------------------------------------------- Unallocated 25,359 26,454 27,338 - -------------------------------------------------------------------------------- TOTAL SERIES B 35,683 36,323 36,605 - --------------------------------------------------------------------------------

Millions of dollars except share amounts 52 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As permitted by 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 in short-term and long-term liabilities (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. The preferred shares held by the ESOP are considered outstanding from inception for purposes of calculating diluted net earnings per common share. 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 following: a) amount of taxes payable for the current year, and b) deferred tax liabilities and assets for 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 adjusted for tax rate changes. Earnings before income taxes consisted of the following:

Years ended June 30 -------------------------------- 2003 2002 2001 - ---------------------------------------------------------- United States $ 4,920 $ 4,411 $ 3,340 - ---------------------------------------------------------- International 2,610 1,972 1,276 - ---------------------------------------------------------- 7,530 6,383 4,616 - ----------------------------------------------------------

The income tax provision consisted of the following:

Years ended June 30 -------------------------------- 2003 2002 2001 - ---------------------------------------------------------- CURRENT TAX EXPENSE U.S. Federal $ 1,595 $ 975 $ 1,030 - ---------------------------------------------------------- International 588 551 676 - ---------------------------------------------------------- U.S. State and Local 98 116 90 - ---------------------------------------------------------- 2,281 1,642 1,796 - ---------------------------------------------------------- DEFERRED TAX EXPENSE U.S. Federal 125 571 142 - ---------------------------------------------------------- International and other (62) (182) (244) - ---------------------------------------------------------- 63 389 (102) - ---------------------------------------------------------- 2,344 2,031 1,694 - ----------------------------------------------------------

The Company's effective income tax rate was 31.1%, 31.8% and 36.7% in 2003, 2002 and 2001, 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 2003 and 2002 than in 2001 - 3.8% in 2003 and 3.1% in 2002. The Company's higher tax rate in 2001 reflected the impact of restructuring costs and amortization of goodwill and indefinite-lived intangibles prior to the adoption of SFAS No. 142. Taxes impacted shareholders' equity with credits of $361 and $477 for the years ended June 30, 2003 and 2002, 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 $14,021 at June 30, 2003, 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. Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to expiration of the carryforward periods. Although realization is not assured, management believes it is more likely than not the deferred tax assets, net of applicable valuation allowances, will be realized. Deferred income tax assets and liabilities were comprised of the following:

Years ended June 30 -------------------- 2003 2002 - ------------------------------------------------------------------------ TOTAL DEFERRED TAX ASSETS Loss and other carryforwards $ 311 $ 454 - ------------------------------------------------------------------------ Unrealized loss on financial instruments 287 55 - ------------------------------------------------------------------------ Advance payments 182 - - ------------------------------------------------------------------------ Other postretirement benefits 93 109 - ------------------------------------------------------------------------ Other 820 687 - ------------------------------------------------------------------------ Valuation allowances (158) (106) - ------------------------------------------------------------------------ 1,535 1,199 - ------------------------------------------------------------------------ TOTAL DEFERRED TAX LIABILITIES Fixed assets (1,175) (1,110) - ------------------------------------------------------------------------ Goodwill and other non-current intangible assets (410) (286) - ------------------------------------------------------------------------ Other (287) (209) - ------------------------------------------------------------------------ (1,872) (1,605) - ------------------------------------------------------------------------

Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 53 Net operating loss carryforwards were $1,222 at June 30, 2003. Net operating losses and other tax credit carryforwards were $1,211 at June 30, 2002. If unused, $348 will expire between 2004 and 2013. The remainder, totaling $874 at June 30, 2003, 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. Where appropriate, an obligation for such indemnifications is recorded as a liability. 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 that construct assets to produce materials for sale to P&G. The total amount of guarantees issued under such arrangements is not material. 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. Minority Partner Put Option At various points from 2007 to 2017, the minority partner in a subsidiary that holds most of the Company's China operations has the right to exercise a put option to require the Company to purchase from half to all of its outstanding 20% interest at a price not greater than fair market value. The impact of this put option is dependent on factors that can change prior to its exercise. Given that the put price cannot exceed fair market value and the Company's current liquidity, the Company does not believe that exercise of the put would materially impact its results of operations or financial condition. Operating Leases The Company leases certain property and equipment for varying periods under operating leases. Future minimum rental payments with terms in excess of one year total approximately $550. 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 $34 and $39 at June 30, 2003 and 2002, 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. NOTE 12 SEGMENT INFORMATION The Company's reportable segments are 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 hair care, skin care, cosmetics, fine fragrances, deodorants, tampons, pads and pantiliners. - - Baby and Family Care includes diapers, wipes, tissue and 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. To reflect management and business changes, the Company realigned its reporting segments. Effective July 1, 2002, the feminine care business, which had been managed within the Baby and Family Care segment, is included in the Beauty Care segment. In addition, the Food and Beverage segment was renamed Snacks and Beverages to reflect its remaining businesses. The historical results for the elements of the former Food and Beverage segment that have been divested or spun-off (i.e., Jif, Crisco and commercial shortening and oils) are now reflected in Millions of dollars except per share amounts 54 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Corporate, consistent with management reporting. As required by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," prior year operating information in the following table, as well as other segment in formation presented in the footnotes, has been restated to conform to the current year presentation. 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 treatment of unconsolidated investees (see Note 1); and the recording of fixed assets at historical exchange rates in certain high inflation economies. Corporate includes certain operating and non-operating activities 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, including amortization of indefinite-lived intangibles and goodwill prior to SFAS No. 142 adoption on July 1, 2001, charges related to restructuring, certain employee benefit costs and other general corporate items. The non-operating elements include financing and investing activities. These items have not been allocated to operating segments because they are corporate-driven decisions and are not reflected in the operating results used internally to measure and evaluate the operating segments. 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 United States of $21,853, $21,198 and $20,334 for the years ended June 30, 2003, 2002 and 2001, respectively. Assets in the United States totaled $23,424 and $23,434 as of June 30, 2003 and 2002, respectively. The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 18%, 17% and 15% of consolidated net sales in 2003, 2002 and 2001, respectively. These sales occurred primarily in the United States.

Fabric and Beauty Baby and Health Snacks and Home Care Care Family Care Care Beverages Corporate Total - -------------------------------------------------------------------------------------------------------------------------- Net Sales 2003 $ 12,560 $ 12,221 $ 9,933 $ 5,796 $ 3,238 $ (371) $ 43,377 - -------------------------------------------------------------------------------------------------------------------------- 2002 11,618 10,723 9,233 4,979 3,249 436 40,238 - -------------------------------------------------------------------------------------------------------------------------- 2001 11,660 10,027 9,221 4,353 3,460 523 39,244 - -------------------------------------------------------------------------------------------------------------------------- Before-Tax Earnings 2003 3,080 2,899 1,448 1,034 460 (1,391) 7,530 - -------------------------------------------------------------------------------------------------------------------------- 2002 2,728 2,354 1,272 795 476 (1,242) 6,383 - -------------------------------------------------------------------------------------------------------------------------- 2001 2,430 2,017 1,119 584 401 (1,935) 4,616 - -------------------------------------------------------------------------------------------------------------------------- Net Earnings 2003 2,059 1,984 882 706 306 (751) 5,186 - -------------------------------------------------------------------------------------------------------------------------- 2002 1,831 1,610 738 521 303 (651) 4,352 - -------------------------------------------------------------------------------------------------------------------------- 2001 1,643 1,361 658 390 242 (1,372) 2,922 - -------------------------------------------------------------------------------------------------------------------------- Depreciation and Amortization 2003 332 345 558 156 125 187 1,703 - -------------------------------------------------------------------------------------------------------------------------- 2002 326 339 503 163 121 241 1,693 - -------------------------------------------------------------------------------------------------------------------------- 2001 328 293 563 159 128 800 2,271 - -------------------------------------------------------------------------------------------------------------------------- Total Assets 2003 5,174 5,389 6,974 2,642 2,040 21,487 43,706 - -------------------------------------------------------------------------------------------------------------------------- 2002 5,149 5,500 7,069 2,542 2,012 18,504 40,776 - -------------------------------------------------------------------------------------------------------------------------- Capital Expenditures 2003 357 343 548 144 125 (35) 1,482 - -------------------------------------------------------------------------------------------------------------------------- 2002 368 354 702 158 125 (28) 1,679 - -------------------------------------------------------------------------------------------------------------------------- 2001 516 416 1,152 231 217 (46) 2,486 - --------------------------------------------------------------------------------------------------------------------------

Millions of dollars except per share amounts NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries 55 NOTE 13 QUARTERLY RESULTS (UNAUDITED)

Quarters Ended -------------------------------------------- Sept. 30 Dec. 31 Mar. 31 June 30 Total Year - -------------------------------------------------------------------------------------------------------------- Net Sales 2002-2003 $ 10,796 $ 11,005 $ 10,656 $ 10,920 $ 43,377 - -------------------------------------------------------------------------------------------------------------- 2001-2002 9,766 10,403 9,900 10,169 40,238 - -------------------------------------------------------------------------------------------------------------- Operating Income 2002-2003 2,179 2,248 1,957 1,469 7,853 - -------------------------------------------------------------------------------------------------------------- 2001-2002 1,762 1,864 1,654 1,398 6,678 - -------------------------------------------------------------------------------------------------------------- Net Earnings 2002-2003 1,464 1,494 1,273 955 5,186 - -------------------------------------------------------------------------------------------------------------- 2001-2002 1,104 1,299 1,039 910 4,352 - -------------------------------------------------------------------------------------------------------------- Diluted Net Earnings Per Common Share 2002-2003 $ 1.04 $ 1.06 $ 0.91 $ 0.68 $ 3.69 - -------------------------------------------------------------------------------------------------------------- 2001-2002 0.79 0.93 0.74 0.64 3.09 - --------------------------------------------------------------------------------------------------------------

FINANCIAL SUMMARY (UNAUDITED)

2003 2002 2001 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- Net Sales $ 43,377 $ 40,238 $ 39,244 $ 39,951 $ 38,125 $ 37,154 $ 35,764 $ 35,284 - ----------------------------------------------------------------------------------------------------------------------------- Operating Income 7,853 6,678 4,736 5,954 6,253 6,055 5,488 4,815 - ----------------------------------------------------------------------------------------------------------------------------- Net Earnings 5,186 4,352 2,922 3,542 3,763 3,780 3,415 3,046 - ----------------------------------------------------------------------------------------------------------------------------- Net Earnings Margin 12.0% 10.8% 7.4% 8.9% 9.9% 10.2% 9.5% 8.6% - ----------------------------------------------------------------------------------------------------------------------------- Basic Net Earnings Per Common Share $ 3.90 $ 3.26 $ 2.15 $ 2.61 $ 2.75 $ 2.74 $ 2.43 $ 2.14 - ----------------------------------------------------------------------------------------------------------------------------- Diluted Net Earnings Per Common Share 3.69 3.09 2.07 2.47 2.59 2.56 2.28 2.01 - ----------------------------------------------------------------------------------------------------------------------------- Dividends Per Common Share 1.64 1.52 1.40 1.28 1.14 1.01 0.90 0.80 - ----------------------------------------------------------------------------------------------------------------------------- Restructuring Program Charges (1) $ 751 $ 958 $ 1,850 $ 814 $ 481 $ - $ - $ - - ----------------------------------------------------------------------------------------------------------------------------- Research and Development Expense 1,665 1,601 1,769 1,899 1,726 1,546 1,469 1,399 - ----------------------------------------------------------------------------------------------------------------------------- Advertising Expense 4,373 3,773 3,612 3,793 3,639 3,801 3,574 3,374 - ----------------------------------------------------------------------------------------------------------------------------- Total Assets 43,706 40,776 34,387 34,366 32,192 31,042 27,598 27,762 - ----------------------------------------------------------------------------------------------------------------------------- Capital Expenditures 1,482 1,679 2,486 3,018 2,828 2,559 2,129 2,179 - ----------------------------------------------------------------------------------------------------------------------------- Long-Term Debt 11,475 11,201 9,792 9,012 6,265 5,774 4,159 4,678 - ----------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity 16,186 13,706 12,010 12,287 12,058 12,236 12,046 11,722 - -----------------------------------------------------------------------------------------------------------------------------

(1)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 56 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/investor 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, Cincinnati, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Brussels, Tokyo SHAREHOLDERS OF COMMON STOCK There were approximately 1,234,000 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 August 1, 2003. FORM 10-K Shareholders may obtain a copy of the Company's 2003 report to the Securities and Exchange Commission on Form 10-K by going to P&G's investor Web site at www.pg.com/investor 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 14, 2003. 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. WWW.PG.COM/INVESTOR You can access your Shareholder Investment Program account, including your account balance and transactions, 24 hours a day at www.pg.com/investor. And pg.com is your one-stop connection to stock purchase information, transaction forms, 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 www.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 www.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 www.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

Price Range Dividends --------------------------------------------- --------------------- 2002-2003 2002-2003 2001-2002 2001-2002 2002-2003 2001-2002 Quarter ended HIGH LOW High Low - ------------------------------------------------------------- --------------------- September 30 $ 93.50 $ 74.08 $ 77.28 $ 63.75 $ 0.41 $ 0.38 - ------------------------------------------------------------- --------------------- December 31 92.35 82.00 81.72 69.73 0.41 0.38 - ------------------------------------------------------------- --------------------- March 31 90.00 79.57 90.73 76.38 0.41 0.38 - ------------------------------------------------------------- --------------------- June 30 92.53 87.60 94.75 87.00 0.41 0.38 - ------------------------------------------------------------- ---------------------

Design: Landor Associates P&G AT A GLANCE

Net Sales by Segment* Global Business Unit Product Lines Key Brands (in billions) - -------------------------------------------------------------------------------------------------- Fabric and Home Care Laundry detergent, Tide, Ariel, Downy, Lenor, $ 12.6 fabric conditioners, Dawn, Fairy, Joy, Gain, Ace dish care, household Laundry and Bleach, Swiffer, cleaners, fabric Bold, Cascade, Dash, Cheer, refreshers, bleach Bounce, Febreze, Mr. and care for special Clean/Proper, Era, Bonux, fabrics Dreft, Daz, Vizir, Flash, Salvo, Viakal, Rindex, Alomatik, Dryel, Myth, Maestro Limpio, Ivory Dish, Hi Wash, Lang - -------------------------------------------------------------------------------------------------- Beauty Care Hair care/hair color, Pantene, Olay, Head & 12.2 skin care and Shoulders, Cover Girl, cleansing, cosmetics, Clairol's Herbal Essences, fragrances and Nice'n Easy, Natural Instincts antiperspirants/ and Hydrience, SK-II, Max Factor, deodorants Hugo Boss, Secret, Zest, Old Spice, Safeguard, Rejoice, Vidal Sassoon, Pert, Ivory Personal Care, Aussie, Lacoste, Infusion 23, Noxzema, Camay, Sure, Physique, Infasil, Laura Biagiotti, Muse, Wash&Go, Giorgio, Mum Feminine protection Always, Whisper, Tampax, pads, tampons and Lines Feminine Care, Naturella, pantiliners Evax, Ausonia, Orkid - -------------------------------------------------------------------------------------------------- Baby and Family Care Baby diapers, baby Pampers, Luvs, Kandoo, Dodot 9.9 and toddler wipes, baby bibs, baby change and bed mats Paper towels, toilet Charmin, Bounty, Puffs, Tempo, tissue and facial Codi tissue - -------------------------------------------------------------------------------------------------- Health Care Oral care, pet health Crest, Iams, Bukanuba, Vicks, 5.8 and nutrition, Actonel, Asacol, Metamucil, pharmaceuticals and Fixodent, PUR, Scope, personal health care Pepto-Bismol, Macrobid, Didronel, ThermaCare - -------------------------------------------------------------------------------------------------- Snacks and Beverages Snacks and beverages Pringles, Folgers, Millstone, 3.2 Torengos, Sunny Delight, Punica - --------------------------------------------------------------------------------------------------

[PIE CHART] - - Fabric and Home Care 29% - - Beauty Care 28% - - Baby and Family Care 23% - - Health Care 13% - - Snacks and Beverages 7% RECOGNITION - - P&G is in the top 10 of the World's Most Admired Companies (Fortune magazine) and Best Corporate Citizens (Business Ethics magazine). - - P&G ranks among the top companies for Executive Women (National Association of Female Executives), African Americans (Family Digest magazine), and Best Companies to Work For (Fortune magazine). [GRAPHIC] * Includes $0.4 billion of net sales generated by companies for which P&G exert significant influence but does not consolidate. [GRAPHIC] TOUCHING LIVES, IMPROVING LIFE. P&G (C) 2003 Procter & Gamble 0038-7121 EX-21 15 l02788aexv21.txt EX-21 SUBSIDIARIES OF REG EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES --------------------------------------------- Subsidiaries of the Registrant ------------------------------ Alejandro Llauro E. Hijos S.A.I.C. [Argentina] Anjali (HK) Corporation Limited [Hong Kong] Anjali Corporation [Delaware] An-Pro Company [Ohio] B&C International Co. (BVI) Ltd. [British Virgin Islands] Betrix Cosmetic GmbH [Germany] Blendax Unterstutzungskasse GmbH [Germany] Carlos BT [Hungary] Celtic Insurance Company Limited [Bermuda] Cheladerm, Inc. [Delaware] Clairol (China) Ltd. [China] Clairol Brasil Higiene e Cosmeticos Ltda [Brazil] Clairol Limited [U.K.] Clairol Peru S.R.L. [Peru] Compania Procter & Gamble Mexico, S. de R.L. de C.V. [Mexico] Compania Quimica S.A. [Argentina] Comunivers sa [Morocco] Corpydes S.A. de C.V. [Mexico] Crest Toothpaste Inc. [Canada] Detergent Products A.G. [Switzerland] Digibrands S.p.A. [Italy] District Pet Imaging, LLC [Ohio] Eczacibasi Yatirim Holding Ortakligi A.S. [Turkey] Elysee BT [Hungary] Eurocos Cosmetic GmbH [Germany] Eurocos Cosmetic Warenvertrieb GmbH [Austria] Eurocos Ltd [U.K.] EURO-Juice G.m.b.H. Import und Vertrieb [Germany] European Beauty Products (U.K.) Limited [U.K.] Ferraris BT [Hungary] Foreign Company "Procter & Gamble" [Belarus] Fountain Square Music Publishing Co., Inc. [Ohio] Frank BT [Hungary] Gala Cosmetics International Limited [U.K.] Gala of London Limited [U.K.] Giorgio Beverly Hills, Inc. [Delaware] Girl Cosmetics Limited [U.K.] Global Business Services de Costa Rica Limitada [Costa Rica] Herve Leger Parfums GmbH [Germany] Humatro Corporation [Delaware] Hyginett KFT [Hungary] Iams (Deutschland) Vertriebs GmbH [Germany] Iams Argentina S.A. [Argentina] Iams Australia/New Zealand Pty. Ltd. [Australia] Iams Canada Inc. [Canada] Iams Chile Limitada [Chile] Iams Companion Animal Research Institute, Inc. [Ohio] Iams do Brasil Comercial, Exportadora e Importadora Ltda. [Brazil] Iams Europe B.V. [Netherlands] Iams Global, Inc. [Ohio] Iams Japan K.K. [Japan] [ ] 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 ------------------------------ 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. [S. Africa] Iams Servicios, S. de R.L. de C.V. [Mexico] Iams U.K. Limited [U.K.] Industrial Catenation Services (Pty.) Ltd. [S. Africa] Industrias Modernas, S.A. [Guatemala] Inmobiliaria Procter & Gamble de Venezuela, S.C.S. [Venezuela] Inmobiliaria Procter & Gamble de Venezuela, S.R.L. Venezuela] 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] Juvian Fabric Care Corporation [Ohio] Kangra Valley Enterprises Ltd. [Delaware] Komal Manufacturing Chemists Ltd. [India] Liberty Street Music Publishing Company, Inc. [Ohio] Loreto y Pena Pobre, S.A. de C.V. [Mexico] Malabar (HK) Corporation Limited [Hong Kong] 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.] Midway Holdings Ltd. [Cayman Islands] Millstone Coffee, Inc. [Washington] Modern Industries Company - Dammam [Saudi Arabia] Modern Industries Company - Jeddah [Saudi Arabia] Modern Products Company - Jeddah [Saudi Arabia] Moroccan Modern Industries [Morocco] Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal] Novomoskovskbytkhim [Russia] Noxell (Barbados) Limited [Barbados] Noxell (Thailand) Limited [Thailand] Noxell Corporation [Maryland] Olay Company, Inc. [Delaware] Olga BT [Hungary] OOO Procter & Gamble Services Company [Russia] P&G-Clairol, Inc. [Delaware] P&G C&CA, Inc. [Ohio] P&G Consultoria E Servicos Ltda. [Brazil] P&G do Brasil Comercial 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] [ ] 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 ------------------------------ 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 GmbH [Germany] P&G Prestige Beaute S.A.R.L. [Switzerland] P&G Servicios S.A. [Argentina] P.T. Procter & Gamble Indonesia TbK [Indonesia] P.T. Procter & Gamble Home Products Indonesia [Indonesia] Papierhygiene GmbH [Germany] PFX Pet Supply, Inc. [Ohio] PGV Chile S.A. [Chile] PPProducts SARL [Switzerland] 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 (Vietnam) Ltd. [Vietnam] Procter & Gamble (Yemen) Ltd [Yemen] Procter & Gamble A/S [Norway] 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 Central & Eastern Europe GmbH [Germany] 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 Distribution [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.J.L. Sarajevo [Bosnia] 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 Limited [U.K.] Procter & Gamble Distributing New Zealand [New Zealand] Procter & Gamble Distribution Company (Europe) BVBA [Belgium] Procter & Gamble do Brasil S/A [Brazil] Procter & Gamble do Brazil, Inc. [Delaware] Procter & Gamble do Nordeste S/A [Brazil] Procter & Gamble Eastern Europe, Inc. [Ohio] Procter & Gamble Ecuador Compania Anonima [Ecuador] Procter & Gamble Egypt [Egypt] Procter & Gamble Energy Company LLC [Ohio] Procter & Gamble Espana S.A. [Spain] Procter & Gamble Eurocor N.V. [Belgium] Procter & Gamble Europe N.V. [Belgium] Procter & Gamble Europe SA [Switzerland] Procter & Gamble European Services SARL [Switzerland] Procter & Gamble European Supply Company BVBA [Belgium] Procter & Gamble European Technical Center BVBA [Belgium] Procter & Gamble Export Operations SARL [Switzerland] Procter & Gamble Far East, Inc. [Ohio] Procter & Gamble Finance (Canada) Limited Partnership [Canada] Procter & Gamble Financial Services [Ireland] Procter & Gamble Finland OY [Finland] Procter & Gamble Food Products SARL [Switzerland] Procter & Gamble France S.N.C. [France] Procter & Gamble FSC (Barbados) Inc. [Barbados] Procter & Gamble Germany Management Gmbh [Germany] Procter & Gamble Ghana, Ltd. [Ghana] Procter & Gamble GmbH [Germany] Procter & Gamble Gulf FZE [United Arab Emirates] Procter & Gamble Hair Care, LLC [Delaware] Procter & Gamble Health and Beauty Care-Europe Limited [U.K.] Procter & Gamble Hellas A.E. [Greece] Procter & Gamble Higiene e Cosmeticos Limitada [Brazil] Procter & Gamble Holding (Thailand) Limited [Thailand] Procter & Gamble Holding Denmark ApS [Denmark] Procter & Gamble Holding GmbH [Germany] Procter & Gamble Holding GmbH & Co. Operations oHG [Germany] 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 Wholesale Trading Partnership (KKT) [Hungary] Procter & Gamble Hygien OY [Finland] [ ] 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 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 Nicaragua, S.A. [Nicaragua] 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 SA [Switzerland] Procter & Gamble Investment Subsidiary Inc. [Canada] Procter & Gamble Investments Limited [Ireland] Procter & Gamble Investments UK [U.K.] Procter & Gamble Italia, S.p.A. [Italy] Procter & Gamble Italy s.r.l. [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 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] Procter & Gamble Manufacturing Romania SRL [Romania] Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia] Procter & Gamble Marketing and Services D.O. [Yugoslavia] Procter & Gamble Marketing Latvia Ltd. [Latvia] Procter & Gamble Marketing Ltd. Skopje [Macedonia] 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 Mexico Holdings, B.V. [Netherlands] [ ] 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 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 ograniczona odpowiedzialnoscia [Poland] Procter & Gamble Orleans S.A.S. [France] 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 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 Sp. zo.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] 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.] [ ] 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 Technology (Beijing) Co., Ltd. [PRC] Procter & Gamble Tenedora, S.A. [Venezuela] Procter & Gamble Trading (Thailand) Limited [Thailand] Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey] Procter & Gamble U.K. [U.K.] (Partnership) Procter & Gamble Ukraine [Ukraine] Procter & Gamble, Spol. s.r.o. (Ltd.) [Slovak Republic] Procter & Gamble-Hutchison Ltd. [Hong Kong] Procter & Gamble-Rakona, s.r.o. [Czech Republic] Productos Sanitarios Sociedad Colectiva [Argentina] Progam Realty & Development Corporation [Philippines] Progasud S.r.l. [Italy] Promotora de Bienes y Valores, S. de R.L. de C.V. [Mexico] 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] Rohm Pharma GmbH Wien [Austria] Rosemount Corporation [Delaware] R-V Chemicals Holdings Ltd. [Ireland] S.C. Detergenti S.A. [Romania] Shulton (Great Britain) Ltd. [U.K.] Shulton S.A. [Guatemala] Shulton, Inc. [New Jersey] Societe Immobiliere Les Colombettes, S.A. [Switzerland] SpinBrush Company [Ohio] SsangYong Paper Co. Ltd. [Korea] 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 [S. 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] [ ] 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 ------------------------------ The Procter & Gamble iVentures Company [Ohio] The Procter & Gamble Manufacturing Company [Ohio] The Procter & Gamble Ohio Brands Company [Ohio] The Procter & Gamble Paper Products Company [Ohio] The Procter & Gamble U.S. Business Services Company [Ohio] Thomas Hedley & Co. Limited [U.K.] TRAPOFA Leonhard-Speditions GmbH I.L. [Germany] US/KK Investments, Inc. [Ohio] Verwaltlungsgesellschaft Iams Pet Food mbH [Germany] Vick International Corporation [Delaware] Vick Nigeria Limited [Nigeria] Vidal Sassoon (Shanghai) Academy [PRC] Vidal Sassoon Co.[Ohio] Wella AG [Germany] and its subsidiaries [ ] Brackets indicate state or country of incorporation and do not form part of corporate name EX-23 16 l02788aexv23.txt EX-23 INDEPENDENT AUDITORS' CONSENT EXHIBIT (23) Independent Auditors' Consent DELOITTE & TOUCHE LLP 250 East Fifth Street Post Office Box 5340 Cincinnati, OH 45202 Telephone: 513-784-7100 INDEPENDENT AUDITORS' CONSENT - ----------------------------- We consent to the incorporation by reference in the following documents of our report dated July 31, 2003 incorporated by reference in this Annual Report on Form 10-K of The Procter & Gamble Company for the year ended June 30, 2003. 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. Amendment No. 1, 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. Amendment No. 2, 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. 333-84232 on Form S-3 for The Procter & Gamble Company Debt Securities and Warrants; and 23. Registration Statement No. 333-100561 on Form S-8 for The Procter & Gamble (U.K.) 1-4-1 Plan. DELOITTE & TOUCHE LLP - --------------------- Deloitte & Touche LLP September 9, 2003 EX-31 17 l02788aexv31.txt EX-31 CERTS 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 9, 2003 - --------------------------- 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 9, 2003 - ------------------------ Date EX-32 18 l02788aexv32.txt EX-32 CERTS 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, 2003 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 9, 2003 - ----------------------------- 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, 2003 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 9, 2003 - --------------------------- Date EX-99.2 19 l02788aexv99w2.txt EX-99.2 EXHIBIT (99-2) Directors and Officers (First) Liability Binder of Insurance Fax Transmission BINDER [ACE BERMUDA LOGO] Corporate Officers & P.O. Box HM 1015 Directors Assurance Ltd. Hamilton HM DX ACE Global Headquarters Bermuda 17 Woodbourne Avenue ace bermuda Hamilton HM 08 441 295-5200 main Bermuda www.acelimited.com To: From: Jerry Rivers/Pat Dill Patrick Tannock - --------------------------------- -------------------------------------- Company: Fax: H&H Park International 441-292-2514 - --------------------------------- -------------------------------------- Department: Tel: 441-299-9239 - --------------------------------- -------------------------------------- Fax: Date: 295 4622 July 1, 2003 Tel: E-mail: Re: Pages including cover: Procter & Gamble 1 CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. (CODA) IS PLEASED TO CONFIRM PROVISIONALLY BINDING THE FOLLOWING: POLICY PERIOD: June 30th, 2003 to June 30th, 2004 LIMIT OF LIABILITY: $25 million Primary PREMIUM: $985,000 SPECIAL CONDITIONS: 1. Binding is subject to receipt of the appropriate premium on or before Friday, July 4th, 2003. In the event the premium is not received by this date, this binder is null and void ab initio. 2. The cover provided will be primary. 3. Cover will continue on policy form CODA Premier 01 ED 10/00. 4. Endorsements to be included in addition to as expiring: - Discovery clause amended to unilateral 12 months @ 150% of annual Premium. 5. Please note that for regulatory reasons all payments relating U.S. based insureds must be transacted through a resident Bermuda broker. Best Regards, /s/ PATRICK TANNOCK - -------------------------------- Patrick Tannock EX-99.3 20 l02788aexv99w3.txt EX-99.3 EXHIBIT (99-3) Directors and Officers (Second) Liability Binder of Insurance FACSIMILE MESSAGE To: Paul Scope Fax No: 295-4622 Company: Park (Bermuda) Limited Location: Hamilton Date: July 2, 2003 Page: 1 From: Sherron Williams Telephone No: (441) 292-8515 Facsimile No: (441) 292-1566 3 Health Care / Consumer [XL INSURANCE (BERMUDA) LTD. LOGO] XL Insurance (Bermuda) Ltd. XL House One Bermudiana Road P.O. Box HM 2245 Hamilton HM JX Bermuda Coverage Binder for: The Procter & Gamble Company Type: Directors and Officers Liability Our Reference: 15-3 Policy No: XLD+O-00364 Policy Period: June 30, 2003 to June 30, 2004 Brokerage: 12.00% New Aggregate: Yes Gross Written Limit Attachment Premium - -------------------------------------------------------------------------------- USD 25,000,000 D+O USD 25,000,000 D+O USD 788,000 Coverage Binder for: The Procter & Gamble Company Page 2 SPECIAL CONDITIONS: A) X.L. coverage to follow form of CODA as per their 6/26/03. B) Issue standard X.L. 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) Incorporation of Application Endorsement. 4) 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. 7) XL will not follow form of CODA Section 8(a)(i), (b) and (c) and section 18(b). 8) XL will amend section (a)(i) of our expiring endorsement 2 as per item 3(b) of my 6/23/03 email. The remainder of the endorsement will continue as is. 9) Directors and Officers endorsement as per expiring endorsement #8. 10) XL will carry forward expiring endorsement #6. C) Underlying Policies: CODA $25 MM D) Within 10 days of binding we require satisfactory receipt, review and acceptance of a copy of the signed and dated CODA renewal application and a satisfactorily completed assignment letter, assigning the CODA renewal application to XL. E) Subject to premium payment within 10 days of binding. EX-99.4 21 l02788aexv99w4.txt EX-99.4 EXHIBIT (99-4) Directors and Officers (Third) Liability Binder of Insurance Fax Transmission BINDER [ACE BERMUDA LOGO] Ace Bermuda P.O. Box 1015 Insurance Ltd. Hamilton HM DX ACE Global Headquarters Bermuda 17 Woodbourne Avenue ace bermuda Hamilton HM 08 441 295-5200 main Bermuda www.acelimited.com To: From: Paul Scope Patrick Tannock - --------------------------------- -------------------------------------- Company: Fax: H&H Park International 441-292-2514 - --------------------------------- -------------------------------------- Department: Tel: 441-299-9239 - --------------------------------- -------------------------------------- Fax: Date: 295 4622 July 1, 2003 Re: Pages including cover: Procter & Gamble 2 ACE Bermuda Insurance Ltd. is pleased to provide a provisional D&O binder as follows: Policy Period: June 30th, 2003 to June 30th, 2004 Limit of Liability: $25M D&O / C.R. Attachment: $50M Aggregate: $25M Premium: 1,100,000 UNDERLYING STRUCTURE: NAME: LIMITS: D&O C.R. CODA $25M 0/0/$50M e.e. XL $25M SPECIAL CONDITIONS: 1. Followed Policy is CODA 2. Discovery Period & Pct: as per followed policy. 3. Cancellation Period: as per followed policy. 4. Coverage is as follows: - D&O/C.R. 100% Allocation 5. Binding is subject to receipt, review and acceptance of the following: - Copy of underlying binders - A satisfactory completed Assignment Letter, assigning CODA Renewal Application to ACE Bermuda [ACE BERMUDA LOGO] ace Bermuda 6. Binder is subject to no layer above our participation at a premium which attracts a higher rate per million. 7. Cover will be issued on Policy Form D&O 03/00. 8. Unless otherwise agreed to prior to the premium due date, ACE requires payment of 88% of the above quoted premiums, no later than July 11, 2003. 9. Endorsements to be included: a. Unilateral Discovery Period, 12 months at 150% b. Cancellation Period: As per CODA c. Prior/Pending Litigation Exclusion effective: 6/30/01 for side B & C cover d. Incorporation of Application endorsement e. Incorporation of Warranty endorsement as per the expiring XL endorsement No. 10 f. 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. g. ACE will amend section (a)(i) of the XL expiring endorsement No. 2 as per the specimen wording attached. h. Broad form pollution and broad form BI/PD exclusions as per expiring XL endorsements No. 3 & 4 i. New SIR wording, as per Item 3(a) of the attached specimen wording j. Directors and Officers Coverage Endorsement as per the XL expiring endorsement No. 8 k. Amendment of section (a)(i) of the Policy Termination Endorsement 10. Please note that for regulatory reasons all payments relating to U.S. based insureds must be transacted through a resident Bermuda broker. We reserve the right to withdraw or modify the foregoing quotation and/or agreement to renew coverage if prior to the effective date of the coverage renewal any information or answers contained in your application or other factors material to the risk to be insured change. This right of withdrawal or modification shall not be affected by the payment of the premium, which shall be refunded (without interest) to the extent coverage is not renewed. Best regards, /s/ PATRICK TANNOCK - ------------------------- Patrick Tannock Ace Bermuda Insurance Ltd. Page2/2 EX-99.5 22 l02788aexv99w5.txt EX-99.5 EXHIBIT (99-5) Directors and Officers (Fourth) Liability Binder of Insurance [AWA LOGO] ALLIED WORLD ASSURANCE COMPANY, LTD The Bermuda Commercial Bank Building - 43 Victoria Street - Hamilton HM 12, Bermuda - TEL 441-278-5400 - FAX 441-296-3428 BINDER CONFIRMATION TO: FROM: Jerry Rivers James Perry COMPANY: DATE: Park (Bermuda) Ltd. 7/9/2003 ADDRESS: NO. OF PAGES: 4 Bermuda Insured Name: THE PROCTER & GAMBLE COMPANY Insured Address: One Procter & Gamble Plaza, Cincinnati, OH 45202 It is hereby understood and agreed that coverage is bound as follows: Insurance Company: Allied World Assurance Company Ltd. Issuing Carrier: Allied World Assurance Company Ltd. Underwriter: James Perry Type of Insurance: Directors and Officers (1/03) Excess Liability Policy Form: Follow Form AWAC Policy Form: D and O (1/03) Policy Trigger: Claims Made Policy Number: C000539/002 Policy Period: 6/30/2003 to 6/30/2004 Currency: United States Dollars ($) 2 Covered Layer Limits: US$ 25,000,000 Per Claim US$ 25,000,000 Annual Aggregate Excess of US$ 75,000,000 Per Claim US$ 75,000,000 Annual Aggregate Pending or Prior Litigation Date: 6/30/2002 AWAC Participation of Covered Layer Limits: 100.00% AWAC Limits: US$ 25,000,000 AWAC Premium: US$ 970,000 Commission: 12.00% Binder Expiry Date: 30 days after date listed on page 1. Applicable Endorsements: Follow form: a) Company: Ace Bermuda (2nd excess) b) Policy No.: TBD c) Policy Period: 6/30/2003 to 6/30/2004 d) Policy Limits: US$ 25,000,000 Per Claim US$ 25,000,000 Annual Aggregate e) Premium: US$ 1,100,000 f) Policy Form: D&O 5/96 g) Endorsements: Follow the primary binder on endorsements 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 be 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 cancelled 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 the 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. This cost of discovery, as a percentage of the annual premium, shall in no event be less than the highest percentage of any underlying policy. EX-99.6 23 l02788aexv99w6.txt EX-99.6 EXHIBIT (99-6) Directors and Officers (Fifth) Liability Binder of Insurance [ARCH INSURANCE (BERMUDA) LOGO] ARCH INSURANCE (BERMUDA) (A Division of Arch Reinsurance Ltd.) VICTORIA HALL, 4TH FLOOR 11 VICTORIA STREET P.O. BOX HM 129 HAMILTON HM AX TELEPHONE: (441) 278-9295 TO: FROM: Paul Scope Matt Smith DIRECT PHONE NUMBER: DIRECT PHONE NUMBER: 294-7963 278-9268 COMPANY: DATE: Park (Bermuda) Limited June 30, 2003 FAX NUMBER: TOTAL NO. OF PAGES INCLUDING COVER: 295-4622 2 SUBJECT: Procter & Gamble Company - BINDER Arch Insurance (Bermuda) is pleased to bind as follows: Insured: Procter & Gamble Company Policy Form Arch Reinsurance Follow Form Coverage: Excess D&O Policy Period: June 30, 2003 to June 30, 2004 Policy Limits: $25,000,000 per claim and in the aggregate Policy Attachment: $100,000,000 per claim and in the aggregate Annual Premium: $875,000 Commission 12% Policy Number: B4-DOX-01824-01 Underlying Program: INSURER LAYER ------- ----- CODA $25M XL $25M x/s $25M ACE $25M x/s $50M AWAC $25M x/s 75M 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 XL. 2. Pending and Prior Litigation Exclusion dated AS PER EXPIRING CAIL LAYER (please provide details). 3. Arch will provide cover no wider than the narrowest underlying policy. 4. Discovery: As per followed policy. 5. New York Law and London Arbitration. Subjectivities: This binder is subject to the receipt, review and acceptance of the following by the dates specified or coverage is cancelled ab initio: 1. Copies of underlying quotations (other than those already received) and binders, within 5 days of binding. 2. Any documents or information requested by, or provided to, any underlying carriers, within 5 days of binding. 3. Receipt by Arch Insurance (Bermuda) of the net premium will be required within 5 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 premiums and are the responsibility of the Insured to pay. Yours sincerely, /s/ MATT SMITH - --------------------------- Matt Smith EX-99.7 24 l02788aexv99w7.txt EX-99.7 EXHIBIT (99-7) Directors and Officers (Sixth) Liability Binder of Insurance [STARR EXCESS INTERNATIONAL LOGO] EXCESS DIRECTORS & OFFICERS INSURANCE AND CORPORATE REIMBURSEMENT INSURANCE RENEWAL BUSINESS BINDER NAMED CORPORATION : PROCTER & GAMBLE POLICY NUMBER : 6460657 (RENEWAL OF POLICY NO. 6458089) POLICY PERIOD : JUNE 30, 2003 TO JUNE 30, 2004 LIMIT OF LIABILITY : US$25,000,000 ATTACHMENT : US$125,000,000 PREMIUM : US$785,000 CURRENCY : U.S. DOLLAR COMMISSION : 12% SUBJECT TO: 1. Copy of CODA renewal application, with letter assigning to Starr; 2. Copies of all underlying policies, as soon as possible; 3. Copies of any information requested by or provided to any underlying insurer. ADDITIONAL TERMS: 1. Unilateral Discovery Clause - 150% of annual premium for 12 months; 2. Prior & Pending Litigation exclusion effective June 30, 2001; 3. Cancellation Clause - same number of days as CODA; 4. This binder is subject to confirmation that any higher layer placed does not attract a higher premium per million than Starr's lower layer; 5. Non-follow form of State amendatory, panel counsel, choice of law, service of suit or arbitration endorsements, if applicable; 6. Non-follow form of underlying sub-limits, with recognition of erosion; 7. Starr will not provide coverage broader than the most restrictive underlying policy. FOLLOWED POLICY: CODA $25,000,000 XL $25,000,000 Ace $25,000,000 AWAC $25,000,000 Arch $25,000,000 Premium to be received no later than July 14, 2003. The captioned policy will be issued upon receipt of the primary and all underlying policies. ACCEPTED BY: /s/ ADAM KLEINMAN DATE : June 30, 2003 Adam Kleinman Vice President EX-99.8 25 l02788aexv99w8.txt EX-99.8 EXHIBIT (99-8) Directors and Officers (Seventh) Liability Binder of Insurance [AXIS SPECIALTY LIMITED LOGO] Axis Specialty Limited 106 Pitts Bay Road Pembroke, HM 08 Bermuda (441) 206-2600 21-Jul-03 Jerry Rivers H&H Park 44 Church Street Hamilton, Bermuda HMHX Re: Procter & Gamble Excess Binder Dear Jerry: Thank you for thinking of Axis Financial Insurance Solutions. We are pleased to offer the following Conditional Binder for the above captioned account as per the quotation dated 16-Jul-03: Insurer: Axis Specialty Limited Bermuda Parent Company and Address: Procter & Gamble 1 Procter & Gamble Plaza Cincinnati, Ohio Binder Number: PARK000012 Policy Number: 122250103QA-QDO3US112225 Policy Form: Excess Form Number AXIS BM03 Line of Business: Directors Officers Liability Policy Period: From 12:01 AM (Local time at the address stated in Item 1) on 30-Jun-03 To 12:01 AM (Local time at the address stated in Item 1) on 30-Jun-04 Limits / Premium: - ---------------- Limit of Liability*: Policy Period Premium: Total Policy Period Premium $25,000,000 $692,500 $692,500 *Equals Maximum aggregate Limit of Liability for all Claims Underlying Insurance: 1. Primary Insurance: Insurer Policy Number Limits Policy Period --------- ------------- --------- ------------- CODA TBD $25,000,000 12 months 2. Other Underlying Policies: Insurer Policy Number Limits Policy Period --------- ------------- ------ ------------- XL TBD $25,000,000 12 months ACE TBD $25,000,000 12 months AWAC TBD $25,000,000 12 months ARCH TBD $25,000,000 12 months STARR TBD $25,000,000 12 months Pending & Prior Claim Date: N/A Endorsements: [ ] [ ] [ ] [ ] Commission 12% Receipt, review and acceptance in writing by Axis Specialty Limited underwriters of the following additional information must occur no later than: N/A If any of the above requested items are not received, 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 service to waive the above requirements. Further, a condition precedent to coverage afforded by this Conditional Binder is that no material change in 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 last day of the month in which coverage became effective. This Conditional Binder is valid thru ninety (90) days from the date of this document. Please consider this your invoice for accounting purposes. Remit payment to: Wire Transfer Information: - ------------------------- "SWIFT MT 100. Customer Transfer Advice" This is an INTERNATIONAL wire transfer Correspondent Bank: Citibank N.A. 111 Wall Street New York, NY FED ABA 021000089 CHIPS ABA: 0008 S.W.I.F.T. Code: CITIUS33 (All three codes identify Citibank N.Y. The choice of code is dependent on the payment system used by the remitting bank) Beneficiary Bank: The Bank of Bermuda Limited Hamilton Bermuda CHIPS UID: 005584 S.W.I.F.T. Code BBDA BMHM (Both codes above identify The Bank of Bermuda, Hamilton. Again, the choice of code is dependent on the payment system used). Beneficiary A/C Number: 807381 Beneficiary A/C Name: AXIS Specialty Limited - Premium A/C AXIS Payment Terms - As a reminder, premium payment to AXIS Specialty Limited are due 30 days after the last day of the month in which coverage becomes effective. For example, if a policy has an effective date of May 4, the premiums would be due by June 30. A policy with an effective date of June 25 would have a premium due date of July 30. Thank you for all of your hard work and support. It is greatly appreciated. Best Regards, /s/ RICHARD BULLEN Richard Bullen Underwriter AXIS Specialty Limited 21/07/03 EX-99.9 26 l02788aexv99w9.txt EX-99.9 EXHIBIT (99-9) Directors and Officers (Eighth) Liability Binder of Insurance FACSIMILE MESSAGE To: Jerry Rivers Fax No: 295-4622 Company: Park (Bermuda) Limited Location: Hamilton Date: July 22, 2003 Page: 1 From: Sherron Williams Telephone No: (441) 292-8515 Facsimile No: (441) 292-1566 3 Health Care / Consumer [XL INSURANCE (BERMUDA) LTD. LOGO] XL Insurance (Bermuda) Ltd. XL House One Bermudiana Road P.O. Box HM 2245 Hamilton HM JX Bermuda Coverage Binder for: The Procter & Gamble Company Type: Directors and Officers Liability including Company Reimbursement Liability Our Reference: 15-4 Policy No: XLD+O-00364 Policy Period: June 30, 2003 to June 30, 2004 Brokerage: 12.00% New Aggregate: Yes Gross Written Limit Attachment Premium - -------------------------------------------------------------------------------- USD 15,000,000 D+O/CR USD 175,000,000 D+O/CR USD 374,500 COVERAGE BINDER FOR: THE PROCTER & GAMBLE COMPANY PAGE: 2 SPECIAL CONDITIONS A) X.L. coverage to follow form of: ACE, as per their 7/1/03 binder. B) Issue standard X.L. Policy: D+O-005, plus the following endorsements: (1) Unilateral Discover Period: 12 months at 150 percent annual premium. (2) Cancellation period: as per CODA (3) Policy Interpretation Endorsement (4) Prior/Pending Litigation Exclusion effective: 6/30/02. XL is willing to amend this exclusion to solely apply to sides B & C of the policy with an effective date of 6/30/01, upon confirmation that all other markets have agreed to do so. (5) Incorporation of Application Endorsement (6) 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. C) Underlying Policies: CODA (side A): $25MM XL (side A): $25MM xs $25MM ACE (side A/B/C): $25MM xs $50MM AWAC (side A/B/C): $25MM xs $75MM ARCH (side A/B/C): $25MM xs $100MM Starr (side A/B/C): $25MM xs $125MM Axis (side A/B/C): $25MM xs $150MM D) Subject to premium payment within 10 days of binding. COVERAGE BINDER FOR: THE PROCTER & GAMBLE COMPANY PAGE: 3 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/ SHERRON WILLIAMS - ------------------------------------ Sherron Williams XL Insurance (Bermuda) Ltd. EX-99.10 27 l02788aexv99w10.txt EX-99.10 EXHIBIT (99-10) Directors and Officers (Ninth) Liability Binder of Insurance [MAX RE LOGO] Jonathan Evans Professional Liability T 441.294.2263 F 441.298.8811 jonathane@maxre.bm July 7, 2003 Re: The Procter & Gamble Company Max Re Ltd is pleased to bind the following for the above referenced client. Coverage Information Type: Binder Client Information Name: The Procter & Gamble Company Address: One Procter & Gamble Plaza Cincinnati, OH 45202 Policy Information Policy Form: Max Re Ltd Professional Liability Follow Form Excess Policy Number: 1322-80-UMB-2003 Policy Period: June 30th, 2003 - June 30th, 2004 Limit of Liability: $10,000,000 In the aggregate for the policy period. Policy Attachment: $190,000,000 excess of the following schedule of underlying Insurance: CODA $25M Primary XL $25.0M $25.0M ACE $25.0M $50.0M AWAC $25.0M $75.0M Arch $25.0M $100.0M Starr $25.0M $125.0M TBA $25.0M $150.0M Insured's Retention: $50,000,000 each and every claim Followed Policy: CODA (with restrictions) PREMIUM INFORMATION Premium: $244,000 Commission: 12% Payment Terms: Premium payment is due in full within 10 days of binding. Payment Instructions: Federal Reserve Bank of Boston ABA: 011-001-234/BOS SAFE DEP DDA# 162299 For: Insurance Operating Account (Max Re Ltd) Account Number: MRL F 0070232 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 net funds of $214,750 on or before July 14, 2003. In the event net funds are not received by this date, this binder is void ab initio. ENDORSEMENTS: 1. Endorsement backdated prior and pending dates. 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 filling responsibilities of any kind relating to such any taxes or fees. 2. All amounts are in United States Dollars unless otherwise indicated. 3. The proposal is conditioned upon no material change between the date of this letter and the inception date of the proposed policy, including any claims or notices of circumstances to any prior insurer. In the event of such a change of risk, Max Re has the sole option to modify or withdraw this proposal at its discretion. 4. 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 inito by the insurer. 5. All changes, modifications and extensions of this proposal shall be made only in writing by the underwriter. Page 2 of 3 MAX RE MANAGERS LTD. 2 FRONT STREET, P.O. BOX HM 2585 T 441.296.6800 F 441.296.8811 E info@maxre.bm www.maxre.bm Thank you for considering Max Re Ltd for this placement. Please contact me if you have any questions. Yours truly, /s/ JONATHAN EVANS Jonathan Evans Professional Liability T 441 294 2263 F 441 296 8811 E jonathane@maxre.bm Page 3 of 3 MAX RE MANAGERS LTD. 2 FRONT STREET, P.O. BOX HM 2585 T 441.296.6800 F 441.296.8811 E info@maxre.bm www.maxre.bm -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.1

                                  EXHIBIT (3-1)



                        Amended Articles of Incorporation


                                AMENDED ARTICLES

                                       of

                                  INCORPORATION

                                       of

                          THE PROCTER & GAMBLE COMPANY

                                   [P&G LOGO]

                                  October, 1997



                         CERTIFICATE OF AMENDED ARTICLES

                                OF INCORPORATION

                                       OF

                          THE PROCTER & GAMBLE COMPANY

         John E. Pepper, Chairman of the Board and Chief Executive, and Terry L.
Overbey, Secretary, of The Procter & Gamble Company, an Ohio corporation, with
its principal office located in Cincinnati, Hamilton County, Ohio, do hereby
certify that at a meeting of the Board of Directors of said corporation, duly
called and held on the 14th day of October, 1997, at which a quorum of such
Directors was present, the following resolution consolidating the Amended
Articles of all previously adopted amendments thereto presently in force was
adopted by the affirmative vote of all Directors present:

         RESOLVED, That pursuant to the authority granted to this Board of
         Directors by Section 1701.72(B) of the Ohio Revised Code, in order to
         consolidate the provisions of the Amended Articles of Incorporation of
         the Company and all amendments thereto heretofore adopted and still in
         force, the Amended Articles of Incorporation are hereby further amended
         to read in their entirety as presented at this meeting.

and that the Amended Articles of Incorporation of the corporation as thus
presented to and approved by the Directors at said meeting are as follows:

                        AMENDED ARTICLES OF INCORPORATION

                                       OF

                          THE PROCTER & GAMBLE COMPANY

         THE PROCTER & GAMBLE COMPANY, a corporation under the laws of the State
of Ohio, adopts these Amended Articles of Incorporation to supersede and take
the place of its existing Amended Articles of Incorporation, and all amendments
thereof, that are in force at this time, and for such purpose certifies as
follows:

         First: The name of the corporation is The Procter & Gamble Company.

         Second: The place in the State of Ohio where its principal office is
located is in the City of Cincinnati, in Hamilton County.

         Third: The purposes for which it is formed are to produce, manufacture,
buy, sell, merchandise and generally deal in the following:

         1.       Soap, soap products, cleansers, detergents and cleaning
         products of any and all kinds, for any and all uses and purposes.

         2.       Cosmetics, perfumes, toilet powders, toilet waters, and all
         other toilet preparations and articles.



         3.       Fats and oils, hydrogenated fats and oils, and derivatives of
         fats and oils for any and all uses and purposes.

         4.       Cottonseed, soybeans, other oilseeds, oilseed meals, linters,
         cotton, hulls and any products and any by-products resulting from the
         processing of any of these or any products made therefrom.

         5.       Cellulose, cellulose products, purified cellulose, forest
         products, fibrous products, paper and paper products of any and all
         kinds, and any products and any by-products resulting from the
         processing of any of these or any products made therefrom.

         6.       Food products of any and all kinds.

         7.       Candles, stearine, stearic acid, glycerine, silicate of soda,
         cuastic soda and any similar or related products.

         8.       Organic and inorganic chemicals, chemical compounds, drugs and
         pharmaceuticals.

         9.       All substances and products, kindred to or competitive with
         any or all of the foregoing and all that may result from or be
         convenient to the production, manufacture, sale and dealing in any or
         all of the foregoing substances and products.

         10.      All substances, materials, and articles made from or
         containing any or all of the foregoing products or entering into or
         convenient for the manufacture and sale of any or all of the foregoing
         products.

         The purpose for which it is formed also include the power to do all
other things necessary or incident to any or all of the foregoing purposes,
including provision for insurance, financial and other services and of means for
the development, promotion, advertising, marketing and transportation of raw
materials, intermediate or finished products and the power to purchase, acquire,
hold, convey, lease, mortgage or dispose of stock, securities and property, real
or personal, tangible or intangible, in connection therewith or in furtherance
thereof.

         In addition to the foregoing specified purposes and not limited in any
manner thereby, the purpose for which it is formed is to engage in any lawful
act or activity for which corporations may be formed under Sections 1701.01 to
1701.98, inclusive, of the Ohio Revised Code.

         Fourth: The authorized number of shares without par value is five
billion eight hundred million (5,800,000,000) of which six hundred million
(600,000,000) are classified and designated as Class A Preferred Stock, two
hundred million (200,000,000) are classified and designated as Class B Preferred
Stock and five billion (5,000,000,000) are classified and designated as Common
Stock.

         1.       The express terms and provisions of the shares classified and
         designated as Class A Preferred Stock and Class B Preferred Stock are
         as follows:

                  (a)      The holders of the shares classified and designated
                  as Class A Preferred Stock shall be entitled to one (1) vote
                  per share at all meetings of the shareholders of the Company.
                  The holders of the shares classified and designated as Class B
                  Preferred Stock shall not be entitled to vote at meetings of
                  shareholders of the Company, other than as provided by law.



                  (b)      The Board of Directors is authorized, subject to any
                  limitations prescribed by law and to the provisions of this
                  Article Fourth, to adopt amendments to these Amended Articles
                  of Incorporation in respect of any unissued or treasury shares
                  of the Class A Preferred Stock and Class B Preferred Stock and
                  thereby to fix or change: the division of such shares into
                  series and the designation and authorized number of shares of
                  each series; the dividend rate; the dates of payment of
                  dividends and the dates from which they are cumulative;
                  liquidation price; redemption rights and price; sinking fund
                  requirements; conversion rights; and restrictions on the
                  issuance of such shares or any series thereof. In addition the
                  Board of Directors is hereby authorized to similarly fix or
                  change any or all other express terms in respect of the Class
                  A Preferred Stock and Class B Preferred Stock as may be
                  permitted or required by law.

                  (c)      Upon the conversion of any share of Class A Preferred
                  Stock and Class B Preferred Stock, the stated capital of the
                  Company shall be reduced or increased in such a manner and at
                  such a rate so that the stated capital attributable to any
                  share issued upon the exercise of such conversion rights shall
                  be the same as any other share of its class and not the stated
                  capital of the share so converted.

                  (d)      The holders of the shares of Class A Preferred Stock
                  and Class B Preferred Stock shall receive dividends, when and
                  as declared by the Board of Directors, out of funds available
                  for the payment of dividends, before any dividend shall be
                  paid on the shares of Common Stock. Such dividends shall be
                  payable at the rate per share per annum, and no more, and
                  pursuant to the other terms as shall have been fixed by the
                  Board of Directors, and no dividends shall be paid on the
                  shares of Common Stock unless the current dividend, and all
                  the arrears of dividends, if any, on the outstanding shares of
                  the Class A Preferred Stock and Class B Preferred Stock shall
                  have been paid or provision shall have been made for the
                  payment thereof.

                  (e)      In case of the dissolution or liquidation of the
                  Company, before any payment shall be made to the holders of
                  the Common Stock, the holders of the Class A Preferred Stock
                  and Class B Preferred Stock shall be entitled to be paid from
                  the assets available therefor the liquidation price fixed by
                  the Board of Directors, and all accrued and unpaid dividends
                  thereon, but shall not be entitled to participate any further
                  in the distribution of the assets of the Company.

                  (f)      Pursuant to subsection (b) of this Section 1, there
                  is hereby established a series of the Class A Preferred Stock
                  with nine million ninety thousand nine hundred nine
                  (9,090,909) shares authorized which is designated as "Series A
                  ESOP Convertible Class A Preferred Stock" with express terms
                  as set forth in Appendix A attached hereto and incorporated
                  herein as if fully set forth herein.(1)

                  (g)      Pursuant to subsection (b) of this Section 1, there
                  is hereby established a series of the Class A Preferred Stock
                  with nineteen million, one hundred forty-two thousand, four
                  hundred eighteen (19,142,418) shares authorized which is
                  designated as "Series B ESOP Convertible Class A Preferred
                  Stock" with express terms as set forth in Appendix B attached
                  hereto and incorporated herein as if fully set forth
                  herein.(2)

         2.       The express terms and provisions of the shares classified and
         designated as Common Stock are as follows:



                  (a)      The holders of said shares shall be entitled to one
                  (1) vote per share at all meetings of the shareholders of the
                  Company.

                  (b)      After the payment to the holders of all Class A
                  Preferred Stock and Class B Preferred Stock of the
                  preferential amounts to which they shall be entitled in the
                  event of the dissolution or liquidation of the Company, the
                  holders of the shares of Common Stock shall be entitled to all
                  of the residue of the assets and shall receive payment thereof
                  in proportion to the shares held by them respectively.

                  (c)      Subject to the express terms and provisions of the
                  shares designated as Class A Preferred Stock and Class B
                  Preferred Stock, the holders of the shares of Common Stock
                  shall have all, and all other rights, interests, powers and
                  privileges of shareholders of corporations for profit as
                  provided by law, without any restrictions, qualifications or
                  limitations thereof.

         Fifth: The stated capital of the Company shall be the aggregate stated
capital of all classes of outstanding shares:

                  (a)      The stated capital of shares with par value shall be
                  the par value of such shares.

                  (b)      The stated capital of shares without par value shall
                  be One Dollar ($1.00) per share or such other amount required
                  by law.

         Sixth: The following provisions are hereby agreed to for the purpose of
defining, limiting and regulating the exercise of the authority of the Company,
or of its shareholders, or of any class of shareholders, or of its directors, or
for the purpose of creating and defining rights and privileges of the
shareholders among themselves:

         1.       The Company may purchase, hold, sell, and reissue any of its
         shares and to the extent that the authority to do the same may be
         granted under these Articles, the Board of Directors shall have power
         to do all said acts, without any action by shareholders, except as
         otherwise provided below in this Article Sixth.

         2.       No holder of shares of any class shall have any right,
         pre-emptive or other, to subscribe for or to purchase from the Company
         any of the shares of any class of the Company hereafter issued or sold.

         3.       (a)      Except as otherwise provided in Subsection (b) of
                  this Section 3 the following transactions shall require the
                  affirmative vote of the holders of at least eighty percent
                  (80%) of the outstanding shares of capital stock of the
                  Company entitled to vote thereon, considered for the purposes
                  of this Section 3 as one class:

                           (i)      the purchase by the Company of any of its
                           shares of any class from any Related Person, if any
                           such shares have been beneficially owned by the
                           Related Person less than two years prior to the date
                           of such purchase or any agreement in respect thereof;

                           (ii)     any merger or consolidation of the Company
                           or a subsidiary of the Company with or into any
                           Related Person, in each case without regard to which
                           entity is the surviving entity;



                           (iii)    any sale, lease, exchange, transfer or other
                           disposition of all or any substantial part of the
                           assets of the Company or a subsidiary of the Company
                           to or with any Related Person;

                           (iv)     the purchase by the Company from any Related
                           Person of any assets or securities, or a combination
                           thereof, except assets or securities or a combination
                           thereof so acquired in a single transaction or a
                           series of related transactions having an aggregate
                           fair market value of less than Fifty Million Dollars
                           ($50,000,000);

                           (v)      the issuance or transfer of any securities
                           of the Company to any Related Person for cash;

                           (vi)     the adoption of any plan or proposal for the
                           voluntary dissolution, liquidation, spin-off, or
                           split-up of any kind of the Company or a subsidiary
                           of the Company, or a recapitalization or
                           reclassification of any securities of the Company,
                           proposed by or on behalf of any Related Person; or

                           (vii)    any other material transaction involving the
                           Company or a subsidiary of the Company with, or
                           proposed by or on behalf of, any Related Person.

                  Such affirmative vote shall be required notwithstanding the
                  fact that no vote may be required, or that some lesser
                  percentage may be specified, by law or in any agreement with
                  any national securities exchange.

                  (b)      The provisions of this Section 3 shall not apply to
                  any purchase described in Subsection (a)(i) of this Section 3
                  if the purchase would be made as part of any purchase by the
                  Company of its shares made on the same terms to all holders of
                  the shares to be purchased and complying with the applicable
                  requirements of the Securities Exchange Act of 1934. the
                  provisions of this Section 3 shall also not apply to any
                  transaction described in Subsection (a)(ii) through (vii) of
                  this Section 3 if the Board of Directors of the Company shall
                  by resolution have approved a memorandum of understanding with
                  such Related Person with respect to and substantially
                  consistent with such transaction prior to the time the Related
                  Person became such, or if the transaction is approved by a
                  resolution adopted by the affirmative vote of at least
                  two-thirds (2/3) of the members of the whole Board of
                  Directors of the Company at any time prior to the consummation
                  thereof.

                  (c)      For the purposes of this Section 3, and as guidance
                  to the Board of Directors for the purpose of Subsection (d)
                  hereof, the term "Related Person" shall mean (1) any
                  individual, firm, corporation or other entity, or group
                  thereof acting or agreeing to act in the manner set forth in
                  Rule 13d-5 under the Securities Exchange Act of 1934 (the
                  "Act") as in effect on October 8, 1985, who is the beneficial
                  owner, directly or indirectly, of five percent (5%) or more of
                  the outstanding shares of capital stock of the Company
                  entitled to vote generally in the election of directors and
                  (2) any "Affiliate" or "Associate" of any of the above or of
                  any entity or group (or any member thereof) described in
                  Clause (1) above, whether or not acting as a Director of the
                  Company. The terms "Affiliate" and "Associate" as used herein
                  shall have the respective meanings ascribed to such terms in
                  The General Rules and Regulations under the Act as in effect
                  on October 8, 1985, and shall include any person otherwise



                  acting in the capacity of an "Associate" or "Affiliate". The
                  Term "Related Person" shall not include the Company, any
                  subsidiary of the Company, any employee benefit plan of the
                  Company or of a subsidiary of the Company, or any trustee of
                  or fiduciary with respect to any such plan acting in such
                  capacity. In addition to all shares beneficially owned,
                  directly or indirectly, a Related Person shall also be deemed
                  to be the beneficial owner of any shares of capital stock of
                  the Company (1) which it has the right to acquire pursuant to
                  any agreement, or upon exercise of conversion rights, warrants
                  or options, or otherwise; or (2) which are beneficially owned,
                  directly or indirectly (including shares deemed owned through
                  application of Clause (1) above), (A) by its "Affiliate" or
                  "Associate" or (B) by any other individual, firm corporation,
                  or other entity (or any "Affiliate" or "Associate" thereof)
                  with which it or its "Affiliate" or "Associate" of (B) by any
                  other individual, firm, corporation, or other entity (or any
                  "Affiliate" or "Associate" thereof) with which it or its
                  "Affiliate" or "Associate" has any agreement, arrangement or
                  understanding for the purpose of acquiring, holding, voting or
                  disposing of capital stock of the Company. For the purposes of
                  this Section 3, (A) the outstanding shares of any class of
                  capital stock of the Company shall include shares deemed owned
                  through the application of Clauses (1) and (2) of the
                  preceding sentence but shall not include any other shares
                  which may be issuable pursuant to any agreement, or upon
                  exercise of conversion rights, warrants or options, or
                  otherwise, and (B) subsidiary shall mean any corporation of
                  which the Company owns, directly or indirectly, fifty percent
                  (50%) or more of the voting stock.

                  (d)      The Board of Directors of the Company shall have the
                  power and duty to determine for the purposes of this Section
                  3, on the basis of information then known to it, whether (1)
                  any individual, firm, corporation, or other entity is a
                  Related Person or is an "Affiliate" or an "Associate", or a
                  group thereof; (2) any proposed sale, lease, exchange or other
                  disposition of part of the assets of the Company or a
                  subsidiary of the Company involves all or any substantial part
                  of the assets of the Company or a subsidiary of the Company;
                  (3) any assets or securities, or a combination thereof, to be
                  acquired by the Company, have an aggregate fair market value
                  of less than Fifty Million Dollars ($50,000,000) and whether
                  the same are proposed to be acquired in a single transaction
                  or a series of related transactions; (4) any plan or proposal
                  is for the voluntary dissolution, liquidation, spin-off or
                  split-up of any kind of the Company or a subsidiary of the
                  Company, or is a recapitalization or reclassification of any
                  securities of the Company, and whether any plan or proposal is
                  proposed by or on behalf of any Related Person; (5) any
                  transaction involving the Company or a subsidiary of the
                  Company with, or proposed by or on behalf of any Related
                  Person is material, and whether any such transaction is
                  proposed by or on behalf of any Related Person; and (6) the
                  memorandum of understanding referred to above is substantially
                  consistent with the transaction to which it relates.

                  (e)      The Board of Directors of the Company, when
                  evaluating any material, unsolicited offer of another party to
                  (1) merge or consolidate the Company or a subsidiary of the
                  Company with or into another corporation; (2) purchase or
                  otherwise acquire all or any substantial part of the assets of
                  the Company or a subsidiary of the Company; (3) sell any
                  assets or securities to the Company; (4) purchase any
                  securities from the Company or from the holders thereof in a
                  tender offer; (5) dissolve, liquidate, spin off or split up
                  the Company or a subsidiary of the Company, or to recapitalize
                  or reclassify any securities of the Company; or (6) involve
                  the Company or a subsidiary of the Company in any other
                  material transaction, shall, in connection with the exercise
                  of its judgment in determining what is in the best interests
                  of the



                  Company and its shareholders, give due consideration to (A)
                  all relevant factors, including without limitation the
                  financial and managerial resources and future prospects of the
                  other party and the social, legal, environmental and economic
                  effects on the employees, customers, suppliers and other
                  affected persons, firms and corporations and on the
                  communities and geographical areas in which the Company and
                  its subsidiaries operate or are located and on any of the
                  business and properties of the Company or any of its
                  subsidiaries, as well as such other factors as the Directors
                  deem relevant; and (B) the amount and form of the
                  consideration being offered in relation to the then current
                  market price for the Company's outstanding shares of capital
                  stock, in relation to the then current value of the Company in
                  a freely negotiated transaction or transactions and in
                  relation to the Board of Directors' estimate of the future
                  value of the Company (including the unrealized value of its
                  properties and assets) as in independent concern. In
                  evaluating any such offer, the Board of Directors shall be
                  deemed to be performing their duly authorized duties and
                  acting in good faith and in the best interests of the Company
                  within the meaning of Section 1701.13 of the Ohio Revised
                  Code, as it may be amended from time to time, and the
                  Company's Regulations.

         4.       The statutes of Ohio require that action on certain specified
         matters at a shareholders' meeting shall be taken by the affirmative
         vote of the holders of more than a majority of shares entitled to vote
         thereon, unless other provision is made in the Articles of
         Incorporation. On all these specified matters action may be taken by
         the affirmative vote of a majority of shares entitled to vote thereon
         or, if the vote is required to be by classes, by the affirmative vote
         of a majority of each class of shares entitled to vote thereon as a
         class, except that any amendment, alteration, addition to or repeal of
         this Article Sixth and of any of the matters specified above in Section
         3 of this Article Sixth as requiring a vote other than the affirmative
         vote of the holders of a majority of the shares entitled to vote
         thereon, may only be taken, (1) prior to the date of the annual meeting
         in 1990, by the affirmative vote of the holders of at least eighty
         percent (80%) of the outstanding shares of capital stock of the Company
         entitled to vote thereon, considered for the purposes of this Section 4
         as one class; (2) from the date of the annual meeting in 1990 to, and
         including the date of the annual meeting in 2000, by the affirmative
         vote of the holders of at least a majority of the outstanding shares of
         capital stock of the Company entitled to vote thereon, considered for
         the purposes of this Section 4 as one class, provided that during such
         period said vote may be increased at any time to the affirmative vote
         of the holders of at least eighty percent (80%) of the outstanding
         shares of capital stock of the Company by a resolution adopted by at
         least two-thirds (2/3) of the members of the whole Board of
         Directors(3); (3) after the date of the annual meeting in 2000, by the
         affirmative vote of the holders of at least a majority of the
         outstanding shares of capital stock of the Company entitled to vote
         thereon, considered for the purposes of this Section 4 as one class.

         Seventh: No holder of shares of any class shall have the right to vote
cumulatively in the election of Directors.

         IN WITNESS WHEREOF, said John E. Pepper, Chairman of the Board and
Chief Executive, and Terry L. Overbey, Secretary, of The Procter & Gamble
Company, acting for and on behalf of said corporation, have hereunto subscribed
their names and caused the seal of said corporation to be hereunto affixed this
14th day of October, 1997.

                                                    THE PROCTER & GAMBLE COMPANY



                                                    /s/ John E. Pepper

                                                    BY JOHN E. PEPPER
                                                    Chairman of the Board and
                                                    Chief Executive

                                                    /s/ Terry L. Overbey

                                                    BY TERRY L. OVERBEY
                                                    Secretary

- -----------------------
(1)      As a result of three two-for-one stock splits on the Common Stock
         effective October 10, 1989, May 15, 1992 and August 22, 1997, the
         number of shares of Series A ESOP Convertible Class A Preferred Stock
         authorized was automatically increased to 72,727,272 in accordance with
         the terms of paragraph 9(A)(1) of Appendix A. (This footnote is not a
         part of the Company's Amended Articles of Incorporation, but is
         included to provide up-to-date information on the status of Series A
         ESOP Convertible Class A Preferred Stock.)

(2)      As a result of the two-for-one stock split effective August 22, 1997,
         the number of shares of Series B ESOP Convertible Class A Preferred
         Stock authorized was automatically increased to 38,284,836 in
         accordance with the terms of paragraph 9(A)(1) of Appendix B. (This
         footnote is not a part of the Company's Amended Articles of
         Incorporation, but is included to provide up-to-date information on the
         status of Series B ESOP Convertible Class A Preferred Stock.)

(3)      On October 9, 1990, in accordance with this provision, the vote
         required was increased to 80% of the outstanding shares of capital
         stock of the Company. (This footnote is not a part of the Company's
         Amended Articles of Incorporation, but is included to provide
         up-to-date information.)



                                  APPENDIX A(4)

                SERIES A ESOP CONVERTIBLE CLASS A PREFERRED STOCK
              (Hereinafter referred to as Series A Preferred Stock)

1.       Issuance and Cancellation.

         (A) All shares of Series A Preferred Stock redeemed or purchased by the
Company shall be retired and shall be restored to the status of authorized but
unissued shares of Class A Preferred Stock.

         (B) Shares of Series A Preferred Stock shall be issued only to a
trustee or trustees acting on behalf of an employee stock ownership trust or
plan or other employee benefit plan of the Company. In the event of any transfer
of shares of Series A Preferred Stock to any person other than any such plan
trustee or trustees, the shares of Series A Preferred Stock so transferred, upon
such transfer and without any further action by the Company or the holder, shall
be automatically converted into shares of Common Stock on the terms otherwise
provided for the conversion of shares of Series A Preferred Stock into shares of
Common Stock pursuant to Section 5 hereof and no such transferee shall have any
of the voting powers, preferences and relative, participating, optional or
special rights ascribed to shares of Series A Preferred Stock hereunder but,
rather, only the powers and rights pertaining to the Common Stock into which
such shares of Series A Preferred Stock shall be so converted. Certificates
representing shares of Series A Preferred Stock shall be legended to reflect
such restrictions on transfer. Notwithstanding the foregoing provisions of this
Section 1, shares of Series A Preferred Stock (i) may be converted into shares
of Common Stock as provided by Section 5 hereof and the shares of Common Stock
issued upon such conversion may be transferred by the holder thereof as
permitted by law and (ii) shall be redeemable by the Company upon the terms and
conditions provided by Sections 6, 7 and 8 hereof.

2.       Dividends and Distributions.

         (A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series A Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors out of funds legally available
therefor, cash dividends ("Preferred Dividends") in an amount per share
initially equal to $8.124 per share per annum, subject to adjustment from time
to time as hereinafter provided, (such amount, as adjusted from time to time,
being hereinafter referred to as the "Preferred Dividend Rate"), payable
quarterly, one-fourth on the third day of March, one-fourth on the third day of
June, one-fourth on the third day of September, and one-fourth on the third day
of December of each year (each a "Dividend Payment Date") commencing on June 3,
1989, to holders of record at the start of business on such Dividend Payment
Date, provided that if the Board of Directors has declared since the prior
Dividend Payment Date a quarterly dividend on the Common Stock at a rate that
exceeds one-fourth of the Preferred Dividend Rate in effect on such day, the
holders of record on the start of business on the payment date for such dividend
on the Common Stock shall be entitled to receive a cash dividend in an amount
per share equal to the quarterly dividend declared on a share of Common Stock,
payable on the same date as such dividend on the Common Stock, and provided
further that the Dividend Payment Date for the Series A Preferred Stock shall
thereafter be the same date as the payment date for the dividend on the Common
Stock or if no dividend is declared on the Common Stock in any quarter, the
Dividend Payment Date shall be, as appropriate, the fifteenth day of February,
May, August or November or if such days are not a day on which the New York
Stock Exchange is open for



business, then the next preceding day when the New York Stock Exchange is open
for business. Preferred Dividends shall begin to accrue on outstanding shares of
Series A Preferred Stock from the date of issuance of such shares of Series A
Preferred Stock. Preferred Dividends shall accrue on a daily basis, based on the
Preferred Dividend Rate in effect on such day, whether or not the Company shall
have earnings or surplus at the time, but Preferred Dividends accrued after
March 3, 1989 on the shares of Series A Preferred Stock for any period less than
a full quarterly period between Dividend Payment Dates shall be computed on the
basis of a 360-day year of 30-day months. A full quarterly dividend payment of
$2.034 per share shall accrue for the period from the date of issuance until
June 3, 1989. Accumulated but unpaid Preferred Dividends shall cumulate as of
the Dividend Payment Date on which they first become payable, but no interest
shall accrue on accumulated but unpaid Preferred Dividends.

         (B)(1) No full dividends shall be declared or paid or set apart for
payment on any shares ranking, as to dividends, on a parity with or junior to
the Series A Preferred Stock, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series A
Preferred Stock for all Dividend Payment Dates occurring on or prior to the date
of payment of such full dividends. When dividends are not paid in full, as
aforesaid, upon the shares of Series A Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on Series A Preferred
Stock and such other parity shares shall in all cases bear to each other the
same ratio that accumulated dividends per share on the shares of Series A
Preferred Stock and such other parity shares bear to each other. Except as
otherwise provided in these Articles, holders of shares of Series A Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or shares, in excess of full cumulative dividends, as herein provided, on Series
A Preferred Stock.

         (2) So long as any shares of Series A Preferred Stock are outstanding,
no dividend (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Common Stock
or other shares ranking junior to Series A Preferred Stock as to dividends and
other than as provided in paragraph (B)(1) of this Section 2) shall be declared
or paid or set aside for payment or other distribution declared or made upon the
Common Stock or upon any other shares ranking junior to or on a parity with
Series A Preferred Stock as to dividends, nor shall any Common Stock or any
other shares of the Company ranking junior to or on a parity with Series A
Preferred Stock as to dividends be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for shares of the Company ranking junior to Series A Preferred Stock
as to dividends) unless, in each case, the full cumulative dividends on all
outstanding shares of Series A Preferred Stock shall have been paid.

         (3) Any dividend payment made on shares of Series A Preferred Stock
shall first be credited against the earliest accumulated but unpaid dividend due
with respect to shares of Series A Preferred Stock.

3.       Liquidation Preference.

         (A) In the event of any dissolution or liquidation of the Company,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Company (whether capital or surplus) shall be made to or set apart
for the holders of any series or class or classes of stock of the Company
ranking junior to Series A Preferred Stock upon dissolution or liquidation, the
holders of Series A Preferred Stock shall be entitled to receive the Liquidation
Price (as hereinafter defined) per share in effect at the time of dissolution or
liquidation plus an amount



equal to all dividends accrued (whether or not accumulated) and unpaid thereon
to the date of final distribution to such holders; but such holders shall not be
entitled to any further payments. The Liquidation Price per share which holders
of Series A Preferred Stock shall receive upon dissolution or liquidation shall
be $110.004, subject to adjustment as hereinafter provided. If, upon any
dissolution or liquidation of the Company, the assets of the Company, or
proceeds thereof, distributable among the holders of Series A Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares ranking as to dissolution or
liquidation, on a parity with Series A Preferred Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of Series A Preferred
Stock and any such other shares ratably in accordance with the respective
amounts which would be payable on such shares of Series A Preferred Stock and
any such other shares if all amounts payable thereon were paid in full. For the
purposes of this Section 3, a consolidation or merger of the Company with one or
more corporations shall not be deemed to be a dissolution or liquidation,
voluntary or involuntary.

         (B) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to Series A
Preferred Stock upon dissolution or liquidation, upon any dissolution or
liquidation of the Company, after payment shall have been made in full to the
holders of Series A Preferred Stock as provided in this Section 3, but not prior
thereto, any other series or class or classes of stock ranking junior to Series
A Preferred Stock upon dissolution or liquidation shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of Series A Preferred Stock shall not be entitled to share therein.

4.       Ranking of Shares.

         Any shares of the Company shall be deemed to rank:

         (A) prior to Series A Preferred Stock as to dividends or as to
distribution of assets upon dissolution or liquidation, if the holders of such
class shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution or liquidation, as the case may be, in preference or priority
to the holders of Series A Preferred Stock;

         (B) on a parity with Series A Preferred Stock as to dividends or as to
distribution of assets upon dissolution or liquidation, whether or not the
dividend rates, dividend payment dates, or redemption or liquidation prices per
share thereof be different from those of Series A Preferred Stock, if the
holders of such class of stock and Series A Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable upon dissolution or
liquidation, as the case may be, in proportion to their respective dividend or
liquidation amounts, as the case may be, without preference or priority one over
the other; and

         (C) junior to Series A Preferred Stock as to dividends or as to the
distribution of assets upon dissolution or liquidation, if such shares shall be
Common Stock or if the holders of Series A Preferred Stock shall be entitled to
receipt of dividends or of amounts distributable upon dissolution or
liquidation, as the case may be, in preference or priority to the holders of
such shares.

5.       Conversion into Common Stock.

         (A) A holder of shares of Series A Preferred Stock shall be entitled,
at any time prior to the close of business on the date fixed for redemption of
such shares pursuant to Sections 6, 7, or



8 hereof, to cause any or all of such shares to be converted into shares of
Common Stock. The number of shares of Common Stock into which each share of the
Series A Preferred Stock may be converted shall be determined by dividing the
Liquidation Price in effect at the time of conversion by the Conversion Price
(as hereinafter defined) in effect at the time of conversion. The Conversion
Price per share at which shares of Common Stock shall be initially issuable upon
conversion of any shares of Series A Preferred Stock shall be $110.004, subject
to adjustment as hereinafter provided.

         (B) Any holder of shares of Series A Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender, if
certificated, the certificate or certificates representing the shares of Series
A Preferred Stock being converted, duly assigned or endorsed for transfer to the
Company (or accompanied by duly executed stock powers relating thereto), or if
uncertificated, a duly executed stock power relating thereto, at the principal
executive office of the Company or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States or an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Company or the
transfer agent for the Series A Preferred Stock, accompanied by written notice
of conversion. Such notice of conversion shall specify (i) the number of shares
of Series A Preferred Stock to be converted and the name or names in which such
holder wishes the Common Stock and any shares of Series A Preferred Stock not to
be so converted to be issued, and (ii) the address to which such holder wishes
delivery to be made of a confirmation of such conversion, if uncertificated, or
any new certificates which may be issued upon such conversion if certificated.

         (C) Upon surrender, if certificated, of a certificate representing a
share or shares of Series A Preferred Stock for conversion, or if
uncertificated, of a duly executed stock power relating thereto, the Company
shall issue and send by hand delivery (with receipt to be acknowledged) or by
first class mail, postage prepaid, to the holder thereof or to such holder's
designee, at the address designated by such holder, if certificated, a
certificate or certificates for, or if uncertificated, confirmation of, the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered shares of Series
A Preferred Stock, only part of which are to be converted, the Company shall
issue and deliver to such holder or such holder's designee, if certificated, a
new certificate or certificates representing the number of shares of Series A
Preferred Stock which shall not have been converted, or if uncertificated,
confirmation of the number of shares of Series A Preferred Stock which shall not
have been converted.

         (D) The issuance by the Company of shares of Common Stock upon a
conversion of shares of Series A Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof if
certificated or confirmation if uncertificated or (ii) the commencement of
business on the second business day after the surrender of the certificate or
certificates, if certificated, or a duly executed stock power, if
uncertificated, for the shares of Series A Preferred Stock to be converted. On
and after the effective date of conversion, the person or persons entitled to
receive Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustment shall be made in respect of dividends payable to holders
of Common Stock of record on any date prior to such effective date. The Company
shall not be obligated to pay any dividends which shall have been declared and
shall be payable to holders of shares of Series A Preferred Stock on a Dividend
Payment Date if such Dividend Payment Date for such dividend shall be on or
subsequent to the effective date of conversion of such shares.



         (E) The Company shall not be obligated to deliver to holders of Series
A Preferred Stock any fractional share or shares of Common Stock issuable upon
any conversion of such shares of Series A Preferred Stock, but in lieu thereof
may make a cash payment in respect thereof in any manner permitted by law.

         (F) The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock or treasury Common Stock, solely for
issuance upon the conversion of shares of Series A Preferred Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series A Preferred Stock then
outstanding.

6.       Redemption at the Option of the Company.

         (A) The Series A Preferred Stock shall be redeemable, in whole or in
part, at the option of the Company at any time after March 3, 1994 (or on or
before March 3, 1994 if permitted by, and at the redemption price provided in,
paragraph (C) of this Section 6) at the following redemption prices per share:



During the
Twelve Month
Period
Beginning         Price Per
March 4,            Share
- ------------      ---------
               
    1989          107.3750% of Liquidation Price in effect on date fixed for redemption
    1990          106.6375%                          "
    1991          105.9000%                          "
    1992          105.1625%                          "
    1993          104.4250%                          "
    1994          103.6875%                          "
    1995          102.9000%                          "
    1996          102.2125%                          "
    1997          101.4750%                          "
    1998          100.7375%                          "


and thereafter at 100% of the Liquidation Price per share in effect on the date
fixed for redemption, plus, in each case (including in the case of redemptions
pursuant to paragraph (C) of this Section 6), an amount equal to all accrued
(whether or not accumulated) and unpaid dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Company in cash
or shares of Common Stock, or a combination thereof, as permitted by paragraph
(D) of this Section 6. From and after the date fixed for redemption, dividends
on shares of Series A Preferred Stock called for redemption will cease to
accrue, such shares will no longer be deemed to be outstanding and all rights in
respect of such shares of the Company shall cease, except the right to receive
the redemption price. If less than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the Company shall either redeem a portion of
the shares of each holder determined pro rata based on the number of shares held
by each holder or shall select the shares to be redeemed by lot, as may be
determined by the Board of Directors of the Company.



         (B) Unless otherwise required by law, notice of redemption will be sent
to the holders of Series A Preferred Stock at the address shown on the books of
the Company or any transfer agent for Series A Preferred Stock by first class
mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty
(60) days prior to the redemption date. Each notice shall state: (i) the
redemption date; (ii) the total number of shares of the Series A Preferred Stock
to be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates, if certificated,
for such shares are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; (vi) the conversion rights of the shares to be redeemed, the
period within which conversion rights may be exercised, and the Conversion Price
and number of shares of Common Stock issuable upon conversion of a share of
Series A Preferred Stock at the time. Upon surrender of the certificates, if
certificated, for any shares so called for redemption and not previously
converted, or upon the date fixed for redemption if uncertificated, such shares
shall be redeemed by the Company at the date fixed for redemption and at the
redemption price set forth in this Section 6.

         (C) In the event of (i) a change in the federal tax law of the United
States of America which has the effect of precluding the Company from claiming
any of the tax deductions for dividends paid on the Series A Preferred Stock
when such dividends are used as provided under Section 404(k)(2) of the Internal
Revenue Code of 1986, as amended and in effect on the date shares of Series A
Preferred Stock are initially issued, or (ii) The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan, as authorized by the Board of
Directors of the Company on January 10, 1989, and as amended from time to time
thereafter failing to receive a determination from the Internal Revenue Service
that it is a qualified plan within the meaning of Section 401(a) or is an
employee stock ownership plan as described in Section 4975(e)(7) of the Internal
Revenue Code of 1986, as amended, and in effect on the date shares of Series A
Preferred Stock are initially issued, then, in either such event, the Company
may, in its sole discretion and notwithstanding anything to the contrary in
paragraph (A) of this Section 6, elect to redeem such shares for the Liquidation
Price in effect on the date fixed for redemption, plus, in each case, an amount
equal to all accrued (whether or not accumulated) and unpaid dividends thereon
to the date fixed for redemption. In the event the Company terminates the
employee stock ownership plan of The Procter & Gamble Profit Sharing Trust and
Employee Stock Ownership Plan, the Company may, in its sole discretion and
notwithstanding anything to the contrary in paragraph (A) of this Section 6,
elect to redeem such shares at the redemption prices per share provided in
paragraph (A) of this Section 6.

         (D) The Company, at its option, may make payment of the redemption
price required upon redemption of shares of Series A Preferred Stock in cash or
in shares of Common Stock, or in a combination of such shares and cash, any such
shares of Common Stock to be valued for such purpose at the average of the high
and low reported sales price, or, in case no sale takes place on such day, the
average reported closing bid and asked price, in either case as reported on the
New York Stock Exchange Tape on the date of redemption, or if not listed or
admitted to trading on the New York Stock Exchange, in accordance with the
valuation methods provided in paragraph 9(F)(2).

7.       Redemption at the Option of the Holder.

         Unless otherwise provided by law, shares of Series A Preferred Stock
shall be redeemed by the Company for cash or, if the Company so elects, in
shares of Common Stock, or a combination of such shares and cash, any such
shares of Common Stock to be valued for such



purpose as provided by paragraph (D) of Section 6, at the Liquidation Price per
share in effect on the date fixed for redemption plus all accrued (whether or
not accumulated) and unpaid dividends thereon to the date fixed for redemption,
at the option of the holder, at any time and from time to time upon notice to
the Company given not less than five (5) business days prior to the date fixed
by the holder in such notice for redemption, when and to the extent necessary
for such holder to provide for distributions required to be made under, or to
satisfy an investment election provided to participants in accordance with, The
Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, as the
same may be amended, or any successor plan (the "Plan").

8.       Consolidation, Merger, etc.

         (A) In the event that the Company shall consummate any consolidation or
merger or similar transaction, however named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into shares of any successor or resulting
company (including the Company) that constitutes "qualifying employer
securities" with respect to a holder of Series A Preferred Stock within the
meanings of Section 4975(e)(8) of the Internal Revenue Code of 1986, as amended,
and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as
amended, or any successor provision of law, and, if applicable, for a cash
payment in lieu of fractional shares, if any, then, in such event, the terms of
such consolidation or merger or similar transaction shall provide that the
shares of Series A Preferred Stock of such holder shall be submitted for and
shall become preferred shares of such successor or resulting company, having in
respect of such company insofar as possible the same powers, preferences and
relative, participating, optional or other special rights (including the
redemption rights provided by Sections 6, 7, and 8 hereof), and the
qualifications, limitations or restrictions thereon, that the Series A Preferred
Stock had immediately prior to such transaction; provided, however, that after
such transaction each share of the Series A Preferred Stock shall be
convertible, pursuant to the terms and conditions provided by Section 5 hereof,
into the qualifying employer securities so receivable by a holder of the number
of shares of Common Stock into which such shares of Series A Preferred Stock
could have been converted immediately prior to such transaction (provided that,
if the kind or amount of qualifying employer securities receivable upon such
transaction is not the same for each non-electing share, then the kind and
amount of qualifying employer securities receivable upon such transaction for
each non-electing share shall be the kind and amount so receivable per share by
a plurality of the non-electing shares). The rights of the Series A Preferred
Stock as preferred shares of such successor or resulting company shall
successively be subject to adjustments pursuant to Section 9 hereof after any
such transaction as nearly equivalent to the adjustments provided for by such
section prior to such transaction. The Company shall not consummate any such
merger, consolidation or similar transaction unless all the terms of this
paragraph 8(A) are complied with.

         (B) In the event that the Company shall consummate any consolidation or
merger or similar transaction, however named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged for or changed,
reclassified or converted into other shares or securities or cash or any other
property, or any combination thereof, other than any such consideration which is
constituted solely of qualifying employer securities (as referred to in
paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of
fractional shares, outstanding shares of Series A Preferred Stock shall, without
any action on the part of the Company or any holder thereof (but subject to
paragraph (C) of this Section 8), be deemed converted by virtue of such merger,
consolidation or similar transaction immediately prior to such consummation into
the number of shares of Common Stock into which such shares of Series A
Preferred Stock could have been converted at such time and each share of Series
A



Preferred Stock shall, by virtue of such transaction and on the same terms as
apply to the holders of Common Stock, be converted into or exchanged for the
aggregate amount of shares, securities, cash or other property (payable in like
kind) receivable by a holder of the number of shares of Common Stock into which
such shares of Series A Preferred Stock could have been converted immediately
prior to such transaction if such holder of Common Stock failed to exercise any
rights of election as to the kind or amount of shares, securities, cash or other
property receivable upon such transaction (provided that, if the kind or amount
of shares, securities, cash or other property receivable upon such transaction
is not the same for each non-electing share, then the kind and amount of shares,
securities, cash or other property receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by a
plurality of non-electing shares).

         (C) In the event the Company shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Section 8, then the Company shall as soon as practicable thereafter
(and in any event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Series A Preferred Stock and each such holder shall have the
right to elect, by written notice to the Company, to receive, upon consummation
of such transaction (if and when such transaction is consummated), from the
Company or the successor of the Company, in redemption and retirement of such
Series A Preferred Stock, a cash payment equal to the Liquidation Price in
effect on the date set for redemption plus all accrued (whether or not
accumulated) and unpaid dividends. No such notice of redemption shall be
effective unless given to the Company prior to the close of business on the
fifth business day prior to consummation of such transaction, unless the Company
or the successor of the Company shall waive such prior notice, but any notice of
redemption so given prior to such time may be withdrawn by notice of withdrawal
given to the Company prior to the close of business on the fifth business day
prior to consummation of such transaction.

9.       Anti-dilution Adjustments.

         (A)(1) Subject to the provisions of paragraph 9(D), in the event the
Company shall, at any time or from time to time while any of the shares of the
Series A Preferred Stock are outstanding, (i) pay a dividend or make a
distribution in respect of the Common Stock in shares of Common Stock or (ii)
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares, in each case whether by reclassification of shares,
recapitalization of the Company (excluding a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 hereof
applies) or otherwise, then, in such event, each share of Series A Preferred
Stock will automatically, without any action on the part of the holder thereof
or the Company, become that number of shares of Series A Preferred Stock (the
"Non-dilutive Share Amount") equal to an amount which is a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock outstanding immediately before such event. An adjustment
pursuant to this paragraph 9(A)(1) shall be effective upon payment of such
dividend or distribution in respect of the Common Stock and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof. Concurrently with the automatic adjustment pursuant to
this paragraph 9(A)(1), the Conversion Price, the Liquidation Price and the
Preferred Dividend Rate of all shares of Series A Preferred Stock shall be
adjusted by dividing the Conversion Price, the Liquidation Price and the
Preferred Dividend Rate, respectively, in effect immediately before the event by
the Non-dilutive Share Amount determined pursuant to this paragraph 9(A)(1).



         (2) The Company and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are necessary or
appropriate for implementation of the automatic adjustment provided in paragraph
9(A)(1). In the event for any reason the Company is precluded from giving full
effect to the automatic adjustment provided in paragraph 9(A)(1), then no such
automatic adjustment shall occur, but instead the Conversion Price shall
automatically be adjusted by dividing the Conversion Price in effect immediately
before the event by the Non-dilutive Share Amount determined pursuant to
paragraph 9(A)(1), and the Liquidation Price and the Preferred Dividend Rate
will not be adjusted. An adjustment to the Conversion Price made pursuant to
this paragraph 9(A)(2) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of shareholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date thereof. If subsequently the Company is able to give
full effect to the automatic adjustment as provided in paragraph 9(A)(1), then
such automatic adjustment will proceed in accordance with the provisions of
paragraph 9(A)(1) and the adjustment in the Conversion Price as provided in this
paragraph 9(A)(2) will automatically be reversed and nullified prospectively.

         (B)(1) Subject to the provisions of paragraph 9(D), in the event the
Company shall, at any time or from time to time while any of the shares of
Series A Preferred Stock are outstanding, issue to holders of shares of Common
Stock as a dividend or distribution, including by way of a reclassification of
shares or a recapitalization of the Company, any right or warrant to purchase
shares of Common Stock (but not including as such a right or warrant any
security convertible into or exchangeable for shares of Common Stock) at a
purchase price per share less than the Fair Market Value (as hereinafter
defined) of a share of Common Stock on the date of issuance of such right or
warrant, then, in such event, each share of Series A Preferred Stock will
automatically, without any action on the part of the holder thereof or the
Company, become that number of shares of Series A Preferred Stock (the
"Non-dilutive Share Amount") equal to an amount which is a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the maximum number
of shares of Common Stock that could be acquired upon exercise in full of all
such rights and warrants and the denominator of which is the number of shares of
Common Stock outstanding immediately before such issuance of rights or warrants
plus the number of shares of Common Stock which could be purchased at the Fair
Market Value of a share of Common Stock at the time of such issuance for the
maximum aggregate consideration payable upon exercise in full of all such rights
or warrants. Concurrently with the automatic adjustment pursuant to this
paragraph 9(B)(1), the Conversion Price, the Liquidation Price and the Preferred
Dividend Rate of all shares of Series A Preferred Stock shall be adjusted by
dividing the Conversion Price, the Liquidation Price and the Preferred Dividend
Rate, respectively, in effect immediately before such issuance of rights or
warrants by the Non-dilutive Share Amount determined pursuant to this paragraph
9(B)(1).

         (2) The Company and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are necessary or
appropriate for implementation of the automatic adjustment provided in paragraph
9(B)(1). In the event for any reason the Company is precluded from giving full
effect to the automatic adjustment provided in paragraph 9(B)(1), then no such
automatic adjustment shall occur, but instead the Conversion Price shall
automatically be adjusted by dividing the Conversion Price in effect immediately
before such issuance of rights or warrants by the Non-Dilutive Share Amount
determined pursuant to paragraph 9(B)(1), and the Liquidation Price and
Preferred Dividend Rate will not be adjusted. If subsequently the Company is
able to give full effect to the automatic adjustment as provided in paragraph
9(B)(1), then such automatic adjustment will proceed in accordance with the
provisions of paragraph


9(B)(1) and the adjustment in the Conversion Price as provided in this
paragraph 9(B)(2) will automatically be reversed and nullified prospectively.

         (C)(1) Subject to the provisions of paragraph 9(D), in the event the
Company shall, at any time or from time to time while any of the shares of
Series A Preferred Stock are outstanding, make an Extraordinary Distribution (as
hereinafter defined) in respect of the Common Stock, whether by dividend,
distribution, reclassification of shares or recapitalization of the Company
(including recapitalization or reclassification effected by a merger or
consolidation to which Section 8 hereof does not apply) or effect a Pro Rata
Repurchase (as hereinafter defined) of Common Stock, then, in such event, each
share of Series A Preferred Stock will automatically, without any action on the
part of the holder thereof or the Company, become that number of shares of
Series A Preferred Stock (the "Non-dilutive Share Amount") equal to an amount
which is a fraction the numerator of which is the product of (a) the number of
shares of Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase,
the number of shares of Common Stock repurchased by the Company multiplied by
(b) the Fair Market Value of a share of Common Stock on the record date with
respect to an Extraordinary Distribution or on the applicable expiration date
(including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase or on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be, and the denominator of which is
(i) the Fair Market Value of a share of Common Stock on the record date with
respect to an Extraordinary Distribution, or on the applicable expiration date
(including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be, minus (ii) the Fair Market
Value of the Extraordinary Distribution or the aggregate purchase price of the
Pro Rata Repurchase, as the case may be. The Company shall send each holder of
Series A Preferred Stock (i) notice of its intent to make any dividend or
distribution and (ii) notice of any offer by the Company to make a Pro Rata
Repurchase, in each case at the same time as, or as soon as practicable after,
such offer is first communicated (including by announcement of a record date in
accordance with the rules of any stock exchange on which the Common Stock is
listed or admitted to trading) to holders of Common Stock. Such notice shall
indicate the intended record date and the amount and nature of such dividend or
distribution, or the number of shares subject to such offer for a Pro Rata
Repurchase and the purchase price payable by the Company pursuant to such offer,
as well as the Conversion Price and the number of shares of Common Stock into
which a share of Series A Preferred Stock may be converted at such time.
Concurrently with the automatic adjustment pursuant to this paragraph 9(C)(1),
the Conversion Price, the Liquidation Price and the Preferred Dividend Rate of
all shares of Series A Preferred Stock shall be adjusted by dividing the
Conversion Price, the Liquidation Price and the Preferred Dividend Rate,
respectively, in effect immediately before such Extraordinary Distribution or
Pro Rata Repurchase by the Non-dilutive Share Amount determined pursuant to this
paragraph 9(C)(1).

         (2) The Company and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are necessary or
appropriate for implementation of the automatic adjustment provided in paragraph
9(C)(1). In the event for any reason the Company is precluded from giving full
effect to the automatic adjustment provided in paragraph 9(C)(1), then no such
automatic adjustment shall occur, but instead the Conversion Price shall
automatically be adjusted by dividing the Conversion Price in effect immediately
before such Extraordinary Distribution or Pro Rata Repurchase by the
Non-dilutive Share Amount, and the Liquidation Price and the Preferred Dividend
Rate will not be adjusted. If subsequently the Company is able to give full
effect to the automatic adjustment as provided in paragraph 9(C)(1), then such
automatic adjustment will proceed in accordance with the provisions of paragraph
9(C)(1) and



the adjustment in the Conversion Price as provided in this paragraph 9(C)(2)
will automatically be reversed and nullified prospectively.

         (D) Notwithstanding any other provisions of this Section 9, the Company
shall not be required to make (i) any adjustment of the number of issued shares
of Series A Preferred Stock, the Conversion Price, the Liquidation Price or the
Preferred Dividend Rate unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of shares of Series A
Preferred Stock outstanding, or, (ii) if no additional shares of Series A
Preferred Stock are issued, any adjustment of the Conversion Price unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Price. Any lesser adjustment shall be carried forward and shall
be made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) of
the number of Series A Preferred Shares outstanding or, if no additional shares
of Series A Preferred Stock are being issued, an increase or decrease of at
least one percent (1%) of the Conversion Price, whichever the case may be.

         (E) If the Company shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Company or any rights or warrants to purchase or acquire any such security,
which transaction does not result in an appropriate adjustment to the number of
shares of Series A Preferred Stock outstanding or the Conversion Price pursuant
to the foregoing provisions of this Section 9, the Board of Directors of the
Company may, in its sole discretion, consider whether such action is of such a
nature that some type of equitable adjustment should be made in respect of such
transaction. If in such case the Board of Directors of the Company determines
that some type of adjustment should be made, an equitable adjustment not
repugnant to law and for the protection of the conversion rights of the Series A
Preferred Stock shall be made effective as of such date, as determined by the
Board of Directors of the Company. The determination of the Board of Directors
of the Company as to whether some type of adjustment should be made pursuant to
the foregoing provisions of this paragraph 9(E), and, if so, as to what
adjustment should be made and when, shall be final and binding on the Company
and all shareholders of the Company. The Company shall be entitled to make such
additional adjustments, in addition to those required by the foregoing
provisions of this Section 9, as shall be necessary in order that any dividend
or distribution in shares of capital stock of the Company, subdivision,
reclassification or combination of shares of the Company or any recapitalization
of the Company shall not be taxable to holders of the Common Stock.

         (F) For purposes of this Appendix A, the following definitions shall
apply:

         (1) "Extraordinary Distribution" shall mean any dividend or other
distribution (effected while any of the shares of Series A Preferred Stock are
outstanding) of (i) cash, where the aggregate amount of such cash dividend or
distribution together with the amount of all cash dividends and distributions
made during the preceding period of twelve (12) months, when combined with the
aggregate amount of all Pro Rata Repurchases [for this purpose, including only
that portion of the aggregate purchase price of such Pro Rata Repurchase which
is in excess of the Fair Market Value of the Common Stock repurchased as
determined on the applicable expiration date (including all extensions thereof)
of any tender offer or exchange offer which is a Pro Rata Repurchase, or the
date of purchase with respect to any other Pro Rata Repurchase which is not a
tender offer or exchange offer] made during such period, exceeds twelve and
one-half percent (12-1/2%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the record date for determining the shareholders
entitled to receive such Extraordinary Distribution and (ii) any shares of
capital stock of the Company (other than shares



of Common Stock), other securities of the Company (other than securities of the
type referred to in paragraph (B) of this Section 9), evidences of indebtedness
of the Company or any other person or any other property (including shares of
any subsidiary of the Company), or any combination thereof. The Fair Market
Value of an Extraordinary Distribution for purposes of paragraph (C) of this
Section 9 shall be the sum of the Fair Market Value of such Extraordinary
Distribution plus the aggregate amount of any cash dividends or distributions
which are not Extraordinary Distributions made during such twelve month period
and not included in the calculation of any previous adjustment pursuant to
paragraph (C) of this Section 9.

         (2) "Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Company or any other issuer
which are publicly traded, the average of the Current Market Prices (as
hereinafter defined) of such shares or securities for each day of the Adjustment
Period (as hereinafter defined). "Current Market Price" of publicly traded
shares of Common Stock or any other class of capital stock or other security of
the Company or any other issuer for a day shall mean the last reported sales
price, regular way, or, in case no sale takes place on such day, the average
reported closing bid and asked prices, regular way, in either case as reported
on the New York Stock Exchange Composite Tape or, if such security is not listed
or admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which such security is listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on the
NASDAQ National Market System or, if such security is not quoted on such
National Market System, the average of the closing bid and asked prices on each
such day in the over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such security on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for such day as
furnished by any New York Stock Exchange member firm regularly making a market
in such security selected for such purpose by the Board of Directors of the
Company or the Executive Committee of the Board of Directors of the Company on
each trading day during the Adjustment Period. "Adjustment Period" shall mean
the period of five (5) consecutive trading days, selected by the Board of
Directors or the Executive Committee of the Board of Directors of the Company,
during the twenty (20) trading days preceding, and including, the date as of
which the Fair Market Value of a security is to be determined. The "Fair Market
Value" of any security which is not publicly traded or of any other property
shall mean the fair value thereof as determined by an independent investment
banking or appraisal firm experienced in the valuation of such securities or
property selected in good faith by the Board of Directors or the Executive
Committee of the Board of Directors of the Company, or, if no such investment
banking or appraisal firm is in the good faith judgment of the Board of
Directors or the Executive Committee of the Board of Directors available to make
such determination, as determined in good faith by the Board of Directors or the
Executive Committee of the Board of Directors of the Company.

         (3) "Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Company or any subsidiary thereof, whether for cash, shares of
capital stock of the Company, other securities of the Company, evidences of
indebtedness of the Company or any other person or any other property (including
shares of a subsidiary of the Company), or any combination thereof, effected
while any of the shares of Series A Preferred Stock are outstanding, pursuant to
any tender offer or exchange offer subject to Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision of law, or pursuant to any other offer available to substantially all
holders of Common Stock; provided, however, that no purchase of shares by the
Company or any subsidiary thereof made in open market transactions shall be
deemed a Pro Rata Repurchase. For purposes of this paragraph 9(F), shares shall
be deemed to have been purchased by the Company or any subsidiary thereof "in
open market



transactions" if they have been purchased substantially in accordance with the
requirements of Rule 10b-18 as in effect under the Exchange Act on the date
shares of Series A Preferred Stock are initially issued by the Company or on
such other terms and conditions as the Board of Directors or the Executive
Committee of the Board of Directors of the Company shall have determined are
reasonably designed to prevent such purchases from having a material effect on
the trading market for the Common Stock.

         (G) Whenever an adjustment increasing the number of shares of Series A
Preferred Stock outstanding is required pursuant to this Appendix A, the Board
of Directors shall take such action as is necessary so that a sufficient number
of shares of Series A Preferred Stock are designated with respect to such
increase resulting from such adjustment. Whenever an adjustment to the
Conversion Price, the Liquidation Price or the Preferred Dividend Rate of the
Series A Preferred Stock is required pursuant to this Appendix A, the Company
shall forthwith place on file with the transfer agent for the Common Stock and
the Series A Preferred Stock if there be one, and with the Treasurer of the
Company, a statement signed by the Treasurer or Assistant Treasurer of the
Company stating the adjusted Conversion Price, Liquidation Price and Preferred
Dividend Rate determined as provided herein. Such statement shall set forth in
reasonable detail such facts as shall be necessary to show the reason and the
manner of computing such adjustment, including any determination of Fair Market
Value involved in such computation. Promptly after each adjustment to the number
of shares of Series A Preferred Stock outstanding, the Conversion Price, the
Liquidation Price or the Preferred Dividend Rate, the Company shall mail a
notice thereof and of the then prevailing number of shares of Series A Preferred
Stock outstanding, the Conversion Price, the Liquidation Price and the Preferred
Dividend Rate to each holder of shares of Series A Preferred Stock.

10.      Miscellaneous.

         (A) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt thereof
or three (3) business days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Appendix A) with postage prepaid, addressed: (i) if to the
Company, to its office at One Procter & Gamble Plaza, Cincinnati, Ohio 45202
(Attention: Treasurer) or to the transfer agent for the Series A Preferred
Stock, or other agent of the Company designated as permitted by this Appendix A
or (ii) if to any holder of the Series A Preferred Stock or Common Stock, as the
case may be, to such holder at the address of such holder as listed in the stock
record books of the Company (which may include the records of any transfer agent
for the Series A Preferred Stock or Common Stock, as the case may be) or (iii)
to such other address as the Company or any such holder, as the case may be,
shall have designated by notice similarly given.

         (B) The term "Common Stock" as used in this Appendix A means the
Company's Common Stock without par value, as the same exists at the date of
filing of the Amendment to the Company's Amended Articles of Incorporation first
designating Series A Preferred Stock, or any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to without par value, or from without
par value to par value. In the event that, at any time as a result of an
adjustment made pursuant to Section 9 of this Appendix A, the holder of any
share of the Series A Preferred Stock upon thereafter surrendering such shares
for conversion shall become entitled to receive any shares or other securities
of the Company other than shares of Common Stock, the anti-dilution provisions
contained in Section 9 hereof shall apply in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock, and
the provisions of



Sections 1 through 8 and 10 of this Appendix A with respect to the Common Stock
shall apply on like or similar terms to any such other shares or securities.

         (C) The Company shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series A Preferred Stock or shares of Common Stock or other securities issued
on account of Series A Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Company shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series A Preferred Stock or
Common Stock or other securities in a name other than that in which the shares
of Series A Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Company the amount of any
such tax or has established, to the satisfaction of the Company, that such tax
has been paid or is not payable.

         (D) In the event that a holder of shares of Series A Preferred Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series A Preferred Stock should be made or
the address to which the certificate or certificates representing such shares,
or such payment, should be sent, the Company shall be entitled to register such
shares, and make such payment, in the name of the holder of such Series a
Preferred Stock as shown on the records of the Company and to send the
certificate or certificates or other documentation representing such shares, or
such payment, to the address of such holder shown on the records of the Company.

         (E) The Company may appoint, and from time to time discharge and
change, a transfer agent for the Series A Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Company shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
A Preferred Stock.

(4)      As a result of three two-for-one stock splits on the Common Stock
         effective October 10, 1989, May 15, 1992 and August 22, 1997, and the
         Smucker transaction effective June 1, 2002, the Conversion Price,
         Liquidation Price and Preferred Dividend Rate were all adjusted in
         accordance with the terms of paragraph 9(A)(1) of this Appendix A to be
         as follows: Conversion Price -- $13.64; Liquidation Price -- $13.64;
         Preferred Dividend Rate -- $1.007215 per share per annum, with a
         corresponding change in the quarterly dividend payment. (This footnote
         is not a part of the Company's Amended Articles of Incorporation but is
         included to provide up-to-date information on the status of Series A
         ESOP Convertible Class A Preferred Stock.)

                                  APPENDIX B(5)

                SERIES B ESOP CONVERTIBLE CLASS A PREFERRED STOCK
              (hereinafter referred to as Series B Preferred Stock)

1.       Cancellation.

         All shares of Series B Preferred Stock redeemed or purchased by the
Company shall be retired and shall be restored to the status of authorized but
unissued shares of Class A Preferred Stock.



2.       Dividends and Distributions.

         (A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series B Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors out of funds legally available
therefor, cash dividends ("Series B Preferred Dividends") in an amount per share
initially equal to $4.12(5) per share per annum, subject to adjustment from time
to time as hereinafter provided, (such amount, as adjusted from time to time,
being hereinafter referred to as the "Series B Preferred Dividend Rate"),
payable quarterly, one-fourth on the twenty-seventh day of November, one-fourth
on the twenty-seventh day of February, one-fourth on the twenty-seventh day of
May, and one-fourth on the twenty-seventh day of August of each year (each a
"Series B Dividend Payment Date") commencing on August 27, 1993, to holders of
record at the close of business on the second Friday of the relevant Series B
Dividend Payment Date month, provided that if the Board of Directors has
declared since the prior Dividend Payment Date a quarterly dividend on the
Common Stock at a rate that exceeds one-fourth of the Preferred Dividend Rate in
effect on such day, the holders of record on the start of business on the
payment date for such dividend on the Common Stock shall be entitled to receive
a cash dividend in an amount per share equal to the quarterly dividend declared
on a share of Common Stock, payable on the same date as such dividend on the
Common Stock, and provided further that the Dividend Payment Date for the Series
B Preferred Stock shall thereafter be the same date as the payment date for the
dividend on the Common Stock or if no dividend is declared on the Common Stock
in any quarter, the Dividend Payment Date shall be, as appropriate, the
fifteenth day of February, May, August or November or if such days are not a day
on which the New York Stock Exchange is open for business, then the next
preceding day when the New York Stock Exchange is open for business. Series B
Preferred Dividends shall begin to accrue on outstanding shares of Series B
Preferred Stock from the date of issuance of such shares of Series B Preferred
Stock. Series B Preferred Dividends shall accrue on a daily basis, based on the
Series B Preferred Dividend Rate in effect on such day, whether or not the
Company shall have earnings or surplus at the time, but Series B Preferred
Dividends accrued after June 30, 1993 on the shares of Series B Preferred Stock
for any period less than a full quarterly period between Series B Dividend
Payment Dates shall be computed on the basis of a 360-day year of 30-day months.
A partial dividend payment of $.64935(5) per share shall accrue for the period
from the date of issuance until August 27, 1993. Accumulated but unpaid Series B
Preferred Dividends shall cumulate as of the Series B Dividend Payment Date on
which they first become payable, but no interest shall accrue on accumulated but
unpaid Series B Preferred Dividends.

         (B)(1) No full dividends shall be declared or paid or set apart for
payment on any shares ranking, as to dividends, on a parity with or junior to
the Series B Preferred Stock, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series B
Preferred Stock for all Series B Dividend Payment Dates occurring on or prior to
the date of payment of such full dividends. When dividends are not paid in full,
as aforesaid, upon the shares of Series B Preferred Stock and any other shares
ranking, as to dividends, on a parity with Series B Preferred Stock, all
dividends declared upon shares of Series B Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on Series B Preferred
Stock and such other parity shares shall in all cases bear to each other the
same ratio that accumulated dividends per share on the shares of Series B
Preferred Stock and such other parity shares bear to each other. Except as
otherwise provided in these Articles, holders of shares of Series B Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or shares, in excess of full cumulative dividends, as herein provided, on Series
B Preferred Stock.



         (2) So long as any shares of Series B Preferred Stock are outstanding,
no dividend (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Common Stock
or other shares ranking junior to Series B Preferred Stock as to dividends and
other than as provided in paragraph (B)(1) of this Section 2) shall be declared
or paid or set aside for payment or other distribution declared or made upon the
Common Stock or upon any other shares ranking junior to or on a parity with
Series B Preferred Stock as to dividends, nor shall any Common Stock or any
other shares of the Company ranking junior to or on a parity with Series B
Preferred Stock as to dividends be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for shares of the Company ranking junior to Series B Preferred Stock
as to dividends) unless, in each case, the full cumulative dividends on all
outstanding shares of Series B Preferred Stock shall have been paid.

         (3) Any dividend payment made on shares of Series B Preferred Stock
shall first be credited against the earliest accumulated but unpaid dividend due
with respect to shares of Series B Preferred Stock.

3.       Liquidation Preference.

         (A) In the event of any dissolution or liquidation of the Company,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Company (whether capital or surplus) shall be made to or set apart
for the holders of any series or class or classes of stock of the Company
ranking junior to Series B Preferred Stock upon dissolution or liquidation, the
holders of Series B Preferred Stock shall be entitled to receive the Series B
Liquidation Price (as hereinafter defined) per share in effect at the time of
dissolution or liquidation plus an amount equal to all dividends accrued
(whether or not accumulated) and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payments. The Series B Liquidation Price per share which holders of
Series B Preferred Stock shall receive upon dissolution or liquidation shall be
$52.24(5), subject to adjustment as hereinafter provided. If, upon any
dissolution or liquidation of the Company, the assets of the Company, or
proceeds thereof, distributable among the holders of Series B Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares ranking as to dissolution or
liquidation, on a parity with Series B Preferred Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of Series B Preferred
Stock and any such other shares ratably in accordance with the respective
amounts which would be payable on such shares of Series B Preferred Stock and
any such other shares if all amounts payable thereon were paid in full. For the
purposes of this Section 3, a consolidation or merger of the Company with one or
more corporations shall not be deemed to be a dissolution or liquidation,
voluntary or involuntary.

         (B) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to Series B
Preferred Stock upon dissolution or liquidation, upon any dissolution or
liquidation of the Company, after payment shall have been made in full to the
holders of Series B Preferred Stock as provided in this Section 3, but not prior
thereto, any other series or class or classes of stock ranking junior to Series
B Preferred Stock upon dissolution or liquidation shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of Series B Preferred Stock shall not be entitled to share therein.



4.       Ranking of Shares.

         Any shares of the Company shall be deemed to rank:

         (A) prior to Series B Preferred Stock as to dividends or as to
distribution of assets upon dissolution or liquidation, if the holders of such
class shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution or liquidation, as the case may be, in preference or priority
to the holders of Series B Preferred Stock;

         (B) on a parity with Series B Preferred Stock as to dividends or as to
distribution of assets upon dissolution or liquidation, whether or not the
dividend rates, dividend payment dates, or redemption or liquidation prices per
share thereof be different from those of Series B Preferred Stock, if the
holders of such class of stock and Series B Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable upon dissolution or
liquidation, as the case may be, in proportion to their respective dividend or
liquidation amounts, as the case may be, without preference or priority one over
the other; and

         (C) junior to Series B Preferred Stock as to dividends or as to the
distribution of assets upon dissolution or liquidation, if such shares shall be
Common Stock or if the holders of Series B Preferred Stock shall be entitled to
receipt of dividends or of amounts distributable upon dissolution or
liquidation, as the case may be, in preference or priority to the holders of
such shares.

5.       Conversion into Common Stock.

         (A) A holder of shares of Series B Preferred Stock shall be entitled,
at any time prior to the close of business on the date fixed for redemption of
such shares pursuant to Sections 6, 7, or 8 hereof, to cause any or all of such
shares to be converted into shares of Common Stock. The number of shares of
Common Stock into which each share of the Series B Preferred Stock may be
converted shall be determined by dividing the Series B Liquidation Price in
effect at the time of conversion by the Series B Conversion Price (as
hereinafter defined) in effect at the time of conversion. The Series B
Conversion Price per share at which shares of Common Stock shall be initially
issuable upon conversion of any shares of Series B Preferred Stock shall be
$52.24(5), subject to adjustment as hereinafter provided.

         (B) Any holder of shares of Series B Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender, if
certificated, the certificate or certificates representing the shares of Series
B Preferred Stock being converted, duly assigned or endorsed for transfer to the
Company (or accompanied by duly executed stock powers relating thereto), or if
uncertificated, a duly executed stock power relating thereto, at the principal
executive office of the Company or the offices of the transfer agent for the
Series B Preferred Stock or such office or offices in the continental United
States or an agent for conversion as may from time to time be designated by
notice to the holders of the Series B Preferred Stock by the Company or the
transfer agent for the Series B Preferred Stock, accompanied by written notice
of conversion. Such notice of conversion shall specify (i) the number of shares
of Series B Preferred Stock to be converted and the name or names in which such
holder wishes the Common Stock and any shares of Series B Preferred Stock not to
be so converted to be issued, and (ii) the address to which such holder wishes
delivery to be made of a confirmation of such conversion, if uncertificated, or
any new certificates which may be issued upon such conversion if certificated.



         (C) Upon surrender, if certificated, of a certificate representing a
share or shares of Series B Preferred Stock for conversion, or if
uncertificated, of a duly executed stock power relating thereto, the Company
shall issue and send by hand delivery (with receipt to be acknowledged) or by
first class mail, postage prepaid, to the holder thereof or to such holder's
designee, at the address designated by such holder, if certificated, a
certificate or certificates for, or if uncertificated, confirmation of, the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered shares of Series
B Preferred Stock, only part of which are to be converted, the Company shall
issue and deliver to such holder or such holder's designee, if certificated, a
new certificate or certificates representing the number of shares of Series B
Preferred Stock which shall not have been converted, or if uncertificated,
confirmation of the number of shares of Series B Preferred Stock which shall not
have been converted.

         (D) The issuance by the Company of shares of Common Stock upon a
conversion of shares of Series B Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof if
certificated or confirmation if uncertificated or (ii) the commencement of
business on the second business day after the surrender of the certificate or
certificates, if certificated, or a duly executed stock power, if
uncertificated, for the shares of Series B Preferred Stock to be converted. On
and after the effective date of conversion, the person or persons entitled to
receive Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustment shall be made in respect of dividends payable to holders
of Common Stock of record on any date prior to such effective date. The Company
shall not be obligated to pay any dividends which shall have been declared and
shall be payable to holders of shares of Series B Preferred Stock on a Series B
Dividend Payment Date if such Series B Dividend Payment Date for such dividend
shall be on or subsequent to the effective date of conversion of such shares.

         (E) The Company shall not be obligated to deliver to holders of Series
B Preferred Stock any fractional share or shares of Common Stock issuable upon
any conversion of such shares of Series B Preferred Stock, but in lieu thereof
may make a cash payment in respect thereof in any manner permitted by law.

         (F) The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock or treasury Common Stock, solely for
issuance upon the conversion of shares of Series B Preferred Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series B Preferred Stock then
outstanding.

6.       Redemption at the Option of the Company.

         (A) The Series B Preferred Stock shall be redeemable, in whole or in
part, at the option of the Company at any time after November 27, 1995 (or on or
before November 27, 1995 if permitted by, and at the redemption price provided
in, paragraph (C) of this Section 6) at the following redemption prices per
share:





During the
Twelve Month
   Period
 Beginning        Price per
November 28,        Share
- ------------      ---------
               
    1993          105.5125% of Series B Liquidation Price in effect on date fixed for
                            redemption
    1994          104.7250%                            "
    1995          103.9375%                            "
    1996          103.1500%                            "
    1997          102.3625%                            "
    1998          101.5750%                            "
    1999          100.7875%                            "


and thereafter at 100% of the Series B Liquidation Price per share in effect on
the date fixed for redemption, plus, in each case (including in the case of
redemptions pursuant to paragraph (C) of this Section 6), an amount equal to all
accrued (whether or not accumulated) and unpaid dividends thereon to the date
fixed for redemption. Payment of the redemption price shall be made by the
Company in cash or shares of Common Stock, or a combination thereof, as
permitted by paragraph (D) of this Section 6. From and after the date fixed for
redemption, dividends on shares of Series B Preferred Stock called for
redemption will cease to accrue, such shares will no longer be deemed to be
outstanding and all rights in respect of such shares of the Company shall cease,
except the right to receive the redemption price. If less than all of the
outstanding shares of Series B Preferred Stock are to be redeemed, the Company
shall either redeem a portion of the shares of each holder determined pro rata
based on the number of shares held by each holder or shall select the shares to
be redeemed by lot, as may be determined by the Board of Directors of the
Company.

         (B) Unless otherwise required by law, notice of redemption will be sent
to the holders of Series B Preferred Stock at the address shown on the books of
the Company or any transfer agent for Series B Preferred Stock by first class
mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty
(60) days prior to the redemption date. Each notice shall state: (i) the
redemption date; (ii) the total number of shares of the Series B Preferred Stock
to be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates, if certificated,
for such shares are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; (vi) the conversion rights of the shares to be redeemed, the
period within which conversion rights may be exercised, and the Series B
Conversion Price and number of shares of Common Stock issuable upon conversion
of a share of Series B Preferred Stock at the time. Upon surrender of the
certificates, if certificated, for any shares so called for redemption and not
previously converted, or upon the date fixed for redemption if uncertificated,
such shares shall be redeemed by the Company at the date fixed for redemption
and at the redemption price set forth in this Section 6.

         (C) In the event of (i) a change in the federal tax law of the United
States of America which has the effect of precluding the Company from claiming
any of the tax deductions for dividends paid on the Series B Preferred Stock
when such dividends are used as provided under Section 404(k)(2) of the Internal
Revenue Code of 1986, as amended and in effect on the date shares of Series B
Preferred Stock are initially issued, or (ii) The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan, as authorized by the Board of
Directors of the Company on May 7, 1990, and as amended from time to time
thereafter failing to receive a determination from the Internal Revenue Service
that it is a qualified plan within the meaning of Section 401(a) or is an
employee stock ownership plan as described in Section 4975(e)(7) of the



Internal Revenue Code of 1986, as amended, and in effect on the date shares of
Series B Preferred Stock are initially issued, then, in either such event, the
Company may, in its sole discretion and notwithstanding anything to the contrary
in paragraph (A) of this Section 6, elect to redeem such shares for the Series B
Liquidation Price in effect on the date fixed for redemption, plus, in each
case, an amount equal to all accrued (whether or not accumulated) and unpaid
dividends thereon to the date fixed for redemption. In the event the Company
terminates the employee stock ownership plan of The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan or the portion thereof
associated with retiree medical benefits, the Company may, in its sole
discretion and notwithstanding anything to the contrary in paragraph (A) of this
Section 6, elect to redeem such shares at the redemption prices per share
provided in paragraph (A) of this Section 6.

         (D) The Company, at its option, may make payment of the redemption
price required upon redemption of shares of Series B Preferred Stock in cash or
in shares of Common Stock, or in a combination of such shares and cash, any such
shares of Common Stock to be valued for such purpose at the average of the high
and low reported sales price, or, in case no sale takes place on such day, the
average reported closing bid and asked price, in either case as reported on the
New York Stock Exchange Tape on the date of redemption, or if not listed or
admitted to trading on the New York Stock Exchange, in accordance with the
valuation methods provided in paragraph 9(F)(2).

7.       Redemption to Satisfy Obligations of the Procter & Gamble Profit
         Sharing Trust and Employee Stock Ownership Plan.

         Unless otherwise provided by law, shares of Series B Preferred Stock
shall be redeemed by the Company for cash or, if the Company so elects, in
shares of Common Stock, or a combination of such shares and cash, any such
shares of Common Stock to be valued for such purpose as provided by paragraph
(D) of Section 6, at the Series B Liquidation Price per share in effect on the
date fixed for redemption plus all accrued (whether or not accumulated) and
unpaid dividends thereon to the date fixed for redemption, at the option of the
holder, at any time and from time to time upon notice to the Company given not
less than five (5) business days prior to the date fixed by the holder in such
notice for redemption, when and to the extent necessary for such holder to
provide for distributions required to be made under, or to satisfy an investment
election provided to participants in accordance with, The Procter & Gamble
Profit Sharing Trust and Employee Stock Ownership Plan, as the same may be
amended, or any successor plan (the "Plan").

8.       Consolidation, Merger, etc.

         (A) In the event that the Company shall consummate any consolidation or
merger or similar transaction, however named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into shares of any successor or resulting
company (including the Company) that constitutes "qualifying employer
securities" with respect to a holder of Series B Preferred Stock within the
meanings of Section 4975(e)(8) of the Internal Revenue Code of 1986, as amended,
and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as
amended, or any successor provision of law, and, if applicable, for a cash
payment in lieu of fractional shares, if any, then, in such event, the terms of
such consolidation or merger or similar transaction shall provide that the
shares of Series B Preferred Stock of such holder shall be submitted for and
shall become preferred shares of such successor or resulting company, having in
respect of such company insofar as possible the same powers, preferences and
relative, participating, optional or



other special rights (including the redemption rights provided by Sections 6, 7,
and 8 hereof), and the qualifications, limitations or restrictions thereon, that
the Series B Preferred Stock had immediately prior to such transaction;
provided, however, that after such transaction each share of the Series B
Preferred Stock shall be convertible, pursuant to the terms and conditions
provided by Section 5 hereof, into the qualifying employer securities so
receivable by a holder of the number of shares of Common Stock into which such
shares of Series B Preferred Stock could have been converted immediately prior
to such transaction (provided that, if the kind or amount of qualifying employer
securities receivable upon such transaction is not the same for each
non-electing share, then the kind and amount of qualifying employer securities
receivable upon such transaction for each non-electing share shall be the kind
and amount so receivable per share by a plurality of the non-electing shares).
The rights of the Series B Preferred Stock as preferred shares of such successor
or resulting company shall successively be subject to adjustments pursuant to
Section 9 hereof after any such transaction as nearly equivalent to the
adjustments provided for by such section prior to such transaction. The Company
shall not consummate any such merger, consolidation or similar transaction
unless all the terms of this paragraph 8(A) are complied with.

         (B) In the event that the Company shall consummate any consolidation or
merger or similar transaction, however named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged for or changed,
reclassified or converted into other shares or securities or cash or any other
property, or any combination thereof, other than any such consideration which is
constituted solely of qualifying employer securities (as referred to in
paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of
fractional shares, outstanding shares of Series B Preferred Stock shall, without
any action on the part of the Company or any holder thereof (but subject to
paragraph (C) of this Section 8, be deemed converted by virtue of such merger,
consolidation or similar transaction immediately prior to such consummation into
the number of shares of Common Stock into which such shares of Series B
Preferred Stock could have been converted at such time and each share of Series
B Preferred Stock shall, by virtue of such transaction and on the same terms as
apply to the holders of Common Stock, be converted into or exchanged for the
aggregate amount of shares, securities, cash or other property (payable in like
kind) receivable by a holder of the number of shares of Common Stock into which
such shares of Series B Preferred Stock could have been converted immediately
prior to such transaction if such holder of Common Stock failed to exercise any
rights of election as to the kind or amount of shares, securities, cash or other
property receivable upon such transaction (provided that, if the kind or amount
of shares, securities, cash or other property receivable upon such transaction
is not the same for each non-electing share, then the kind and amount of shares,
securities, cash or other property receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by a
plurality of non-electing shares).

         (C) In the event the Company shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Section 8, then the Company shall as soon as practicable thereafter
(and in any event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Series B Preferred Stock and each such holder shall have the
right to elect, by written notice to the Company, to receive, upon consummation
of such transaction (if and when such transaction is consummated), from the
Company or the successor of the Company, in redemption and retirement of such
Series B Preferred Stock, a cash payment equal to the Series B Liquidation Price
in effect on the date set for redemption plus all accrued (whether or not
accumulated) and unpaid dividends. No such notice of redemption shall be
effective unless given to the Company prior to the close of business on the
fifth business day



prior to consummation of such transaction, unless the Company or the successor
of the Company shall waive such prior notice, but any notice of redemption so
given prior to such time may be withdrawn by notice of withdrawal given to the
Company prior to the close of business on the fifth business day prior to
consummation of such transaction.

9.       Anti-dilution Adjustments.

         (A)(1) Subject to the provisions of paragraph 9(D), in the event the
Company shall, at any time or from time to time while any of the shares of the
Series B Preferred Stock are outstanding, (i) pay a dividend or make a
distribution in respect of the Common Stock in shares of Common Stock or (ii)
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares, in each case whether by reclassification of shares,
recapitalization of the Company (excluding a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 hereof
applies) or otherwise, then, in such event, each share of Series B Preferred
Stock will automatically, without any action on the part of the holder thereof
or the Company, become that number of shares of Series B Preferred Stock (the
"Non-dilutive Share Amount") equal to an amount which is a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock outstanding immediately before such event. An adjustment
pursuant to this paragraph 9(A)(1) shall be effective upon payment of such
dividend or distribution in respect of the Common Stock and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof. Concurrently with the automatic adjustment pursuant to
this paragraph 9(A)(1), the Series B Conversion Price, the Series B Liquidation
Price and the Series B Preferred Dividend Rate of all shares of Series B
Preferred Stock shall be adjusted by dividing the Series B Conversion Price, the
Series B Liquidation Price and the Series B Preferred Dividend Rate,
respectively, in effect immediately before the event by the Non-dilutive Share
Amount determined pursuant to this paragraph 9(A)(1).

         (2) The Company and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are necessary or
appropriate for implementation of the automatic adjustment provided in paragraph
9(A)(1). In the event for any reason the Company is precluded from giving full
effect to the automatic adjustment provided in paragraph 9(A)(1), then no such
automatic adjustment shall occur, but instead the Series B Conversion Price
shall automatically be adjusted by dividing the Series B Conversion Price in
effect immediately before the event by the Non-dilutive Share Amount determined
pursuant to paragraph 9(A)(1), and the Series B Liquidation Price and the Series
B Preferred Dividend Rate will not be adjusted. An adjustment to the Series B
Conversion Price made pursuant to this paragraph 9(A)(2) shall be given effect,
upon payment of such a dividend or distribution, as of the record date for the
determination of shareholders entitled to receive such dividend or distribution
(on a retroactive basis) and in the case of a subdivision or combination shall
become effective immediately as of the effective date thereof. If subsequently
the Company is able to give full effect to the automatic adjustment as provided
in paragraph 9(A)(1), then such automatic adjustment will proceed in accordance
with the provisions of paragraph 9(A)(1) and the adjustment in the Series B
Conversion Price as provided in this paragraph 9(A)(2) will automatically be
reversed and nullified prospectively.

         (B)(1) Subject to the provisions of paragraph 9(D), in the event the
Company shall, at any time or from time to time while any of the shares of
Series B Preferred Stock are outstanding, issue to holders of shares of Common
Stock as a dividend or distribution, including by way of a reclassification of
shares or a recapitalization of the Company, any right or warrant



to purchase shares of Common Stock (but not including as such a right or warrant
any security convertible into or exchangeable for shares of Common Stock) at a
purchase price per share less than the Fair Market Value (as hereinafter
defined) of a share of Common Stock on the date of issuance of such right or
warrant, then, in such event, each share of Series B Preferred Stock will
automatically, without any action on the part of the holder thereof or the
Company, become that number of shares of Series B Preferred Stock (the
"Non-dilutive Share Amount") equal to an amount which is a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the maximum number
of shares of Common Stock that could be acquired upon exercise in full of all
such rights and warrants and the denominator of which is the number of shares of
Common Stock outstanding immediately before such issuance of rights or warrants
plus the number of shares of Common Stock which could be purchased at the Fair
Market Value of a share of Common Stock at the time of such issuance for the
maximum aggregate consideration payable upon exercise in full of all such rights
or warrants. Concurrently with the automatic adjustment pursuant to this
paragraph 9(B)(1), the Series B Conversion Price, the Series B Liquidation Price
and the Series B Preferred Dividend Rate of all shares of Series B Preferred
Stock shall be adjusted by dividing the Series B Conversion Price, the Series B
Liquidation Price and the Series B Preferred Dividend Rate, respectively, in
effect immediately before such issuance of rights or warrants by the
Non-dilutive Share Amount determined pursuant to this paragraph 9(B)(1).

         (2) The Company and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are necessary or
appropriate for implementation of the automatic adjustment provided in paragraph
9(B)(1). In the event for any reason the Company is precluded from giving full
effect to the automatic adjustment provided in paragraph 9(B)(1), then no such
automatic adjustment shall occur, but instead the Series B Conversion Price
shall automatically be adjusted by dividing the Series B Conversion Price in
effect immediately before such issuance of rights or warrants by the
Non-Dilutive Share Amount determined pursuant to paragraph 9(B)(1), and the
Series B Liquidation Price and Series B Preferred Dividend Rate will not be
adjusted. If subsequently the Company is able to give full effect to the
automatic adjustment as provided in paragraph 9(B)(1), then such automatic
adjustment will proceed in accordance with the provisions of paragraph 9(B)(1)
and the adjustment in the Series B Conversion Price as provided in this
paragraph 9(B)(2) will automatically be reversed and nullified prospectively.

         (C)(1) Subject to the provisions of paragraph 9(D), in the event the
Company shall, at any time or from time to time while any of the shares of
Series B Preferred Stock are outstanding, make an Extraordinary Distribution (as
hereinafter defined) in respect of the Common Stock, whether by dividend,
distribution, reclassification of shares or recapitalization of the Company
(including recapitalization or reclassification effected by a merger or
consolidation to which Section 8 hereof does not apply) or effect a Pro Rata
Repurchase (as hereinafter defined) of Common Stock, then, in such event, each
share of Series B Preferred Stock will automatically, without any action on the
part of the holder thereof or the Company, become that number of shares of
Series B Preferred Stock (the "Non-dilutive Share Amount") equal to an amount
which is a fraction the numerator of which is the product of (a) the number of
shares of Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase,
the number of shares of Common Stock repurchased by the Company multiplied by
(b) the Fair Market Value of a share of Common Stock on the record date with
respect to an Extraordinary Distribution or on the applicable expiration date
(including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase or on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be, and the denominator of which is
(i) the product of (x) the



number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair
Market Value of a share of Common Stock on the record date with respect to an
Extraordinary Distribution, or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on
the date of purchase with respect to any Pro Rata Repurchase which is not a
tender offer, as the case may be, minus (ii) the Fair Market Value of the
Extraordinary Distribution or the aggregate purchase price of the Pro Rata
Repurchase, as the case may be. The Company shall send each holder of Series B
Preferred Stock (i) notice of its intent to make any dividend or distribution
and (ii) notice of any offer by the Company to make a Pro Rata Repurchase, in
each case at the same time as, or as soon as practicable after, such offer is
first communicated (including by announcement of a record date in accordance
with the rules of any stock exchange on which the Common Stock is listed or
admitted to trading) to holders of Common Stock. Such notice shall indicate the
intended record date and the amount and nature of such dividend or distribution,
or the number of shares subject to such offer for a Pro Rata Repurchase and the
purchase price payable by the Company pursuant to such offer, as well as the
Series B Conversion Price and the number of shares of Common Stock into which a
share of Series B Preferred Stock may be converted at such time. Concurrently
with the automatic adjustment pursuant to this paragraph 9(C)(1), the Series B
Conversion Price, the Series B Liquidation Price and the Series B Preferred
Dividend Rate of all shares of Series B Preferred Stock shall be adjusted by
dividing the Series B Conversion Price, the Series B Liquidation Price and the
Series B Preferred Dividend Rate, respectively, in effect immediately before
such Extraordinary Distribution or Pro Rata Repurchase by the Non-dilutive Share
Amount determined pursuant to this paragraph 9(C)(1).

         (2) The Company and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are necessary or
appropriate for implementation of the automatic adjustment provided in paragraph
9(C)(1). In the event for any reason the Company is precluded from giving full
effect to the automatic adjustment provided in paragraph 9(C)(1), then no such
automatic adjustment shall occur, but instead the Series B Conversion Price
shall automatically be adjusted by dividing the Series B Conversion Price in
effect immediately before such Extraordinary Distribution or Pro Rata Repurchase
by the Non-dilutive Share Amount, and the Series B Liquidation Price and the
Series B Preferred Dividend Rate will not be adjusted. If subsequently the
Company is able to give full effect to the automatic adjustment as provided in
paragraph 9(C)(1), then such automatic adjustment will proceed in accordance
with the provisions of paragraph 9(C)(1) and the adjustment in the Series B
Conversion Price as provided in this paragraph 9(C)(2) will automatically be
reversed and nullified prospectively.

         (D) Notwithstanding any other provisions of this Section 9, the Company
shall not be required to make (i) any adjustment of the number of issued shares
of Series B Preferred Stock, the Series B Conversion Price, the Series B
Liquidation Price or the Series B Preferred Dividend Rate unless such adjustment
would require an increase or decrease of at least one percent (1%) in the number
of shares of Series B Preferred Stock outstanding, or, (ii) if no additional
shares of Series B Preferred Stock are issued, any adjustment of the Series B
Conversion Price unless such adjustment would require an increase or decrease of
at least one percent (1%) in the Series B Conversion Price. Any lesser
adjustment shall be carried forward and shall be made no later than the time of,
and together with, the next subsequent adjustment which, together with any
adjustment or adjustments so carried forward, shall amount to an increase or
decrease of at least one percent (1%) of the number of Series B Preferred Shares
outstanding or, if no additional shares of Series B Preferred Stock are being
issued, an increase or decrease of at least one percent (1%) of the Series B
Conversion Price, whichever the case may be.



         (E) If the Company shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Company or any rights or warrants to purchase or acquire any such security,
which transaction does not result in an appropriate adjustment to the number of
shares of Series B Preferred Stock outstanding or the Series B Conversion Price
pursuant to the foregoing provisions of this Section 9, the Board of Directors
of the Company may, in its sole discretion, consider whether such action is of
such a nature that some type of equitable adjustment should be made in respect
of such transaction. If in such case the Board of Directors of the Company
determines that some type of adjustment should be made, an equitable adjustment
not repugnant to law and for the protection of the conversion rights of the
Series B Preferred Stock shall be made effective as of such date, as determined
by the Board of Directors of the Company. The determination of the Board of
Directors of the Company as to whether some type of adjustment should be made
pursuant to the foregoing provisions of this paragraph 9(E), and, if so, as to
what adjustment should be made and when, shall be final and binding on the
Company and all shareholders of the Company. The Company shall be entitled to
make such additional adjustments, in addition to those required by the foregoing
provisions of this Section 9, as shall be necessary in order that any dividend
or distribution in shares of capital stock of the Company, subdivision,
reclassification or combination of shares of the Company or any recapitalization
of the Company shall not be taxable to holders of the Common Stock.

         (F) For purposes of this Appendix B, the following definitions shall
apply:

         (1) "Extraordinary Distribution" shall mean any dividend or other
distribution (effected while any of the shares of Series B Preferred Stock are
outstanding) of (i) cash, where the aggregate amount of such cash dividend or
distribution together with the amount of all cash dividends and distributions
made during the preceding period of twelve (12) months, when combined with the
aggregate amount of all Pro Rata Repurchases [for this purpose, including only
that portion of the aggregate purchase price of such Pro Rata Repurchase which
is in excess of the Fair Market Value of the Common Stock repurchased as
determined on the applicable expiration date (including all extensions thereof)
of any tender offer or exchange offer which is a Pro Rata Repurchase, or the
date of purchase with respect to any other Pro Rata Repurchase which is not a
tender offer or exchange offer] made during such period, exceeds twelve and
one-half percent (12 1/2%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the record date for determining the shareholders
entitled to receive such Extraordinary Distribution and (ii) any shares of
capital stock of the Company (other than shares of Common Stock), other
securities of the Company (other than securities of the type referred to in
paragraph (B) of this Section 9), evidences of indebtedness of the Company or
any other person or any other property (including shares of any subsidiary of
the Company), or any combination thereof. The Fair Market Value of an
Extraordinary Distribution for purposes of paragraph (C) of this Section 9 shall
be the sum of the Fair Market Value of such Extraordinary Distribution plus the
aggregate amount of any cash dividends or distributions which are not
Extraordinary Distributions made during such twelve month period and not
included in the calculation of any previous adjustment pursuant to paragraph (C)
of this Section 9.

         (2) "Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Company or any other issuer
which are publicly traded, the average of the Current Market Prices (as
hereinafter defined) of such shares or securities for each day of the Adjustment
Period (as hereinafter defined). "Current Market Price" of publicly traded
shares of Common Stock or any other class of capital stock or other security of
the Company or any other issuer for a day shall mean the last reported sales
price, regular way, or, in case no sale takes place on such day, the average
reported closing bid and asked prices, regular way, in either



case as reported on the New York Stock Exchange Composite Tape or, if such
security is not listed or admitted to trading on the New York Stock Exchange, on
the principal national securities exchange on which such security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the NASDAQ National Market System or, if such security
is not quoted on such National Market System, the average of the closing bid and
asked prices on each such day in the over-the-counter market as reported by
NASDAQ or, if bid and asked prices for such security on each such day shall not
have been reported through NASDAQ, the average of the bid and asked prices for
such day as furnished by any New York Stock Exchange member firm regularly
making a market in such security selected for such purpose by the Board of
Directors of the Company or the Executive Committee of the Board of Directors of
the Company on each trading day during the Adjustment Period. "Adjustment
Period" shall mean the period of five (5) consecutive trading days, selected by
the Board of Directors or the Executive Committee of the Board of Directors of
the Company, during the twenty (20) trading days preceding, and including, the
date as of which the Fair Market Value of a security is to be determined. The
"Fair Market Value" of any security which is not publicly traded or of any other
property shall mean the fair value thereof as determined by an independent
investment banking or appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board of Directors or the
Executive Committee of the Board of Directors of the Company, or, if no such
investment banking or appraisal firm is in the good faith judgment of the Board
of Directors or the Executive Committee of the Board of Directors available to
make such determination, as determined in good faith by the Board of Directors
or the Executive Committee of the Board of Directors of the Company.

         (3) "Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Company or any subsidiary thereof, whether for cash, shares of
capital stock of the Company, other securities of the Company, evidences of
indebtedness of the Company or any other person or any other property (including
shares of a subsidiary of the Company), or any combination thereof, effected
while any of the shares of Series B Preferred Stock are outstanding, pursuant to
any tender offer or exchange offer subject to Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision of law, or pursuant to any other offer available to substantially all
holders of Common Stock; provided, however, that no purchase of shares by the
Company or any subsidiary thereof made in open market transactions shall be
deemed a Pro Rata Repurchase. For purposes of this paragraph 9(F), shares shall
be deemed to have been purchased by the Company or any subsidiary thereof "in
open market transactions" if they have been purchased substantially in
accordance with the requirements of Rule 10b-18 as in effect under the Exchange
Act on the date shares of Series B Preferred Stock are initially issued by the
Company or on such other terms and conditions as the Board of Directors or the
Executive Committee of the Board of Directors of the Company shall have
determined are reasonably designed to prevent such purchases from having a
material effect on the trading market for the Common Stock.

         (G) Whenever an adjustment increasing the number of shares of Series B
Preferred Stock outstanding is required pursuant to this Appendix B, the Board
of Directors shall take such action as is necessary so that a sufficient number
of shares of Series B Preferred Stock are designated with respect to such
increase resulting from such adjustment. Whenever an adjustment to the Series B
Conversion Price, the Series B Liquidation Price or the Series B Preferred
Dividend Rate of the Series B Preferred Stock is required pursuant to this
Appendix B, the Company shall forthwith place on file with the transfer agent
for the Common Stock and the Series B Preferred Stock if there be one, and with
the Treasurer of the Company, a statement signed by the Treasurer or Assistant
Treasurer of the Company stating the adjusted Series B Conversion Price,



Series B Liquidation Price and Series B Preferred Dividend Rate determined as
provided herein. Such statement shall set forth in reasonable detail such facts
as shall be necessary to show the reason and the manner of computing such
adjustment, including any determination of Fair Market Value involved in such
computation. Promptly after each adjustment to the number of shares of Series B
Preferred Stock outstanding, the Series B Conversion Price, the Series B
Liquidation Price or the Series B Preferred Dividend Rate, the Company shall
mail a notice thereof and of the then prevailing number of shares of Series B
Preferred Stock outstanding, the Series B Conversion Price, the Series B
Liquidation Price and the Series B Preferred Dividend Rate to each holder of
shares of Series B Preferred Stock.

10.      Miscellaneous.

         (A) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt thereof
or three (3) business days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Appendix B) with postage prepaid, addressed: (i) if to the
Company, to its office at One Procter & Gamble Plaza, Cincinnati, Ohio 45202
(Attention: Treasurer) or to the transfer agent for the Series B Preferred
Stock, or other agent of the Company designated as permitted by this Appendix B
or (ii) if to any holder of the Series B Preferred Stock or Common Stock, as the
case may be, to such holder at the address of such holder as listed in the stock
record books of the Company (which may include the records of any transfer agent
for the Series B Preferred Stock or Common Stock, as the case may be) or (iii)
to such other address as the Company or any such holder, as the case may be,
shall have designated by notice similarly given.

         (B) The term "Common Stock" as used in this Appendix B means the
Company's Common Stock without par value, as the same exists at the date of
filing of the Amendment to the Company's Amended Articles of Incorporation first
designating Series B Preferred Stock, or any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to without par value, or from without
par value to par value. In the event that, at any time as a result of an
adjustment made pursuant to Section 9 of this Appendix B, the holder of any
share of the Series B Preferred Stock upon thereafter surrendering such shares
for conversion shall become entitled to receive any shares or other securities
of the Company other than shares of Common Stock, the anti-dilution provisions
contained in Section 9 hereof shall apply in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock, and
the provisions of Sections 1 through 8 and 10 of this Appendix B with respect to
the Common Stock shall apply on like or similar terms to any such other shares
or securities.

         (C) The Company shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series B Preferred Stock or shares of Common Stock or other securities issued
on account of Series B Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Company shall not, however, be
required to pay any such tax which may be payable in respect of any transfer of
the Series B Preferred or Common Stock or other Securities by the holder thereof
to a subsequent holder resulting in the issuance or delivery of shares of Series
B Preferred Stock or Common Stock or other securities in a name other than that
in which the shares of Series B Preferred Stock with respect to which such
shares or other securities are issued or delivered were registered, or in
respect of any payment to any person with respect to any such shares or
securities other than a payment to the registered holder thereof, and shall not
be required to make any such issuance, delivery or payment unless and until the
person otherwise entitled to such issuance, delivery or



payment has paid to the Company the amount of any such tax or has established,
to the satisfaction of the Company, that such tax has been paid or is not
payable.

         (D) In the event that a holder of shares of Series B Preferred Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series B Preferred Stock should be made or
the address to which the certificate or certificates representing such shares,
or such payment, should be sent, the Company shall be entitled to register such
shares, and make such payment, in the name of the holder of such Series B
Preferred Stock as shown on the records of the Company and to send the
certificate or certificates or other documentation representing such shares, or
such payment, to the address of such holder shown on the records of the Company.

         (E) The Company may appoint, and from time to time discharge and
change, a transfer agent for the Series B Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Company shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
B Preferred Stock.

(5)      As a result of the two-for-one stock split on the Common Stock
         effective August 22, 1997 and the Smucker transaction effective June 1,
         2002, the Conversion Price, Liquidation Price and Preferred Dividend
         Rate were all adjusted in accordance with the terms of paragraph
         9(A)(1) of this Appendix B to be as follows: Conversion Price --
         $25.92; Liquidation Price -- $25.92; Preferred Dividend Rate -- $2.044
         per share per annum, with a corresponding change in the quarterly
         dividend payment. (This footnote is not a part of the Company's Amended
         Articles of Incorporation but is included to provide up-to-date
         information on the status of Series B ESOP Convertible Class A
         Preferred Stock.)

EX-3.2

                                  EXHIBIT (3-2)



                                   Regulations


                                                                   EXHIBIT (3.2)

                                      -1-

                          The Procter & Gamble Company

                                  Regulations

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

                                   ARTICLE I

                                      Seal

                    SECTION 1. Form. The seal of the Company
               shall have upon it the name and words, "The
               Procter & Gamble Company. Incorporated 1905,"
               arranged in a circle with the trademark of the
               Company, to wit, a crescent and thirteen stars set
               within the space thus enclosed.

                                   ARTICLE II

                                  Shareholders

                    SECTION 1. Place of Meeting. Meetings of
               shareholders shall be held in Cincinnati, Hamilton
               County, Ohio, but the shareholders or the Board of
               Directors shall have authority to provide for the
               holding of meetings of shareholders elsewhere
               within or without the State of Ohio, except the
               annual meeting, or a meeting to elect Directors.

                    SECTION 2. Annual Meeting. The annual meeting
               of the shareholders shall be held on the second
               Tuesday of October in each year, at which time
               there shall be elected in accordance with the laws
               of the State of Ohio and ARTICLE III of these
               Regulations, a Board of Directors. Reports of
               officers, committees and Directors shall be
               received and considered at such meeting.

                    SECTION 3. Special Meetings. Special meetings
               of the shareholders may be called and held as
               provided by law.

                    SECTION 4. Notice of Meetings. A notice, as
               required by law, of each regular or special
               meeting of shareholders shall be given in writing
               by the President or a Vice-President, or the
               Secretary, or an Assistant Secretary, not less
               than ten (10) days before the meeting.

                    SECTION 5. Quorum. The shareholders present
               in person or by proxy at any meeting shall
               constitute a quorum unless a larger proportion is
               required to take the action stated in the notice
               of the meeting, in which case, to constitute a
               quorum, there shall be present in person or by
               proxy the



                                       -2-

               holders of record of shares entitling them to
               exercise the voting power required by the Articles
               of the Company to take the action stated.

                    SECTION 6. Organization. The Chairman of the
               Board shall preside at all meetings of the
               shareholders, but in his absence the Board of
               Directors may appoint any officer to act as
               presiding officer at the meeting. The Secretary of
               the Company shall act as Secretary of all meetings
               of the shareholders, but in his absence the
               presiding officer may appoint any person to act as
               Secretary of the meeting.

                    SECTION 7. Order of Business. At all
               shareholders' meetings the order of business shall
               be as follows:

                    1.   Reading minutes of previous meeting and
                         acting thereon.

                    2.   Report of Directors or committees.

                    3.   Reports of officers.

                    4.   Unfinished business.

                    5.   Election of Directors.

                    6.   New or miscellaneous business.

                                   ARTICLE III

                               Board of Directors

                    SECTION 1. Number. The Board of Directors
               shall be composed of seventeen (17) persons unless
               this number is changed by: (1) the shareholders by
               the affirmative vote of the holders of shares of
               the Company entitling them to exercise at least
               eighty percent (80%) of the voting power of the
               Company voting as a single class at a meeting of
               shareholders called for the purpose of electing
               Directors or (2) the affirmative vote of at least
               two-thirds (2/3) of the whole authorized number of
               Directors. The Directors may increase the number
               to not more than nineteen (19) persons and may
               decrease the number to not less than fifteen (15)
               persons. Any Director's office created by the
               Directors by reason of an increase in their number
               may be filled by action of a majority of the
               Directors in office.

                    SECTION 2. Election and Term. Except as
               otherwise provided by law, the Articles of the
               Company or these Regulations, Directors shall be



                                       -3-

               elected at the annual meeting of shareholders to
               serve until the end of the term to which they are
               elected and until their successors are elected and
               qualify. The number of Directors of the Company
               shall be fixed from time to time in accordance
               with these Regulations and may be increased or
               decreased as herein provided. The Board of
               Directors shall be divided into three classes, as
               nearly equal in number as the then total number of
               Directors constituting the whole Board permits, it
               not being required that each class have the same
               number of members if such is mathematically
               impossible, with the term of office of one class
               expiring each year. At the annual meeting of
               shareholders in 1985, Directors of the first class
               shall be elected to hold office for a term
               expiring at the next succeeding annual meeting,
               Directors of the second class shall be elected to
               hold office for a term expiring at the second
               succeeding annual meeting and Directors of the
               third class shall be elected to hold office for a
               term expiring at the third succeeding annual
               meeting. Thereafter, at each annual meeting of
               shareholders the successors to the class of
               Directors whose term shall then expire shall be
               elected to hold office for a term expiring at the
               third succeeding annual meeting after such
               election. In the event of any increase in the
               number of Directors of the Company, the additional
               Director or Directors shall be so classified that
               all classes of Directors shall be as nearly equal
               as may be possible. In the event of any decrease
               in the number of Directors of the Company, all
               classes of Directors shall be decreased as nearly
               equally as may be possible.

                    SECTION 3. Removal, Vacancies. Directors may
               be removed from office, as provided by law, by the
               vote of the holders of at least eighty percent
               (80%) of the voting power of the Company, voting
               as a single class, entitling them to elect
               Directors in place of those to be removed.
               Vacancies in the Board of Directors for any
               unexpired term shall be filled by the remaining
               Directors, though less than a majority of the
               whole authorized number of Directors, by the vote
               of a majority of their number.

                    SECTION 4. Meetings. Unless otherwise
               determined by the Board of Directors, the Board
               shall meet once a month, except the month of
               August, at such times and places, either within or
               without the State of Ohio, as may be determined by
               the Board. Special meetings of the Board of
               Directors may be called at any time by the
               Chairman of the Board, the President, any other



                                       -4-

               officer who is a member of the Board or by the
               majority of the Board.

                    SECTION 5. Notice of Meetings. The Board
               shall decide what notice, if any, shall be given
               and the length of time prior to the meeting that
               such notice shall be given of all meetings. Any
               meeting at which all of the Directors are present
               shall be a valid meeting whether notice thereof
               was given or not, and any business may be
               transacted at such a meeting.

                    SECTION 6. Quorum. A majority of the Board of
               Directors shall constitute a quorum for the
               transaction of business, and if at any meeting of
               the Board there be less than a quorum present, a
               majority of those present may adjourn the meeting
               from time to time.

                    SECTION 7. Compensation of Directors and
               Members of the Executive Committee. The Board of
               Directors is authorized to fix, from time to time,
               their own compensation for attendance at the
               meetings of the Board, and the compensation of
               members of the Executive Committee for attendance
               at meetings of such Committee, which may include
               expenses of attendance when meetings are not held
               at the place of residence of any attending
               Director or member.

                    SECTION 8. Indemnification of Directors and
               Officers. The Company shall indemnify each present
               and future Director and officer, his heirs,
               executors and administrators against all costs,
               expenses (including attorneys' fees), judgments,
               and liabilities, reasonably incurred by or imposed
               on him in connection with or arising out of any
               claim or any action, suit or proceeding, civil or
               criminal, in which he may be or become involved by
               reason of his being or having been a Director or
               officer of the Company, or of any of its
               subsidiary companies, or of any other company in
               which he served or serves as a Director or officer
               at the request of the Company, irrespective of
               whether or not he continues to be a Director or an
               officer at the time he incurs or becomes subjected
               to such costs, expenses (including attorneys'
               fees), judgments, and liabilities; but such
               indemnification shall not be operative with
               respect to any matter as to which in any such
               action, suit or proceeding he shall have been
               finally adjudged to have been derelict in the
               performance of his duties as such Director or
               officer. Such indemnification shall apply when the
               adjudication in such action, suit or proceeding is
               otherwise than on the merits and also shall apply



                                       -5-

               when a settlement or compromise is effected, but
               in such cases indemnification shall be made only
               if the Board of Directors of the Company, acting
               at a meeting at which a majority of the quorum of
               the Board is unaffected by self interest, shall
               find that such Director or officer has not been
               derelict in the performance of his duty as such
               Director or officer with respect to the matter
               involved, and shall adopt a resolution to that
               effect and in cases of settlement or compromise
               shall also approve the same; in cases of
               settlement or compromise such indemnification
               shall not include reimbursement of any amounts
               which by the terms of the settlement or compromise
               are paid or payable to the Company itself by the
               Director or officer (or in the case of a Director
               or officer of a subsidiary or another company in
               which such Director or officer is serving at the
               request of the Company any amounts paid or payable
               by such Director or officer to such company). If
               the Board of Directors as herein provided refuses
               or fails to act or is unable to act due to the
               self interest of some or all of its members, the
               Company at its expense shall obtain the opinion of
               counsel and indemnification shall be had only if
               it is the opinion of such counsel that the
               Director or officer has not been derelict in the
               performance of his duties as such Director or
               officer with respect to the matter involved.

                    The right of indemnification provided for in
               this section shall not be exclusive of other
               rights to which any Director or officer may be
               entitled as a matter of law and such rights, if
               any, shall also inure to the benefit of the heirs,
               executors or administrators of any such Director
               or officer.

                                   ARTICLE IV

                               Executive Committee

                    SECTION 1. Executive Committee. The Board of
               Directors may, by resolution, designate not less
               than three (3) of its number to constitute an
               Executive Committee, but may repeal said
               resolution and dispense with said Committee at any
               time.

                    SECTION 2. Powers of Executive Committee. The
               Executive Committee shall have charge of the
               management of the business and affairs of the
               Company in the interim between meetings of the
               Directors, and generally shall have all of the
               authority of the Board in the transaction of such
               business of the Company as in the judgment of the
               Committee may require action before the next
               regular meeting of the Board.



                                       -6-

                    SECTION 3. Limitation of Powers of Executive
               Committee. The Board of Directors shall have
               authority to limit or qualify the powers of the
               Executive Committee at any time, and may rescind
               any action of the Executive Committee to the
               extent that no rights of third persons shall have
               intervened.

                    SECTION 4. Record of Executive Committee. The
               Executive Committee shall keep a record of its
               proceedings and make a report of its acts and
               transactions to the Board of Directors, all of
               which shall form part of the records of the
               Company.

                                    ARTICLE V

                                    Officers

                    SECTION 1. Number. The officers of the
               Company shall be a Chairman of the Board, a
               President, one or more Vice-Presidents, a
               Secretary, one or more Assistant Secretaries, a
               Treasurer, one or more Assistant Treasurers, and a
               Comptroller. Any two or more of the offices may be
               held by the same person, but no officer shall
               execute, acknowledge or verify any instrument in
               more than one capacity if such instrument is
               required to be executed, acknowledged or verified
               by two or more officers.

                    SECTION 2. Other Officers. The Board of
               Directors is authorized in its discretion to
               provide for such other officers and agents as it
               shall deem necessary from time to time and may
               dispense with any offices and agencies at any time
               except those required by law.

                    SECTION 3. Election, Term and Removal. At the
               first meeting of the Board of Directors after
               their election annually, the Board shall select
               all officers of the Company. All officers of the
               Company shall hold their offices during the
               pleasure of the Board, or until their successor or
               successors are elected and qualified, and the
               Board may remove or suspend any officer at any
               time, without notice, by the affirmative vote of a
               majority of the entire Board.

                    SECTION 4. Vacancies and Absence. If any
               office shall become vacant by reason of the death,
               resignation, disqualification or removal of the
               incumbent thereof, or other cause the Board of
               Directors may elect a successor to hold office for
               the unexpired term in respect to which such
               vacancy occurred or was created. In case of the
               absence of any officer of the Company or for any
               reason that



                                       -7-

               the Board of Directors may determine as
               sufficient, the said Board may delegate the powers
               and duties of such officer to any other officer,
               or to any Director, except where otherwise
               provided by these Regulations or by statute, for
               the time being.

                                   ARTICLE VI

                               Duties of Officers

                    SECTION 1. Chairman of the Board. The
               Chairman of the Board of Directors shall preside
               at all meetings of the Board, appoint all special
               or other committees (unless otherwise ordered by
               the Board), shall confer with and advise all other
               officers of the Company, and shall perform such
               other duties as may be delegated to him by the
               Board or the officer designated as Chief
               Executive.

                    SECTION 2. President. The President shall
               perform such duties and have such responsibilities
               as may be delegated or assigned to him by the
               Board or the officer designated as Chief
               Executive.

                    SECTION 3. Chief Executive. The Board of
               Directors shall designate either the Chairman of
               the Board or the President to be the Chief
               Executive of the Company. The officer so
               designated shall be responsible for the
               supervision, general control and management of all
               the Company's business and affairs, subject only
               to the authority of the Board of Directors. He
               shall make periodic reports to the Board of
               Directors, making such recommendations as he
               thinks proper, and shall bring before the Board of
               Directors such information as may be required
               relating to the Company's business and affairs.
               The Board of Directors may designate one of the
               officers of the Company who is a Director to
               perform the duties and have the powers of the
               officer who is the Chief Executive in his absence,
               and during his absence the officer so designated
               shall be authorized to exercise all of his
               responsibilities.

                    SECTION 4. Other Officers. All other officers
               shall perform such duties and have such
               responsibilities as may be delegated or assigned
               to them by the Board of Directors or the officer
               designated as Chief Executive.

                    SECTION 5. Bonds of Officers. The Board of
               Directors or the Executive Committee shall
               determine which officers of the Company shall give
               bond, and the amount thereof, the expense to be
               paid by the Company.



                                       -8-

                                   ARTICLE VII

                        Certificates for Shares of Stock

                    SECTION 1. Mutilated and Lost Certificates.
               If any certificate for shares of the Company
               become worn, defaced or mutilated, the Board of
               Directors upon production or surrender thereof may
               order the same cancelled, and a new certificate
               issued in lieu thereof. If any certificate for
               shares be lost or destroyed, a new certificate may
               be issued upon such terms and under such
               regulations as may be adopted by the Board of
               Directors.

                                  ARTICLE VIII

                                 General Welfare

                    SECTION 1. Policy. It is declared to be the
               policy of the Company to recognize that its
               interests and those of its employees are
               inseparable, and are best developed and maintained
               by the adoption of such measures as will assure
               the employees of the Company of this fact. To this
               end the Board of Directors is authorized, in its
               discretion, to inaugurate and maintain a
               profit-sharing or other similar plan, an adequate
               pension and benefit plan, and to grant to the
               employees such voice in the conduct of the
               business as may seem to the Board to be right and
               proper.

                    SECTION 2. Stock Ownership by Employees. The
               Board of Directors is authorized to devise and
               carry into effect such plans as it may deem
               advisable, to assist the employees to become
               shareholders of the Company by the purchase of its
               shares.

                                   ARTICLE IX

                                   Amendments

                    SECTION 1. Amendments. These Regulations or
               any of them, may be altered, amended, added to or
               repealed as provided by law, except that ARTICLE
               III, Sections 1, 2, 3 and 8 and this ARTICLE IX
               may only be altered, amended, added to or repealed
               at a meeting held for such purpose (1) prior to
               the date of the annual meeting in 1990, by the
               affirmative vote of the holders of at least eighty
               percent (80%) of the outstanding shares of capital
               stock of the Company entitled to vote thereon,
               considered for purposes of this Section 1 as one
               class; (2) from the date of the annual meeting in
               1990 to and including the date of the annual



                                       -9-

               meeting in 2000, by the affirmative vote of the
               holders of at least a majority of the outstanding
               shares of capital stock of the Company entitled to
               vote thereon, considered for purposes of this
               Section 1 as one class, provided that during such
               period said vote may be increased at any time to
               the affirmative vote of at least eighty percent
               (80%) of the outstanding shares of capital stock
               of the Company by a resolution adopted by at least
               two-thirds (2/3) of the members of the whole Board
               of Directors; and (3) after the date of the annual
               meeting in 2000, by the affirmative vote of the
               holders of at least a majority of the outstanding
               shares of capital stock of the Company entitled to
               vote thereon, considered for the purposes of this
               Section 1 as one class.

                                    ARTICLE X

                             Assent of Shareholders

                    SECTION 1. Effect. Any person becoming a
               shareholder in this Company shall be deemed to
               assent to these Regulations, and any alterations,
               amendments, or additions thereto, lawfully
               adopted, and shall designate to the Secretary or
               appointed Transfer Agents of the Company, the
               address to which he desires that the notices
               herein required to be given may be sent, and all
               notices mailed to such address with postage
               prepaid, shall be considered as duly given at the
               date of mailing, provided, however, that in the
               event that any shareholder shall have failed to so
               designate an address to which notices shall be
               sent, then said notices shall be sent to any
               address where the Secretary believes he may be
               reached, otherwise to "General Delivery,
               Cincinnati, Ohio." The mailing of any notice to
               "General Delivery, Cincinnati, Ohio," shall be
               conclusive that the Secretary knows of no address
               where he believes said shareholder may be reached.

EX-10.1

                                 EXHIBIT (10-1)



        The Procter & Gamble 2001 Stock and Incentive Compensation Plan




         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 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
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.

EX-10.2

                                 EXHIBIT (10-2)



                      The Procter & Gamble 1992 Stock Plan





                      THE PROCTER & GAMBLE 1992 STOCK PLAN
                         (as amended December 11, 2001)

ARTICLE A - Purpose.

       The purpose of The Procter & Gamble 1992 Stock Plan (hereinafter referred
to as the "Plan) is to encourage those employees of The Procter & Gamble Company
(hereinafter referred to as the "Company") and its subsidiaries who are largely
responsible for the long-term success and development of the business to
strengthen the alignment of interests between employees and the Company's
shareholders through the increased ownership of shares of the Company's Common
Stock, and to encourage those employees to remain in the employ of the Company
and its subsidiaries. This will be accomplished through the granting to
employees of options to purchase shares of the Common Stock of the Company,
payment of a portion of the employees' remuneration in shares of the Common
Stock, and the granting to them by the Company and a subsidiary, if appropriate,
of deferred awards related to the increase in the price of the Common Stock of
the Company as provided by the terms and conditions set forth in the Plan.

ARTICLE B - Administration.

       1.     The Plan shall be administered by the Compensation Committee
(hereinafter referred to as the "Committee") of the Board of Directors of the
Company (hereinafter referred to as the "Board"), or such other committee as may
be designated by the Board. The Committee shall consist of not less than three
(3) members of the Board who are neither officers nor employees, or members of
the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (hereinafter referred to as 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.

       2.     It shall be the duty of the Committee to administer this Plan in
accordance with its provisions, to report thereon not less than once each year
to the Board and to make such recommendations of amendments or otherwise as it
deems necessary or appropriate. A decision by a majority of the Committee shall
govern all actions of the Committee.

       3.     Subject to the express provisions of this Plan, the Committee
shall have authority: to grant nonstatutory and incentive stock options; to
grant to recipients stock appreciation rights either freestanding, in tandem
with simultaneously granted stock options, or in parallel with simultaneously
granted stock options; to award a portion of a recipient's remuneration in
shares of Common Stock of the Company subject to such conditions or
restrictions, if any, as the Committee may determine; to determine all the terms
and provisions of the respective stock option, stock appreciation right, and
stock 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; and to make all other determinations
it deems necessary or advisable for administering this Plan; provided, however,
the Committee shall have the further authority at time of grant 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); and

       (d)    impose conditions in lieu of those set forth in Article G,
              paragraphs 4 through 7, for nonstatutory stock options, stock
              appreciation rights, and stock award grants which do not increase
              or extend the rights of the recipient,





to take into consideration the differences, limitations, and requirements of
foreign laws or conditions including tax regulations, exchange controls or
investment restrictions, possible unenforceability of any part of this Plan, or
other matters deemed appropriate by it.

       4. The Committee may establish from time to time such regulations,
provisions, and procedures within the terms of this Plan as, in its opinion, may
be advisable in the administration of this Plan.

       5. The Committee may designate the Secretary of the Company or other
employees of the Company to assist the Committee in the administration of this
Plan and may grant authority to such persons to execute documents on behalf of
the Committee.

ARTICLE C -- Participation.

       The Committee shall select 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 and
shall determine the number of shares of the Common Stock of the Company to be
transferred under this Plan subject to such conditions or restrictions as the
Committee may determine and the number of shares with respect to which stock
options or stock appreciation rights will be granted. The Committee may consult
with the Chief Executive, but nevertheless the Committee has the full authority
to act, and the Committee's actions shall be final.

ARTICLE D -- Limitation on Number of Shares for the Plan.

       1.     Unless otherwise authorized by the shareholders, the maximum
aggregate number of shares available for award under this Plan for each calendar
year the Plan is in effect shall be one percent (1%) of the total issued shares
of Common Stock of the Company as of June 30 of the immediately preceding fiscal
year.

       2.     Any of the authorized shares may be used in respect of any of the
types of awards described in this Plan, except that no more than twenty-five
percent (25%) of the authorized shares in any calendar year may be issued as
restricted or unrestricted stock and no more than 50,000,000 of the authorized
shares during the term of the Plan may be issued as incentive stock options.

       3.     Any authorized shares not used in a calendar year shall be
available for awards under this Plan in succeeding calendar years.

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 either authorized but unissued
shares or treasury shares, as determined by the Board. 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 this Plan, restricted or unrestricted stock
awarded under the terms of this Plan shall be authorized but unissued shares,
treasury shares, or shares acquired for purposes of the Plan 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 this Plan, the recipient agrees as
follows:

       (a)    The right to exercise any stock option or stock appreciation right
              shall be conditional upon certification by the recipient at time
              of exercise that the recipient intends to remain in the employ of
              the Company or one of its subsidiaries (except in cases of
              retirement, disability or Special Separation as defined in section
              6 of Article G) for at least one (1) year following the date of
              the exercise of the stock option or stock appreciation right, 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 it
              subsidiaries' trade secrets and confidential information and
              thereby help insure the long-term success of the business, the
              recipient, 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 recipient'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 recipient, as a consequence of
              the recipient's employment with the Company or one of its
              subsidiaries, to be in development):

              (1)    with respect to which the recipient'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
                     recipient, as a consequence of the recipient's job
                     performance and duties, acquired knowledge of trade secrets
                     or other confidential information of the Company or its
                     subsidiaries.

              For purposes of this section, it shall be conclusively presumed
              that recipients 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 recipient (which
              recipient hereby acknowledges) to not use or disclose the
              Company's or its subsidiaries' trade secrets and confidential
              information known to the recipient until any particular trade
              secret or confidential information become generally known (through
              no fault of the recipient), 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 recipients 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 this Plan, the recipient
              acknowledges that if the recipient 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 recipient from doing so. The recipient
              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 recipient
              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 recipient,
              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 recipient'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 recipient
              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 an employee has been granted a stock option or a
stock appreciation right under this Plan shall not limit the right of the
employer to terminate the recipient's employment at any time. The Committee is
authorized to suspend or terminate any outstanding stock option or stock
appreciation right for actions taken prior to termination of employment if the
Committee determines the recipient has acted significantly contrary to the best
interests of the Company.

       3.     More than one stock option or stock appreciation right may be
granted to any employee under this Plan but the maximum number of shares with
respect to which stock options or stock appreciation rights may be granted to
any employee in any calendar year shall not exceed five percent (5%) of the
number of shares which can be issued or transferred annually hereunder.

       4.     The aggregate fair market value (determined at the time when the
incentive stock option is exercisable for the first time by an employee during
any calendar year) of the shares for which any employee may be granted incentive
stock options under this 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 or parallel
to 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 or parallel 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 of the Company on the date of grant.

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 fifteen (15) years from the date of
grant; provided, however, that any stock options or stock appreciation rights
with a life of more than ten (10) years from the date of grant that have been
conditionally granted to the Chief Executive or to any other executive officer
subject to the provisions of Section 162(m) of the Internal Revenue Code and
subject to taxation under United States law, as it may be amended from time to
time, prior to the annual meeting of shareholders scheduled for October 12, 1999
shall automatically be canceled effective October 12, 1999 if the shareholders
do not adopt a resolution at such annual meeting approving grants to such
officers with a maximum life of up to fifteen (15) 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 recipient.

       3.     During the lifetime of the recipient, stock options and stock
appreciation rights may be exercised only by the recipient personally, or, in
the event of the legal incompetence of the recipient, by the recipient's duly
appointed legal guardian.

       4.     In case a recipient of stock options or stock appreciation rights
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 recipient; (2) any Special Separation
              (as defined in section 6 of this Article G) 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) pursuant to the
              authority granted by Article B, paragraph 3.

       (b)    Any exercisable portions thereof are then void, except in the case
              of death, retirement in accordance with the provisions of any
              appropriate profit sharing or retirement plan of the Company or
              any of its subsidiaries, or Special Separation (as defined in
              section 6 of this Article G) of the recipient.

       5.     In the case of the death of a recipient of stock options or stock
appreciation rights while an employee of the Company or any of its subsidiaries,
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 employee,
at any time prior to the expiration date of the stock options or stock
appreciation rights.

       6.     Termination of employment under the permanent disability provision
of any appropriate profit sharing or retirement plan of the Company or any of
its subsidiaries shall be deemed the same as retirement. Special Separation
means any termination of employment, except a termination for cause or a
voluntary resignation that is not initiated or encouraged by the Company, that
occurs prior to the time a recipient is eligible to retire. The death of a
recipient of stock options or stock appreciation rights subsequent to retirement
or Special Separation shall not render exercisable stock options or stock
appreciation rights which were unexercisable at the time of the retirement or
Special Separation. The persons to whom the exercisable stock options or stock
appreciation rights have been transferred by will or the laws of descent and
distribution shall have the privilege of exercising such remaining stock
options, stock appreciation rights or parts thereof, at any time prior to the
expiration date of the stock options or stock appreciation rights.

       7.     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
recipient, the duly appointed executors and administrators of the estate of the
deceased recipient 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 recipient's estate.

       8.     Upon the exercise of stock appreciation rights, the recipient
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 the Common Stock of the Company 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 of the Company 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. The number of shares with respect to which stock
appreciation rights are being exercised shall not be available for granting
future stock options or stock appreciation rights under this Plan.

       9.     The Committee may, in its sole discretion, permit a stock option
which is being exercised either (a) by an optionee whose retirement is imminent
or who has retired or (b) after the death of the optionee, to be surrendered, in
lieu of exercise, for an amount equal to the difference between the stock option
exercise price and the fair market value of shares of the Common Stock of the
Company on the day the stock option is surrendered, payment to be made in shares
of the Company's Common Stock which are subject to this Plan valued at their
fair market value on such date, cash, or a combination thereof, in such
proportion and upon such terms and conditions as shall be determined by the
Committee. The difference between the number of shares subject to stock options
so surrendered and the number of shares, if any, issued upon such surrender
shall represent shares which shall not be available for granting future stock
options under this Plan.

       10.    Time spent on leave of absence shall be considered as employment
for the purposes of this 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.

       11.    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 it 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.

ARTICLE H -- Payment for Stock Options.

       Upon the exercise of a stock option, payment in full of the exercise
price shall be made by the optionee. As determined by the Committee, the stock
option exercise price may be paid for by the optionee either in cash, shares of
the Common Stock of the Company to be valued at their fair market value on the
date of exercise, a combination thereof, or such other method as determined by
the Committee.

ARTICLE I -- Transfer of Shares.

       1.     The Committee may transfer Common Stock of the Company under the
Plan subject to such conditions or restrictions, if any, as the Committee may
determine. The conditions and restrictions may vary from time to time and with
respect to particular employees or group of employees and may be set forth in
agreements between the Company and the employee or in the awards of stock to
them, all as the Committee determines. It is contemplated that the conditions
and restrictions established by the Committee will be consistent with the
objectives of this Plan and may be of the following types. In giving these
examples, it is not intended to restrict the Committee's authority to impose
other restrictions or conditions, or to waive restrictions





or conditions under circumstances deemed by the Committee to be appropriate and
not contrary to the best interests of the Company.

       (a)    Restrictions

              The employee will not be able to sell, pledge, or dispose of the
              shares during a specified period except in accordance with the
              agreement or award. Such restrictions will lapse either after a
              period of, for example, five years, or in fifteen or fewer annual
              installments following retirement or termination of employment, as
              the Committee from time to time may determine. However, upon the
              transfer of shares subject to restrictions, an employee will have
              all incidents of ownership in the shares, including the right to
              dividends (unless otherwise restricted by the Committee), to vote
              the shares, and to make gifts of them to family members (still
              subject to the restrictions).

       (b)    Lapse of Restrictions

              In order to have the restrictions lapse, an employee may be
              required to continue in the employ of the Company or a subsidiary
              for a prescribed period of time. Exemption from this requirement
              may be prescribed in the case of death, disability, or retirement,
              or as otherwise prescribed by the Committee.

ARTICLE J -- 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 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 K -- Additional Provisions.

       1.     The Board may, at any time, repeal this Plan or may amend it from
time to time except that no such amendment may amend this paragraph, increase
the annual aggregate number of shares subject to this Plan, reduce the price at
which stock options or stock appreciation rights may be granted, exercised, or
surrendered, 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. The recipient of awards under this Plan 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 affected, notice
thereof shall be given to the holders of such stock options and stock
appreciation rights and such amendments shall not be applicable to such holder
without his or her written consent. If this 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 transferred pursuant to this Plan shall
continue to be subject to such conditions or restrictions.

       2.     In the case of an employee of a subsidiary company, performance
under this Plan, including the transfer of shares of the Company, may be by the
subsidiary. Nothing in this 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
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 this Plan except as to such shares, if any, as shall have been
granted or transferred to him or her. Nothing in this Plan shall preclude the
issuance or transfer 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 greater than fifty percent
(50%) of the total combined voting power of all classes of stock is owned,
directly or indirectly, by the Company. In addition, the Board may designate for
participation in this 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 less than fifty
percent (50%) of the total combined voting power of all classes of such
company's stock.

       4.     Notwithstanding anything to the contrary in the this 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 Section 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 11, 2000 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 this
              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.

ARTICLE L -- Consent.

       Every recipient of a stock option, stock appreciation right, or transfer
of shares pursuant to this Plan shall be bound by the terms and provisions of
this Plan and of the stock option, stock appreciation right, or transfer of
shares agreement referable thereto, and the acceptance of any stock option,
stock appreciation right, or transfer of shares pursuant to this Plan shall
constitute a binding agreement between the recipient and the Company and its
subsidiaries and any successors in interest to any of them. This Plan shall be
governed by and construed in accordance with the laws of the State of Ohio,
United States of America.

ARTICLE M -- Duration of Plan.





       This Plan will terminate on July 14, 2002 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 this 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.     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, 2001;
       2. The Company's Quarterly Report on Form 10-Q for the quarter ended
          September 30, 2001; 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 Mr. Terry L. Overbey, Secretary, The Procter & Gamble Company, One
Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-4463.

EX-10.3

                                 EXHIBIT (10-3)



           The Procter & Gamble Executive Group Life Insurance Policy



                           MEMORANDUM OF UNDERSTANDING
                          -----------------------------

This memorandum dated as of December 30,1997, reflects the understanding and
agreement between The Procter & Gamble Company as policyholder
("Policyholder/P&G") of a Flexible Premium Group Variable Life Insurance Policy
(the "Policy") and Metropolitan Life Insurance Company ("Carrier/Metropolitan").

Policyholder and Carrier understand and agree that the following is in no way
inconsistent with the Policy:

Qualification of the Policy as Life Insurance (IRC Sections 7702 and 101)
- -------------------------------------------------------------------------

Assuming insurable interest by the Policyholder, Carrier will administer the
Policy to qualify as a life insurance contract under Section 7702 of the
Internal Revenue Code (the "IRC"), to have a bona fide element of risk, and to
provide death benefits under the Policy that will be excludible from taxable
income to the extent provided under IRC section 101(a). On or before the date of
this memorandum, Carrier has provided an opinion from outside counsel addressed
to Policyholder that the Policy complies with the requirements of section 7702.
See Exhibit 1.

Qualification of the Policy as a Variable Contract
- ---------------------------------------------------
Subject to the conditions stated below, Carrier will administer the Policy to
(a) be a "Variable contract" within the meaning of Section 817(d) of the
Internal Revenue Code and (b) be based on one or more segregated asset accounts,
the assets of which are owned by Carrier and are adequately diversified, as
required by Internal Revenue Code Section 817(h).

Policyholder may determine the percentage of premium payments and/or policy cash
value that is allocated to a specific separate account and will have the right
to reallocate amounts among the separate accounts as provided in the Policy. The
Policyholder shall not have the right to manage the assets of the separate
accounts or to direct the purchase or sale of specific investment assets and
will not communicate directly or in any manner with respect to these separate
accounts with any of the managers or sub investment managers of the separate
accounts.

Metropolitan will be the investment manager for any Separate Accounts under this
Policy. Separate Accounts may have sub-investment managers chosen by
Metropolitan.

The Policy will state that the assets held in each Separate Account will be
maintained solely for the liabilities of the participants in that Separate
Account. The Carrier will make provision that the income, gains and losses of
each Separate Account shall be credited to or charged against that Separate
Account's assets and none of the assets held in a Separate Account will be
charged or chargeable with liabilities arising out of any other business of the
Carrier or used for purposes unrelated to the terms and provisions of that
Separate Account. On or before the date of this



memorandum, Carrier has provided a letter from its counsel addressed to
Policyholder on these issues. See Exhibit 2.

Underwriting
- -------------

Based on the census in the November 11,1998 illustrations, current participants
who are domestic actives and retirees will be covered under Carrier's Guaranteed
Issue program for the plan benefit and cost recovery amounts in effect on the
date the Policy is issued.

Future new participants will be subject to the following "Active at Work"
criteria:

- -        not been absent from work due to illness or medical treatment for a
         period of more than 5 consecutive days in the last 3 months; and

- -        are actively at work, full time performing all duties of regular
         occupation, at customary place of employment.

The guaranteed issue limit upon entry into the plan by new participants will be
$2 million. Based on the current plan design, death benefits under the Policy
may be increased without additional underwriting:

- -        by reason of promotional increases verified by P&G, and

- -        by up to 15% per year (with any unused portion of such increment
         rolling forward for five years on a cumulative basis) to reflect
         compensation (salary and bonus) increases,

subject to a lifetime guaranteed issue limit of $5,000,000 per life, which limit
will be reviewed at least every five years and (absent retention, reinsurance or
adverse selection constraints) adjusted to accommodate anticipated plan benefit
and cost recovery amounts. Amounts in excess of the guaranteed issue limits
will, at Carrier's request, be subject to underwriting.

Carrier will not deny claims by reason of the suicide exclusion provision of the
Policy. Carrier acknowledges, accepts and agrees to be bound by consents to
insurance, beneficiary designations and assignments in effect under P&G's
executive life insurance program.

Cost of Term Insurance Charges
- -------------------------------

The Cost of Term Insurance charges ("COI") for the current active population and
new entrants (meeting the "active at work" requirements) will be based on 90% of
Carrier's current Corporate Universal Life Guaranteed Issue, Sex Distinct,
Unismoker rates. The current retirees will have rates equal to 120% of Carrier's
Corporate Universal Life Guaranteed Issue, Sex Distinct, Unismoker rates.

                                      - 2 -



P & G will have COI rates equal to the foregoing unless Carrier's Corporate
Universal Life Guaranteed Issue, Sex Distinct, Unismoker rates are increased to
the maximum rates of 1980 CSO table (Table A for males and Table G for females).
Only at that time will the rates under this Policy for actives and new entrants
be increased to up to 100% of Corporate Universal Life Guaranteed Issue, Sex
Distinct, Unismoker rates, with a corresponding change in the COI for current
retirees. Any future changes in COI rates will be determined based on changes in
Corporate Universal Life Guaranteed Issue Rates. Metropolitan shall inform the
Policyholder in writing at least 60 days in advance of any changes in such
rates.

The Guaranteed Issue, Sex Distinct COI rates are the rates that Metropolitan
charges in Individual Executive Pooled Policies which are selected by the
Guaranteed Issue Underwriting procedure and are filed with the state Insurance
Departments. The Corporate Universal Life Product is one of those policies
included in this pool. Any changes in these rates are required to be filed with
the state Insurance Departments and must be justifiable in terms of experience
of the Guaranteed Issue mortality pool. Therefore, the insured employees of this
Policy join the mortality pool which is the aggregate of all insured executives
who are selected by the Guaranteed Issue Underwriting procedure. The future
determination of the COI of this pool is by the mortality experience of the pool
in total and is not by the mortality experience of each case or a subgroup of
insured lives of the pool. Any changes in these rates must apply to all policies
which are charged the Guaranteed Issue COI rates, including the Policy.

Upon reasonable notice from Policyholder, Metropolitan will develop COI charges,
retention and retrospective deductions based on the demographics of insured
lives in the plan at that time.

The guaranteed maximum COI will never exceed those based on the 1980 CSO Table
(Table A for males and Table G for females).

Enhanced Policy Administration
- -------------------------------

At Policyholder's request, Carrier will provide enhanced administrative services
with respect to the Policy. Such services will include:

A.       Program Analysis

         1.       Prepare feasibility studies and recommendations of various
                  funding level alternatives.

         2.       Provide financial analysis of the program.

B.       Program Establishment

         1.       Provide specimen documents to and reviewing specimen documents
                  with Policyholder's legal counsel and auditors.

                                      - 3 -



         2.       Prepare financial projections and, where applicable, proxy
                  statement text with respect to the program.

         3.       Coordinate and establish program implementation and
                  administration, and set up records and other systems for the
                  program.

         4.       Process section 1035 exchange.

C.       Program Documentation. Provide program documentation, including:

         1.       Program explanation (including original assumptions).

         2.       Insurance schedule.

         3.       Funding assumptions and corporate composite projections.

         4.       Participant census.

         5.       Individual participant information.

         6.       Definition of Payment procedures.

                  a.       Premiums

                  b.       Death benefits.

                  c.       Withdrawals/surrenders.

                  d.       Loans

D.       Program Servicing

         1.       Provide periodic reports on program and policy financial
                  status.

         2.       Provide information for possible program modifications.

         3.       Provide ongoing program coordination.

         4.       Compile updated program data with assistance from
                  Policyholder.

                  a.       New participants

                  b.       Terminations

                  c.       Retirees

                  d.       Deaths

         5.       Determine current and ongoing folding requirements.

                                      - 4 -



         6.       Assist with enrollment of new participants.

         7.       Prepare detailed annual reviews of program experience to
                  include:

                  a.       Corporate composite projections

                  b.       Program participant census including insurance amount

         8.       Compile composite billing for program.

         9.       Timely provide assistance to accountants and auditors for
                  reporting program transactions on financial statements and/or
                  tax return and other reports or analyses as reasonably
                  required from time to time by Policyholder.

         10.      Advise the Policyholder of transactions necessary or desirable
                  to meet program goals and commitments.

         11.      Execute quarterly social security sweeps.

         12.      Annually determine and provide to Policyholder the amount of
                  imputed taxable income for each participant.

         13.      Conduct annual performance review.

E.       Performance Criteria

         Carrier's enhanced policy administration will be subject to performance
         criteria mutually agreed by Carrier and Policyholder from time to time.

F.       Termination of Enhanced Policy Administration.

         Policyholder may terminate Carrier's enhanced policy administration at
         any time on written notice.

Policy Expenses
- ----------------

- -        Front End Load Charges

                  1.       State Premium Tax - state premium tax will be handled
                           as a pass-through. Taxes will be assessed based upon
                           the Insureds' state of residence as of the date of
                           issue of the Policy.

                  2.       Policy DAC Tax -1.20%

                                      - 5 -



                  3.       Other Charge - if enhanced policy administration is
                           in effect, a one time set-up charge of $100,000 in
                           the aggregate for all Policies in the program, in the
                           first policy year.

- -        Mortality and Expense (M&E) Charge

                  The M&E risk charge is assessed against the average monthly
                  value of the total policy cash value in all separate accounts
                  and is deducted monthly. The following M&E risk charge is
                  based upon a 4-tier sliding scale and applies for any period
                  when enhanced policy administration is in effect:

                        
First $ 50 million         0.250%
Next  $200 million         0.150%
Next  $250 million         0.125%
Over  $500 million         0.100%



                  Under the foregoing schedule, Carrier will not take into
                  consideration the combined assets in both policies (VEBA Plan
                  and the Split Dollar Plan) for purposes of calculating the
                  monthly M&E expenses for this Policy. Carrier would, however,
                  take the assets under this Policy into consideration when
                  determining the M&E under the VEBA policy.

                  For any period when enhanced policy administration is not in
                  effect, the M&E risk charge is as follows:

                            
First $ 250 million            0.175%
Next  $ 500 million            0.150%
Next  $ 250 million            0.125%
Over  $1000 million            0.100%



                  Under this schedule, Carrier will take into consideration the
                  combined assets on both policies (VEBA Plan and the Split
                  Dollar Plan) in calculating the monthly M&E risk charge for
                  both policies.

- -        Investment Management Fees

                  Investment management fees for each separate account are
                  assessed against the average monthly value of the policy cash
                  value in a separate account. In calculating the monthly fee
                  per separate account Carrier will take into consideration the
                  combined assets in both policies (VEBA Plan and the Split
                  Dollar Plan) which are invested in the same separate
                  account(s). The investment management fees for the current
                  commingled separate accounts can be found in the Offering
                  Memorandum.

                                      - 6 -



- -        Custody and Securities Accounting/Valuation

                  There are no separate charges for these functions for the
                  commingled separate accounts. However, there are pass through
                  charges for these functions for single customer accounts.

- -        Policy Administration Charge

                  Currently, and as illustrated, the Policy Administration
                  Charge is a per insured life charge of $5.00 per month in all
                  policy years. The current charge may be reduced by the Carrier
                  from time to time, and reductions in the Carrier's costs
                  incurred to service the Policy will be commensurately
                  reflected in the current charge. The guaranteed maximum
                  monthly charge for administration is $5.00 per insured.

Changes in Pricing for Other than the Cost of Insurance Charges
- ----------------------------------------------------------------

Carrier will not change the charges or fees related to factors under its
control. Changes based on external factors may be reflected in the Policy.

For purposes of this paragraph, Carrier's profit goals and the contribution of
Specialized Benefit Resources organization to overhead are not external factors.
The external factors that may be reflected include (i) Federal and State
legislation and state insurance statutory and regulatory changes, and (ii) after
the first three policy years, increase in investment management, custody and
securities accounting/valuation charges pertaining to P&G single-customer
accounts by the providers of these services.

Any increase in price due to external factors will be documented and the price
increase, if appropriate, will be only to recover the increased cost of the
Carrier. With respect to any increase in charges pursuant to this section, P&G
may audit the relevant records of Metropolitan pursuant to an appropriate
nondisclosure document.

Governing Law
- --------------

The validity, construction, interpretation, and effect of this memorandum of
understanding and the Policy shall be governed by the laws of the state of Ohio,
without regard to Ohio's choice of law rules.

Changes to this Memorandum
- ---------------------------

Except with respect to changes mandated by state and federal law and as
otherwise specifically provided in this Memorandum or the Policy, this
Memorandum may be changed only by mutual agreement among the affected parties.

                                      - 7 -



NOTICES

Unless and until the parties give written notice otherwise, whenever this
Memorandum provides for notices or consents in writing to be given by one of the
parties hereto to the other, such notices or consent will be given when
addressed and delivered to the following or their successors:

(1)  The Procter & Gamble Company      (2)  Metropolitan Life Insurance Co.
     Global Pensions                        Specialized Benefit Resources
     Two Procter & Gamble Plaza             485B Route One South, Suite 420
     Cincinnati, Ohio 45202-3315            Iselin, New Jersey 08830
     Attn: Clare Clark, Group Manager       Attn: G. Denis Dwyer, Vice President

All such notices or consents must be sent by U.S. Certified Mail, Return Receipt
Requested.

Agreed:

THE PROCTER & GAMBLE COMPANY           METROPOLITAN LIFE INSURANCE COMPANY

By:/s/ C. S. Clark                     By:/s/ [John J. Ryan]
   -------------------------------        -------------------------------
   Group Manager - Global Pensions        [Vice President]
   (Title)                                (Title)

   C. S. Clark                            [John J. Ryan]
   (Print or Type Name)                   (Print or Type Name)

   Dec. 30, 1997                          Dec. 30, 1997
   (Date)                                 (Date)

                                      - 8 -

EX-10.5

                                 EXHIBIT (10-5)



          The Procter & Gamble Deferred Compensation Plan for Directors


                    DEFERRED COMPENSATION PLAN FOR DIRECTORS
                    ----------------------------------------

                           Principal Features of Plan
                           --------------------------

1)       Effective Date - October 1, 1980.
         --------------

2)       Eligibility - All outside Directors.
         -----------

3)       Amounts Available for Deferral - All or part of retainer.
         ------------------------------

4)       Period of Deferral - Until retirement as Director or after Director's
         ------------------
         seventy-first birthday, at option of Director.

5)       Valuation of Deferred Compensation Account - The amounts deferred will
         ------------------------------------------
         earn hypothetical interest compounded monthly from date of deferral
         until December 31 of year prior to year of payment. Interest will be
         payable on the basis of the prime rate in effect at Morgan Guaranty at
         time of crediting.

6)       Payment Options - Lump sum or up to 5 annual installments, paid or
         ---------------
         commencing January 15 of year following year of retirement as Director
         or the January 15 following the Director's 71st birthday, as elected.
         All payments are in cash.

7)       Death of Director - Payment made in lump sum to beneficiary designated
         -----------------
         by Director, or if no designation, to Director's estate.

8)       Administration - Administrator is Secretary of Company.
         --------------

9)       Amendment or Termination - Board of Directors, or Executive Committee
         ------------------------
         of the Board, can amend or terminate at any time so long as vested
         rights are not interfered with.



                          THE PROCTER & GAMBLE COMPANY
                          -----------------------------
                    DEFERRED COMPENSATION PLAN FOR DIRECTORS
                    -----------------------------------------

1.       Name and Purpose - This plan shall be known as The Procter & Gamble
         ----------------

         Company Deferred Compensation Plan for Directors ("Plan"). It is the
         purpose of this Plan to enable certain Directors of The Procter &
         Gamble Company ("Company") to elect to defer some or all of the fees
         which may be payable to the Director for future services to be
         performed by him/her on this Board of Directors or any committee
         thereof.

2.       Eligibility - Any Director of the Company who is not also an employee
         -----------

         of the Company or of a subsidiary of the Company shall be eligible to
         participate in the Plan.

3.       Compensation Eligible for Deferral - Any eligible Director
         ----------------------------------

         ("Participant") may elect to defer receipt of all or a specified
         portion of the compensation (exclusive of expense reimbursements)
         otherwise payable to him/her for serving on the Board of Directors of
         the Company. Such compensation shall be credited to the Participant's
         Deferred Compensation Account described hereafter on the date the
         compensation would otherwise be payable.

4.       Deferred Compensation Account - There shall be established for each
         -----------------------------

         Participant who so elects a Deferred Compensation Account. Interest
         shall be credited to such Account on the last day of each month by
         applying the prime rate of Morgan Guaranty Trust Company of New York
         then in effect to the balance in such Account on the first day of the
         month in question. All interest so credited shall become part of the
         balance of such Account at the close of business on the day of
         crediting.

5.       Value of Deferred Compensation Account - the value of each
         --------------------------------------

         Participant's Deferred Compensation Account will include the
         compensation deferred plus accumulated interest credited to such
         Account to the date of withdrawal. For this purpose, the date of
         withdrawal shall be deemed to be the last day of the month preceding
         payment in accordance with this Plan.

6.       Time of Election of Deferral - An election to defer compensation must
         ----------------------------

         be made prior to the time such compensation is earned. Once made, an
         election shall continue in effect until the end of the Participant's
         service as a Director or until the Company is notified in writing of
         the cancellation of the election, whichever shall occur first.

7.       Manner of Electing Deferral - A Participant may elect to defer
         ---------------------------

         compensation by giving notice to the Secretary of the Company on a form
         provided by it. Such notice shall include:

         A.       The amount or percentage of compensation to be deferred.

         B.       An election of a lump sum payment or a number of annual
                  installments (not to exceed 5) for the payment of the deferred
                  compensation.

         C.       The date of the first installment payment, which shall be
                  either January 15 in the year following the year in which
                  service as a Director terminates or the January 15 following
                  the electing Director's 71st birthday.

8.       Beneficiary Designation - A Participant may, from time to time, furnish
         -----------------------

         a form to the Secretary of the Company designating any person or
         persons to whom payments are to be made if the Participant dies before
         receiving payment of all amounts due hereunder. A beneficiary
         designation form will be effective only after the signed form is filed
         with the Secretary of the Company while the Participant is alive but
         will cancel any beneficiary designation forms signed and filed earlier.



9.       Manner of Payment - No withdrawal may be made from the Participant's
         -----------------

         Deferred Compensation Account except as provided in this section. The
         value of a Participant's Deferred Compensation Account is payable in
         cash in either a lump sum or in annual installments as provided in
         paragraph 7. If annual installments are elected, the amount of each
         payment shall be a fraction of the value of the Participant's Deferred
         Compensation Account as of December 31 of the year preceding payment,
         the numerator of which is 1 and the denominator of which is the total
         number of installments elected minus the number of installments
         previously paid.

         In the event of a Participant's death, the value of his/her Deferred
         Compensation Account (including accrued interest) determined as of the
         date of death shall be paid in cash in a single payment to the
         beneficiary previously designated by the Participant, or to his/her
         estate if no beneficiary has been designated, on the first January 15
         or July 15 following such death or as soon as reasonably possible
         thereafter.

10.      Participant's Rights - The right of any Participant to receive payments
         --------------------

         under the provisions of this Plan shall be unsecured claim against the
         general assets of the Company. The right of a Participant to receive
         payments of deferred compensation as provided in this Plan shall not be
         assigned, transferred, pledged or encumbered or be subject in any
         manner to alienation or anticipation.

11.      Statement of Account - Statements will be sent to Participants during
         --------------------

         January of each year as to the value of their Deferred Compensation
         Accounts as of the end of December of the previous year.

12.      Administration - The Administrator of this Plan shall be the Secretary
         --------------

         of the Company. The Administrator shall have authority to adopt rules
         and regulations for carrying out the Plan and to interpret, construe
         and implement provisions thereof. Decisions by the Administrator as to
         interpretation of the Plan shall be binding and conclusive on all
         affected parties.

13.      Governing Law - The provisions of this Plan shall be interpreted and
         -------------

         construed in accordance with the laws of the State of Ohio.

14.      Amendment and Termination - The Plan shall become effective October 1,
         -------------------------

         1980. It may at any time be amended, modified or terminated by the
         Board of Directors, or the Executive Committee of the Board of
         Directors, of the Company. No amendment, modification or termination
         shall, without the consent of the Participant, adversely affect such
         Participant's rights with respect to amounts theretofore accrued in
         his/her Deferred Compensation Account.

         Attachment



                          THE PROCTER & GAMBLE COMPANY
                          -----------------------------
                    DEFERRED COMPENSATION PLAN FOR DIRECTORS
                    -----------------------------------------

To: The Procter & Gamble Company

In accordance with the provisions of The Procter & Gamble Company Deferred
compensation Plan for Directors, I hereby elect to defer future compensation
(excluding expense reimbursements) otherwise payable to me for services as a
Director of The Procter & Gamble Company. This election shall remain in effect
until cancelled by me in writing delivered to the Secretary of the Company.

Amount of Deferral (fill in one):

             $___________________________    (amount per year)

                      or

             ___________________________     (percentage per year -- up to 100%)

             _____
             _____    Retainer Fee

The compensation deferred is to be paid to me in cash in______
(insert number not to exceed five) annual installments, the first of which is to
be made on (choose one)

             _____
             _____    the January 15 of the calendar year following the year in
                      which my services terminate.

             _____
             _____    the January 15 following_____________________, 19_______
                      (my 71st birthday).

If I die before receiving all of the deferred payments due me, the value of my
deferred compensation account shall be paid in a single payment to the
beneficiary(ies) designated by me, or if no beneficiary(ies) has (have) been
designated, to my estate.

This election is subject to the terms of The Procter & Gamble Company Deferred
Compensation Plan for Directors, adopted September 9, 1980 and on file with the
records of the Company.

Received on the________day                   ___________________________________
of____________________, 19____,              Signature of Director
on behalf of The Procter &
Gamble Company                               Date_______________________________

By_______________________________
          Secretary



                          THE PROCTER & GAMBLE COMPANY
                          ----------------------------
                    DEFERRED COMPENSATION PLAN FOR DIRECTORS
                    -----------------------------------------

In case of my death while a Participant in this Plan, I hereby designate as my
beneficiary(ies) to whom payments shall be made as provided in the Plan:

Name             Relationship             Address            Proportion to Each
- ----             ------------             -------            ------------------

I understand that the above designation(s) shall remain in effect until I give
written notice of change to the Secretary of The Procter & Gamble Company.

         NOTE:

         1.       Many states have laws bearing on beneficiary designations.
                  Participants may desire to consult their advisors before
                  making a designation.

         2.       Write name of beneficiary in full. If a married woman, show
                  her given, maiden and surname; thus, Mary Williamson Smith,
                  not Mrs. John Smith.

         3.       Suggested Beneficiary Designations:

                  Mary Williamson Smith Wife 1 Main Ave., Milwaukee, Wis. 100%
                            or
                  Mary Williamson Smith Wife     "      "         100%
                  If she survives me, otherwise
                  My children, per stirpes*               Equally
                            or

                  My Estate

*This provides that if any of the children should predecease the Participant or
former Participant, that child's share will go to his/her children.

I understand that the value of my Deferred Compensation Account (including
accrued interest) determined as of the date of death will be paid in cash in a
single payment to the beneficiary(ies) designated above in accordance with the
terms of the Plan.

                                         Signature______________________________
                                                     Director

                                         Date Signed____________________________

Acknowledgment:

Received as of_______________________________

Signature____________________________________
         Secretary, The Procter & Gamble Company

This Form should be submitted in duplicate. One copy will be returned for your
records after acknowledgment by the Secretary.

EX-10.6

                                 EXHIBIT (10-6)



          The Procter & Gamble 1993 Non-Employee Directors' Stock Plan




                THE PROCTER & GAMBLE 1993 NON-EMPLOYEE DIRECTORS'
                                   STOCK PLAN
                         (As Amended September 10, 2002)


ARTICLE A -- Purpose.

         The purpose of The Procter & Gamble 1993 Non-Employee Directors' Stock
Plan (hereinafter referred to as the "Plan") is to strengthen the alignment of
interests between non-employee Directors (hereinafter referred to as
"Participants") and the shareholders of The Procter & Gamble Company
(hereinafter referred to as the "Company") through the increased ownership of
shares of the Company's Common Stock. This will be accomplished by allowing
Participants to elect voluntarily to convert a portion or all of their cash fees
for services as a Director into Common Stock, by granting Participants a fixed
value of shares of Common Stock restricted until retirement (hereinafter
referred to as "Retirement Shares") and by granting Participants non-qualified
options to purchase shares of Common Stock (hereinafter referred to as "Stock
Options").

ARTICLE B -- Administration.

         1. The Plan shall be administered by the Compensation Committee
(hereinafter referred to as the "Committee") of the Board of Directors of the
Company (hereinafter referred to as the "Board"), or such other committee as may
be designated by the Board. 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, as amended, 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.

         2. It shall be the duty of the Committee to administer this Plan in
accordance with its provisions and to make such recommendations of amendments or
otherwise as it deems necessary or appropriate. A decision by a majority of the
Committee shall govern all actions of the Committee.

         3. Subject to the express provisions of this Plan, the Committee shall
have authority 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 of the Company, or partly in cash and partly in whole shares of the
Common Stock of the Company, subject to such conditions or restrictions, if any,
as the Committee may determine. The Committee also has the authority to make all
other determinations it deems necessary or advisable for administering this
Plan.

         4. The Committee may establish from time to time such regulations,
provisions, and procedures within the terms of this Plan as, in its opinion, may
be advisable in the administration of this Plan.



         5. The Committee may designate the Secretary of the Company or other
employees of the Company to assist the Committee in the administration of this
Plan and may grant authority to such persons to execute documents on behalf of
the Committee.

ARTICLE C -- Participation.

         Participation in the Plan shall be limited to all non-employee
Directors of the Company.

ARTICLE D -- Limitation on Number of Shares for the Plan.

         The total number of shares of Common Stock of the Company that may be
awarded each year shall not exceed 50,000 shares.

ARTICLE E -- Shares Subject to Use under the Plan.

         Shares of Common Stock to be awarded under the terms of this Plan shall
be treasury shares.

ARTICLE F -- Retirement Shares

         1. On the first business day in January, each Participant shall receive
Retirement Shares with a fair market value of $45,000 on the date of grant.

         2. All shares awarded under this Article shall be valued as set forth
 in Article I.

ARTICLE G -- Stock Options.

         1. The Committee may, from time to time, grant Participants a Stock
Option to purchase shares of Common Stock having an exercise price of one
hundred percent (100%) of the fair market value of the Common Stock on the date
of the grant.

         2. The Stock Options shall have a term of ten (10) years from the date
of grant, subject to earlier termination as provided herein, and shall be
exercisable 100% three (3) years from the date of grant, except in the case of
death, in which case the Stock Options shall be immediately exercisable.

         3. Stock Options are not transferable other than by will or by the laws
of descent and distribution. Legatees, distributees and duly appointed executors
and administrators of the estate of a deceased Participant shall have the right
to exercise such Stock Options at any time prior to the expiration date of the
Stock Options.

         4. If a Participant ceases to be a Director while holding unexercised
Stock Options, such stock options are then void, except in the case of (i)
death, (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 the Participant's
retirement from a principal employer under the terms of an appropriate
retirement plan or (vi) resignation from the Board for reasons of the antitrust
laws or the conflict of interest, corporate governance or continued service
policies.

         5. 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 the Common Stock of the Company to be
valued at their fair market value on the date of exercise, or a combination
thereof.

ARTICLE H -- 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 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 I -- Transfer of Shares.

         1. The Committee may transfer Common Stock of the Company under the
Plan subject to such conditions or restrictions, if any, as the Committee may
determine. The conditions and restrictions may vary from time to time and may be
set forth in agreements between the Company and the Participant or in the awards
of stock to them, all as the Committee determines.

         2. The shares awarded shall be valued at the average of the high and
low quotations for Common Stock of the Company on the New York Stock Exchange on
the day of the transfer to a Participant. All shares awarded shall be full
shares, rounded up to the nearest whole share.

ARTICLE J -- Additional Provisions.

         1. The Board may, at any time, repeal this Plan or may amend it from
time to time except that no such amendment may amend this paragraph, increase
the annual aggregate number of shares subject to this Plan, or alter the persons
eligible to participate in this Plan. The Participants and the Company shall be
bound by any such amendments as of their effective dates, but if any outstanding
awards are affected, notice thereof shall be given to the holders of such awards
and such amendments shall not be applicable to



such holder without his or her written consent. If this Plan is repealed in its
entirety, all theretofore awarded shares subject to conditions or restrictions
transferred pursuant to this Plan shall continue to be subject to such
conditions or restrictions.

         2. Every recipient of shares pursuant to this Plan shall be bound by
the terms and provisions of this Plan and of the transfer of shares agreement
referable thereto, and the acceptance of any transfer of shares pursuant to this
Plan shall constitute a binding agreement between the recipient and the Company.

       3. Notwithstanding anything to the contrary in the this 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 Section 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 11, 2000 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 this 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 Mergerconstitute 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 K -- Duration of Plan.

         This Plan shall be effective as of January 1, 1994. This Plan will
terminate on December 31, 2003 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 this Plan of the Company or of anyone to whom shares have
been transferred prior to such termination.








Plan adopted November 9, 1993
Plan approved by shareholders on October 11, 1994
Plan Amended January 10, 1995
Plan Amended June 11, 1996
Adjusted for August 22, 1997 stock split
Plan amended January 12, 1999
Plan amended July 11, 2000
Plan amended December 12, 2000
Plan amended December 11, 2001
Plan amended September 10, 2002

EX-10.7

                                 EXHIBIT (10-7)



             The Procter & Gamble 1992 Stock Plan (Belgian Version)


             THE PROCTER & GAMBLE 1992 STOCK PLAN (BELGIAN VERSION)
                         (as amended December 11, 2001)

        1,000,000 Shares of Common Stock of The Procter & Gamble Company

                                       and

   1,000,000 Options to Purchase Common Stock of The Procter & Gamble Company

ARTICLE A -- Purpose.

         The purpose of The Procter & Gamble 1992 Stock Plan (Belgian Version)
(hereinafter referred to as the "Plan") is to encourage those employees of The
Procter & Gamble Company (hereinafter referred to as the "Company") and its
subsidiaries who are largely responsible for the long-term success and
development of the business to strengthen the alignment of interests between
employees and the Company's shareholders through the increased ownership of
shares of the Company's Common Stock, and to encourage those employees to remain
in the employ of the Company and its subsidiaries. This will be accomplished
through the granting or sale to employees of options to purchase shares of the
Common Stock of the Company, payment of a portion of the employees' remuneration
in shares of the Common Stock, and the granting to them by the Company and a
subsidiary, if appropriate, of deferred awards related to the increase in the
price of the Common Stock of the Company as provided by the terms and conditions
set forth in the Plan.

ARTICLE B -- Administration.

         1.       The Plan shall be administered by the Compensation Committee
(hereinafter referred to as the "Committee") of the Board of Directors of the
Company (hereinafter referred to as the "Board"), or such other committee as may
be designated by the Board. The Committee shall consist of not less than three
(3) members of the Board who are neither officers nor employees, or members of
the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (hereinafter referred to as 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.

         2.       It shall be the duty of the Committee to administer this Plan
in accordance with its provisions, to report thereon not less than once each
year to the Board and to make such recommendations of amendments or otherwise as
it deem necessary or appropriate. A decision by a majority of the Committee
shall govern all actions of the Committee.

         3.       Subject to the express provisions of this Plan, the Committee
shall have authority: to grant or offer for sale nonstatutory and incentive
stock options; to grant to recipients stock appreciation rights either
freestanding, in tandem with simultaneously granted or sold stock options, or in
parallel with simultaneously granted or sold stock options; to award a portion
of a recipient's remuneration in shares of Common Stock of the Company subject
to such conditions or restrictions, if any, as the Committee may determine; to
determine all the terms and provisions of the respective stock option, stock
appreciation right, and stock 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; and to make all other
determinations it deems necessary or advisable for administering this Plan;
provided, however, the Committee shall have the further authority at time of
grant 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) and (b); and



         (d)      impose conditions in lieu of those set forth in Article G,
                  paragraphs 4 through 7, for nonstatutory stock options, stock
                  appreciation rights, and stock award grants which do not
                  increase or extend the rights of the recipient,

to take into consideration the differences, limitations, and requirements of
non-United States laws or conditions including tax regulations, exchange
controls or investment restrictions, possible unenforceability of any part of
this Plan, or other matters deemed appropriate by it.

         4.       The Committee may establish from time to time such
regulations, provisions, and procedures within the terms of this Plan as, in its
opinion, may be advisable in the administration of this Plan.

         5.       The Committee may designate the Secretary of the Company or
other employees of the Company to assist the Committee in the administration of
this Plan and may grant authority to such persons to execute documents on behalf
of the Committee.

ARTICLE C -- Participation.

         The Committee shall select 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 and
shall determine the number of shares of the Common Stock of the Company to be
transferred under this Plan subject to such conditions or restrictions as the
Committee may determine and the number of shares with respect to which stock
options or stock appreciation rights will be granted or sold. The Committee may
consult with the Chief Executive, but nevertheless the Committee has the full
authority to act, and the Committee's actions shall be final.

ARTICLE D -- Limitation on number of shares for the plan.

         1.       Unless otherwise authorized by the shareholders, the maximum
aggregate number of shares available for award under this Plan for each calendar
year the Plan is in effect, when combined with the maximum aggregate number of
shares available for award under The Procter & Gamble 1992 Stock Plan in such
calendar year, shall be one percent (1%) of the total issued shares of Common
Stock of the Company as of June 30 of the immediately preceding fiscal year.

         2.       Any of the authorized shares may be used in respect of any of
the types of awards described in this Plan, except that no more than twenty-five
percent (25%) of the authorized shares in any calendar year may be issued as
restricted or unrestricted stock and no more than 1,000,000 of the authorized
shares during the term of the Plan may be issued as incentive stock options.

         3.       Any authorized shares not used in a calendar year shall be
available for awards under this Plan in succeeding calendar years.

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 either authorized but
unissued shares or treasury shares, as determined by the Board. 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 this Plan, restricted or unrestricted stock
awarded under the terms of this Plan shall be authorized but unissued shares,
treasury shares, or shares acquired for purposes of the Plan 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 or sale of stock options or
stock appreciation rights under the terms of this Plan, the recipient agrees as
follows:

         (a)      The right to exercise any stock option or stock appreciation
                  right shall be conditional upon certification by the recipient
                  at time of exercise that the recipient intends to remain in
                  the employ of the Company or one of its subsidiaries (except
                  in cases of retirement, disability or Special Separation as
                  defined in section 6 of Article G) for at least one (1) year
                  following the date of the exercise of the stock option or
                  stock appreciation right, 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
                  it subsidiaries' trade secrets and confidential information
                  and thereby help insure the long-term success of the business,
                  the recipient, 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 recipient'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 recipient, as a consequence of the
                  recipient's employment with the Company or one of its
                  subsidiaries, to be in development):

                  (1)      with respect to which the recipient'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
                           recipient, as a consequence of the recipient's job
                           performance and duties, acquired knowledge of trade
                           secrets or other confidential information of the
                           Company or its subsidiaries.

                  For purposes of this section, it shall be conclusively
                  presumed that recipients 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 recipient (which
                  recipient hereby acknowledges) to not use or disclose the
                  Company's or its subsidiaries' trade secrets and confidential
                  information known to the recipient until any particular trade
                  secret or confidential information become generally known
                  (through no fault of the recipient), 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 recipients 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 or sold under the terms of this
                  Plan, the recipient acknowledges that if the recipient 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 recipient from doing so.


                  The recipient 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 recipient 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 recipient, 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 recipient's acceptance of an offer
                  of the granting or sale 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 recipient 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 an employee has been granted or sold a stock
option or a stock appreciation right under this Plan shall not limit the right
of the employer to terminate the recipient's employment at any time. The
Committee is authorized to suspend or terminate any outstanding stock option or
stock appreciation right for actions taken prior to termination of employment if
the Committee determines the recipient has acted significantly contrary to the
best interests of the Company.

         3.       More than one stock option or stock appreciation right may be
granted or sold to any employee under this Plan but the maximum number of shares
with respect to which stock options or stock appreciation rights may be granted
or sold to any employee in any calendar year shall not exceed five percent (5%)
of the number of shares which can be issued or transferred annually hereunder,
when combined with the maximum aggregate number of shares available for award
under The Procter & Gamble 1992 Stock Plan in such calendar year.

         4.       The aggregate fair market value (determined at the time when
the incentive stock option is exercisable for the first time by an employee
during any calendar year) of the shares for which any employee may be granted or
sold incentive stock options under this 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 or sells 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 or sold in tandem with
or parallel to 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 or parallel 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 or, in the case of stock options to be sold, at the time of offer of such
stock options for sale, and shall be not less than one hundred percent (100%) of
the fair market value of the Common Stock of the Company on such date.

ARTICLE G -- Exercise of stock options and stock appreciation rights.



         1.       All stock options and stock appreciation rights granted or
sold hereunder shall have a maximum life of no more than fifteen (15) years from
the date of grant or, in the case of stock options to be sold, from the date of
the offer of such options for sale.

         2.       No stock options or stock appreciation rights shall be
exercisable within one (1) year from their date of grant or, in the case of
stock options to be sold, from the date of the offer of such options for sale,
except in the case of the death of the recipient.

         3.       During the lifetime of the recipient, stock options and stock
appreciation rights may be exercised only by the recipient personally, or, in
the event of the legal incompetence of the recipient, by the recipient's duly
appointed legal guardian.

         4.       In case a recipient of stock options or stock appreciation
rights 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 recipient; (2) any Special
                  Separation (as defined in section 6 of this Article G) that
                  occurs more than six months from the date the options were
                  granted or, in the case of stock options to be sold, from the
                  date of the offer of such options for sale; or (3) any option
                  as to which the Committee has waived, at the time of grant or,
                  in the case of stock options to be sold, at the time of the
                  offer of such options for sale, the provisions of this Article
                  G, paragraph 4(a) pursuant to the authority granted by Article
                  B, paragraph 3.

         (b)      Any exercisable portions thereof are then void, except in the
                  case of death, retirement in accordance with the provisions of
                  any appropriate profit sharing or retirement plan of the
                  Company or any of its subsidiaries, Special Separation (as
                  defined in section 6 of this Article G) of the recipient, or
                  any option as to which the Committee has waived, at the time
                  of grant or, in the case of stock options to be sold, at the
                  time of offer of such options for sale, the provisions of this
                  Article G, paragraph 4(b) pursuant to the authority granted by
                  Article B, paragraph 3.

         5.       In the case of the death of a recipient of stock options or
stock appreciation rights while an employee of the Company or any of its
subsidiaries, 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
employee, at any time prior to the expiration date of the stock options or stock
appreciation rights.

         6.       Termination of employment under the permanent disability
provision of any appropriate profit sharing or retirement plan of the Company or
any of its subsidiaries shall be deemed the same as retirement. Special
Separation means any termination of employment, except a termination for cause
or a voluntary resignation that is not initiated or encouraged by the Company,
that occurs prior to the time a recipient is eligible to retire. The death of a
recipient of stock options or stock appreciation rights subsequent to retirement
or Special Separation shall not render exercisable stock options or stock
appreciation rights which were unexercisable at the time of the retirement or
Special Separation. The persons to whom the exercisable stock options or stock
appreciation rights have been transferred by will or the laws of descent and
distribution shall have the privilege of exercising such remaining stock
options, stock appreciation rights or parts thereof, at any time prior to the
expiration date of the stock options or stock appreciation rights.

         7.       Stock options and stock appreciation rights are not
transferable other than by will or by the laws of descent and distribution and
they may not be assigned or hypothecated. For the purpose of exercising stock
options or stock appreciation rights after the death of the recipient, the duly
appointed executors and administrators of the estate of the deceased recipient
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 recipient's estate.

         8.       Upon the exercise of stock appreciation rights, the recipient
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 the Common Stock of the Company 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 of the Company 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. The number of shares with respect to which stock
appreciation rights are being exercised shall not be available for granting or
selling future stock options or stock appreciation rights under this Plan.

         9.       The Committee may, in its sole discretion, permit a stock
option which is being exercised either (a) by an optionee whose retirement is
imminent or who has retired or (b) after the death of the optionee, to be
surrendered, in lieu of exercise, for an amount equal to the difference between
the stock option exercise price and the fair market value of shares of the
Common Stock of the Company on the day the stock option is surrendered, payment
to be made in shares of the Company's Common Stock which are subject to this
Plan valued at their fair market value on such date, cash, or a combination
thereof, in such proportion and upon such terms and conditions as shall be
determined by the Committee. The difference between the number of shares subject
to stock options so surrendered and the number of shares, if any, issued upon
such surrender shall represent shares which shall not be available for granting
or selling future stock options under this Plan.

         10.      Time spent on leave of absence shall be considered as
employment for the purposes of this 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.

         11.      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 it 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.

ARTICLE H -- Payment for stock options.

         Upon the exercise of a stock option, payment in full of the exercise
price shall be made by the optionee. As determined by the Committee, the stock
option exercise price may be paid for by the optionee either in cash, shares of
the Common Stock of the Company to be valued at their fair market value on the
date of exercise, a combination thereof, or such other method as determined by
the Committee.

ARTICLE I -- Transfer of shares.

         1.       The Committee may transfer Common Stock of the Company under
the Plan subject to such conditions or restrictions, if any, as the Committee
may determine. The conditions and restrictions may vary from time to time and
with respect to particular employees or group of employees and may be set forth
in agreements between the Company and the employee or in the awards of stock to
them, all as the Committee determines. It is contemplated that the conditions
and restrictions established by the Committee will be consistent with the
objectives of this Plan and may be of the following types. In giving these
examples, it is not intended to restrict the Committee's authority to impose
other restrictions or conditions, or to waive restrictions or conditions under
circumstances deemed by the Committee to be appropriate and not contrary to the
best interests of the Company.



         (a)      Restrictions

                  The employee will not be able to sell, pledge, or dispose of
                  the shares during a specified period except in accordance with
                  the agreement or award. Such restrictions will lapse either
                  after a period of, for example, five years, or in fifteen or
                  fewer annual installments following retirement or termination
                  of employment, as the Committee from time to time may
                  determine. However, upon the transfer of shares subject to
                  restrictions, an employee will have all incidents of ownership
                  in the shares, including the right to dividends (unless
                  otherwise restricted by the Committee), to vote the shares,
                  and to make gifts of them to family members (still subject to
                  the restrictions).

         (b)      Lapse of Restrictions

                  In order to have the restrictions lapse, an employee may be
                  required to continue in the employ of the Company or a
                  subsidiary for a prescribed period of time. Exemption from
                  this requirement may be prescribed in the case of death,
                  disability, or retirement, or as otherwise prescribed by the
                  Committee.

ARTICLE J -- 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 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 K -- Additional provisions.

         1.       The Board may, at any time, repeal this Plan or may amend it
from time to time. The recipient of awards under this Plan 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 affected, notice
thereof shall be given to the holders of such stock options and stock
appreciation rights and such amendments shall not be applicable to such holder
without his or her written consent. If this Plan is repealed in its entirety,
all theretofore granted or sold unexercised stock options or stock appreciation
rights shall continue to be exercisable in accordance with their terms and
shares subject to conditions or restrictions transferred pursuant to this Plan
shall continue to be subject to such conditions or restrictions.

         2.       In the case of an employee of a subsidiary company,
performance under this Plan, including the transfer of shares of the Company,
may be by the subsidiary. Nothing in this 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 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 this Plan except as to such shares, if any, as shall
have been granted, sold or transferred to him or her. Nothing in this Plan shall
preclude the issuance, sale or transfer 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 greater than fifty
percent (50%) of the total combined voting power of all classes of stock is
owned, directly or indirectly, by the Company. In addition, the Board may
designate for participation in this Plan as a "subsidiary," except for the
granting or selling of incentive stock options, those additional companies
affiliated with the Company in which the Company's direct or indirect stock
ownership is less than fifty percent (50%) of the total combined voting power of
all classes of such company's stock.



ARTICLE L -- Consent.

         Every recipient of a stock option, stock appreciation right, or
transfer of shares pursuant to this Plan shall be bound by the terms and
provisions of this Plan and of the stock option, stock appreciation right, or
transfer of shares agreement referable thereto, and the acceptance of any stock
option, stock appreciation right, or transfer of shares pursuant to this Plan
shall constitute a binding agreement between the recipient and the Company and
its subsidiaries and any successors in interest to any of them. This Plan shall
be governed by and construed in accordance with the laws of the State of Ohio,
United States of America.

ARTICLE M -- Duration of plan.

         This Plan will terminate on July 14, 2002 unless a different
termination date is fixed by action of the Board of Directors, but no such
termination shall affect the prior rights under this Plan of the Company (or any
subsidiary) or of anyone to whom stock options or stock appreciation rights were
granted or sold prior thereto or to whom shares have been transferred prior to
such termination.



                             ADDITIONAL INFORMATION


1.       Stock Options Offered for Purchase

         Stock options may be offered for purchase at a price of one dollar
($U.S. 1.00) per option (the "Purchased Stock Options"). Participants must pay
for any Purchased Stock Option within sixty (60) days after the date of
acceptance established by the Committee for such Purchased Stock Option by
delivering cash or a check to the Company or its applicable subsidiary. Each
Purchased Stock Option represents the right to acquire one share of Common Stock
upon the exercise of such Purchased Stock Option. The number of stock options,
whether Purchased Stock Options or otherwise, issued by the Company and
outstanding as of January 31, 1997 is 30,884,517. The Purchased Stock Options
are not listed on an exchange. For such Purchased Stock Options, the Committee,
pursuant to authority granted by Article B, paragraph 3 of the Plan, has waived
the conditions and restrictions of paragraphs 4(a) and (b) of Article G as
follows: the Purchased Stock Options will remain exercisable for up to one (1)
month following any termination of employment; provided that if termination of
employment occurs as a result of death, retirement or Special Separation, the
stock option will remain exercisable for its full term until its date of
expiration.

         There is no guarantee that the price of the common stock will exceed
the exercise price of any purchased stock option, in which case such purchased
stock option would have no value.

2.       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.

3.       U.S. Tax Treatment For U.S. Persons

         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 sale 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.

4.       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.

5.       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, 2001;

         2.       The Company's Quarterly Reports on Form 10-Q for the quarter
                  ended September 30, 2001;

         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. Ashely, Manager, Shareholder Services,
The Procter & Gamble Company, P.O. Box 5572, Cincinnati, Ohio 45201, (513)
983-3413.

6.       Additional Information

         Additional information about the Plan and its administrators may be
obtained from Mr. Terry L. Overbey, Secretary, The Procter & Gamble Company, One
Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-4463.

EX-10.8

                                 EXHIBIT (10-8)



                     The Procter & Gamble Future Shares Plan




THE PROCTER & GAMBLE FUTURE SHARES PLAN

CONTENTS



                                                                                                    
Article 1. Establishment, Objectives, and Duration                                                       1

Article 2. Definitions                                                                                   1

Article 3. Administration                                                                                3

Article 4. Shares Subject to the Plan                                                                    3

Article 5. Eligibility and Participation                                                                 4

Article 6. Awards                                                                                        4

Article 7. General Provisions                                                                            6




THE PROCTER & GAMBLE FUTURE SHARES PLAN

ARTICLE 1. Establishment, Objectives, and Duration

        1.1 Establishment of the Plan. The Procter & Gamble Company, an Ohio
corporation (hereinafter referred to as the "Company"), hereby establishes a
worldwide stock option plan to be known as "The Procter & Gamble Future Shares
Plan" (hereinafter referred to as the "Plan"), as set forth herein.

        1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company by giving substantially all employees a stake in the Company's future
growth and success, to increase employee focus on the Company's stock price, to
strengthen the alignment of interests between employees and the Company's
shareholders through the increased ownership of shares of the Company's common
stock, and to encourage employees to remain in the employ of the Company and its
Affiliates.

        1.3 Duration of the Plan. The Plan shall become effective as of October
14, 1997 (the "Effective Date"). The Plan shall terminate on October 13, 2007.
No Award may be granted after the termination date of the Plan, but Awards
theretofore granted shall continue in force beyond that date pursuant to their
terms.

ARTICLE 2. Definitions

         Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:

        2.1     "Affiliate" means any entity in which the Company has an
                ownership interest of fifty percent (50%) or more.

        2.2     "Award" means a grant of an Option, a Modified Option, an SAR,
                or a Modified SAR under the Plan.

        2.3     "Board" or "Board of Directors" means the Board of Directors of
                the Company.

        2.4     "Code" means the Internal Revenue Code of 1986 and the
                regulations thereunder, as amended from time to time.

        2.5     "Committee" means the Compensation Committee of the Board or
                such other committee appointed by the Board to administer the
                Plan.

        2.6     "Common Stock" means the common stock, without par value, of the
                Company.

        2.7     "Company" means The Procter & Gamble Company, an Ohio
                corporation, and any successor thereto.

        2.8     "Disability" or "Disabled" shall mean qualifying for benefits
                under a long-term disability pay plan maintained by the Company
                or any Affiliate, or as required by or



                available under applicable local law, or in the absence of any
                such plan or local law, as determined by the Committee.

        2.9     "Employee" means a full- or part-time employee on the regular
                payroll of the Company or any Affiliate as of the Grant Date of
                an Award. For purposes of this definition, "on the regular
                payroll" shall mean paid through the payroll department of the
                Company or an Affiliate (or, if there is no such payroll
                department, classified as a regular employee on the Company's or
                Affiliate's employment records), and shall exclude individuals
                classified by the Company or Affiliate as intermittent or
                temporary, or as independent contractors, regardless of how such
                person may be classified by any federal, state, or local,
                domestic or foreign, government agency or instrumentality
                thereof, or court. An individual whose only relationship to the
                Company or an Affiliate is that of a temporary employee (except
                regular employees on temporary assignment from another unit) or
                leased employee (as defined in Section 414(n)(2) of the Code)
                shall not be an Employee unless determined otherwise by the
                Committee at its sole discretion. The determination of whether
                an individual is an "employee on the regular payroll" shall be
                made solely according to the method of paying the individual for
                services, and such determination shall be within the discretion
                of the Committee.

        2.10    "Fair Market Value" means, unless determined otherwise by the
                Committee, the average of the high and low prices of a share of
                Common Stock on the New York Stock Exchange on the date of
                measurement as determined by the Committee, and if there were no
                trades on such date, on the day on which a trade occurred next
                preceding such date, or as otherwise determined by the
                Committee.

        2.11    "Grant Date" means such date, as determined by the Committee,
                upon which Awards are granted to Participants pursuant to the
                terms of this Plan.

        2.12    "Modified Option" means an Option that must be exercised on the
                fifth anniversary of the Grant Date or forfeited.

        2.13    "Modified SAR" means an SAR that must be exercised on the fifth
                anniversary of the Grant Date or forfeited.

        2.14    "Option" means a right to purchase a specified number of shares
                of Common Stock at the Option Price, which is not intended to
                qualify under Code Section 422 as an Incentive Stock Option,
                except as otherwise provided in Section 6.1(k).

        2.15    "Option Price" means the price at which a share of Common Stock
                may be purchased by a Participant pursuant to an Option or a
                Modified Option.

        2.16    "Participant" means an Employee who has been selected by the
                Committee in its sole discretion to receive an Award or who has
                outstanding an Award granted under the Plan.




         2.17     "Retirement" means, strictly for purposes of this Plan, the
                  termination of employment on or after the date the Participant
                  has attained age fifty-five (55), except as otherwise
                  determined by the Committee.

         2.18     "SAR" means an Award pursuant to which the Participant
                  receives a right to a cash settlement payment upon exercise
                  equal to the excess of the Fair Market Value of one share of
                  Common Stock on the date of exercise over the Fair Market
                  Value of one share of Common Stock on the Grant Date of the
                  SAR, multiplied by the number of SARs granted.

         2.19     "Special Separation" means any termination of employment,
                  except a termination for cause or a voluntary resignation that
                  is not initiated or encouraged by the Company, that occurs
                  prior to the time a recipient is eligible to retire.

         2.20     "Spread Value" means the excess of the Fair Market Value of
                  one share of Common Stock on the date of exercise over the
                  Fair Market Value of one share of Common Stock on the Grant
                  Date, multiplied by the number of shares of Common Stock
                  underlying the Award.

ARTICLE 3. Administration
         The Plan and all Awards granted pursuant thereto shall be administered
by the Compensation Committee of the Board. The Committee may, from time to
time, adopt rules and regulations for carrying out the provisions and purposes
of the Plan. The Committee, in its absolute discretion, shall have the power to
interpret and construe the Plan; provided, however, that the Committee may
designate persons other than members of the Committee to carry out such
responsibilities of the Committee under the Plan as it may deem appropriate. Any
interpretation of construction of any provision of this Plan by the Committee
shall be final and conclusive upon all parties. No member of the Committee or
the Board shall be liable for any action or determination made hereunder in good
faith.

ARTICLE 4. Shares Subject to the Plan

        4.1 Number of Shares Available for Options. The number of shares of
Common Stock available with respect to all Awards granted under the Plan shall
not exceed seventeen million (17,000,000) in the aggregate, subject to
adjustment under Section 4.2 herein. The shares of Common Stock subject to the
Plan shall consist of either authorized but unissued shares or treasury shares,
as determined by the Committee. Notwithstanding any terms or conditions
contained herein, the shares to be delivered by the Company upon exercise of an
Award by a Participant located in Italy shall be authorized but unissued shares.

        4.2 Changes in Capitalization. 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 shareholders, appropriate adjustments and
changes shall be made by the Committee to the extent necessary to prevent
dilution or enlargement of rights under the Plan in (a) the aggregate number of
shares of Common Stock subject to the Plan; (b) the number of shares of Common
Stock for which Awards may be granted or awarded to any Participant; (c) the



number of shares and the Option Price per share of all shares of Common Stock
subject to outstanding Options or Modified Options, as applicable; (d) the
number of SARs or Modified SARs subject to an Award and the Fair Market Value of
a share of Common Stock for purposes of determining the cash settlement payment
on exercise of an SAR or Modified SAR, as applicable; and (e) such other
provisions of the Plan as may be necessary and equitable to carry out the
foregoing purposes.

ARTICLE 5. Eligibility and Participation
         An Award may be granted by the Committee, in its discretion, to an
Employee who is actively employed by the Company or any Affiliate on the Grant
Date. The granting of Awards under the terms of this Plan is made at the sole
discretion of the Committee and does not entitle a Participant to receive future
Awards. The adoption of this Plan shall not be deemed to give any Participant
any right to be granted an Award, except to the extent as may be determined by
the Committee.

ARTICLE 6. Awards
         6.1 Awards. The Award to each Participant under the Plan shall consist
of either Options, Modified Options, SARs, or Modified SARs. The Committee shall
determine (i) the number of shares of Common Stock to be covered by each Award;
(ii) the terms and conditions of the Awards (including, but not limited to,
restrictions upon the Awards, when Awards are first exercisable and the period
of exercise, conditions of their exercise, requirements regarding payment of the
exercise price, withholding requirements and restrictions on the shares of
Common Stock issuable upon the exercise thereof); and (iii) the form of the
instruments necessary or advisable in the administration of the Awards.

                (a) Term of Award. The term of each Award shall be no more than
        ten (10) years from the Grant Date, except as provided in Section
        6.1(k).

                (b) Option Price. With respect to an Option or Modified Option,
        the Option Price shall be not less than the Fair Market Value of the
        Common Stock on the Grant Date.

                (c) Exercise and Limitations on Exercise. Except as otherwise
        provided for herein, if a Participant has been in the continuous employ
        of the Company through the fifth anniversary of the Grant Date, at any
        time on or after the fifth anniversary of the Grant Date, but in no
        event later than the tenth anniversary of the Grant Date (except as
        provided in Section 6.1(j)), the Participant may exercise the Award, and
        purchase the number of shares of Common Stock covered by the Option (or
        Modified Option if the Award is exercised on the fifth anniversary of
        the Grant Date), or receive the cash settlement payment with respect to
        the SAR (or Modified SAR if the Award is exercised on the fifth
        anniversary of the Grant Date), as applicable. An Award must be
        exercised for the full number of shares of Common Stock covered by the
        Option or Modified Option, or for the entire cash settlement payment
        with respect to the SAR or Modified SAR, as applicable. Notwithstanding
        the foregoing, stock options and stock appreciation rights granted
        hereunder shall vest immediately upon a "Change in Control." A "Change
        in Control" shall mean the occurrence of any of the following:

                (i) 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 Section 6.1(c), 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);

                (ii) The individuals who, as of July 11, 2000 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 this 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

                (iii) The consummation of:

                        (A)     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:

                                (1)     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;

                                (2)     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



                                (3)     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 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;

                        (b)     A complete liquidation or dissolution of the
        Company; or

                        (c)     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.

        (d)     Termination of Employment Generally.

                  (i)     If a Participant's employment is terminated on or
         after the fifth anniversary of the Grant Date, for any reason other
         than death, Disability, Retirement, or Special Separation the Award
         shall be exercisable only for thirty (30) calendar days following such
         termination, and only to the extent such Award was exercisable on the
         date of such termination, except as may be otherwise determined by the
         Committee. In no event, however, may an Award be exercised more than
         ten (10) years after the Grant Date, except as provided in Section
         6.1(k). If a Participant's employment is terminated prior to the fifth
         anniversary of the Grant Date, for any reason other than death,
         Disability, Retirement, or Special Separation, each Award granted to
         such Participant shall be immediately canceled and the Participant
         shall forfeit the Award upon such termination of employment.

                  (ii)    Neither the Company nor the Committee shall have any
         obligation to notify a Participant of the expiration of an Award.

                  (iii)   Unless the Committee shall determine otherwise, a
         Participant employed by an Affiliate or business unit of the Company
         that is sold or otherwise divested from the



        Company shall be considered to have his or her employment terminated as
        of the effective date of the divestiture.

        (e)       Termination of Employment Due to Disability or Retirement.

                  (i) If prior to the fifth anniversary of the Grant Date a
        Participant's employment is terminated due to Disability or Retirement,
        the Award may be exercised on or after the fifth anniversary of the
        Grant Date, but in no event may such an Award be exercised more than ten
        (10) years after the Grant Date, except as provided in Section 6.1(k).
        If a Participant's employment is terminated due to Disability or
        Retirement on or after the fifth anniversary of the Grant Date, the
        Award may be exercised, to the extent such Award was exercisable on the
        date of such termination, within the remaining period of the Award.

                  (ii) Notwithstanding the above and except for Participants
        located in Italy, the Committee reserves the discretionary ability to
        substitute an immediate cash payment equal to the Spread Value of the
        Award in full satisfaction of the Award, in the event of a termination
        of employment due to Disability or Retirement to the extent such payment
        is permitted by law.

        (f)       Termination of Employment Due to Special Separation.

                  (i) If a Participant's employment is terminated due to Special
        Separation (except for Participants located in Italy), the Participant
        will receive an immediate cash payment equal to the Spread Value of the
        Award in full satisfaction of the Award, to the extent permitted by law.

                  (ii) Notwithstanding the above, the Committee reserves the
        discretionary ability to waive the above cash payment provision and: (1)
        for terminations of employment due to Special Separation prior to the
        fifth anniversary of the Grant Date, specify that the Award may be
        exercised on or after the fifth anniversary of the Grant Date, but in no
        event may such an Award be exercised more than ten (10) years after the
        Grant Date, except as provided in Section 6.1(k); and (2) for
        terminations of employment due to Special Separation on or after the
        fifth anniversary of the Grant Date, specify that the Award may be
        exercised, to the extent such Award was exercisable on the date of such
        termination, within the remaining period of the Award.

        (g) Death of a Participant. Upon the death of a Participant, while an
        Award is still outstanding, regardless of whether the Award is or is not
        exercisable, a cash payment equal to the Spread Value of the Award, as
        of the date of the Participant's death, shall be paid as soon as
        administratively practicable to the Participant's estate, in full
        satisfaction of the Award. Notwithstanding the above, upon the death of
        a Participant located in Italy, the outstanding Award granted to such
        Participant shall be (i) immediately canceled if the death occurs prior
        to the fifth anniversary of the Grant Date, or (ii) exercisable by the
        executors, administrators or heirs of the deceased Participant only for
        six (6) months following such death if the death occurs on or after the
        fifth anniversary of the Grant Date.



        (h) Nontransferability. Awards are not transferable and may only be
        exercised by the Participant.

        (i) Exercise; Notice Thereof. Awards shall be exercised by delivering
        written notice of intention to exercise the Award, pursuant to such
        terms and conditions as may be determined by the Committee. The
        Committee shall have the authority to establish procedures under any or
        all methods of exercise, including the designation of the brokerage firm
        or firms through which exercises may be effected, which need not be the
        same for each grant or for each Participant. The Committee shall have
        the authority to change without notice any method of exercise for any
        reason whatsoever, notwithstanding the fact that the method of exercise
        had been available to Participants in the past.

        (j) Rights as Shareholder. A Participant shall have none of the rights
        of a shareholder with respect to shares of Common Stock covered by any
        Award until the Participant becomes the record holder of such shares as
        determined by the records of the Company's transfer agent.

        (k) Additional Terms. With respect to any Award, the Committee may, in
        its discretion: (i) determine which Affiliates will be covered by the
        Plan; (ii) determine which Employees are eligible to participate in the
        Plan; (iii) modify or restrict any of the terms and conditions of any
        Awards including but not limited to extending the term of an Award
        beyond ten (10) years; (iv) modify or restrict exercise procedures and
        any other Plan procedures; (v) establish local country plans as subplans
        to this Plan, each of which may be attached as an Appendix hereto; and
        (vi) take any action, before or after an Award is made, which it deems
        advisable to obtain or comply with any necessary local government
        regulatory exemptions or approvals; provided that the Committee may not
        take any action hereunder which would (1) increase the number of shares
        of Common Stock covered by the Plan; or (2) violate any securities law,
        the Code, or any governing statute.

        (l) Stock Appreciation Rights. The Committee may grant SARs or Modified
        SARs, as applicable, in lieu of Options or Modified Options under the
        Plan.

        6.2 Refusal of Award. Any Participant may refuse the grant of an Award
by notifying the Committee of his or her refusal in writing in a form and
pursuant to procedures to be determined by the Committee.

ARTICLE 7. General Provisions

        7.1 No Additional Rights. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment at any time, or confer upon any Participant any right to continue in
the employ of the Company. No Employee shall have the right to be selected to
receive an Award under this Plan or having been so selected, to be selected to
receive a future Award. Neither the Award nor any benefits arising under this
Plan shall constitute part of a Participant's employment contract with the
Company or any Affiliate, and accordingly, this Plan and the benefits hereunder
may be terminated at any time in the sole and exclusive discretion of the
Committee without giving rise to liability on the part of the Company or any
Affiliate for severance payments.




        7.2 No Effect on Other Benefits. The receipt of Awards under the Plan
shall have no effect on any benefits and obligations to which a Participant may
be entitled from the Company or any Affiliate, under another plan or otherwise,
or preclude a Participant from receiving any such benefits.

        7.3 Binding Effect. Any decision made or action taken by the Company,
the Board, or by the Committee arising out of or in connection with the
construction, administration, interpretation, and effect of the Plan shall be
conclusive and binding upon all persons, including the Company, its
shareholders, Employees, Participants, and their estates and beneficiaries.

        7.4 Inalienability of Benefits and Interest. No benefit payable under,
or interest in, the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any
such attempted action shall be void and no such benefits or interest shall be in
any manner liable for or subject to debts, liabilities, engagements, or torts of
any Participant or beneficiary.

        7.5 Requirements of Law. The granting of Awards and the issuance of
shares of Common Stock under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.

        7.6 Governing Law. To the extent not preempted by federal law, the Plan
and all agreements hereunder shall be construed in accordance with and governed
by the laws of the state of Ohio.

        7.7 Withholding. The Company shall have the power and the right to
deduct or withhold, to require an Affiliate to deduct or withhold, or to require
a Participant to remit to the Company or an Affiliate, an amount sufficient to
satisfy federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a result
of this Plan.

        7.8 Amendments. Subject to the terms of the Plan, the Committee may at
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part.







Adopted October 14, 1997
Article 2, Paragraph 2.19 added, Article 4, Paragraph 4.1 amended, Article 6,
       Paragraphs 6.1(d)(i), (e) (i) and (ii) and (f) amended - May 12, 1998
Article 4, Paragraph 4.1 amended - April 11, 2000
Article 2, Paragraph 2.19 amended - June 13, 2000
Article 6, Paragraph 6.1(c) amended and Paragraph 6.1(c)(i), (ii) and (iii)
       adopted - July 11, 2000
Article 4.2 amended - December 11, 2001
Article 6,Paragraph 6.1(e) changed; Article 6, Paragraph 6.1(f) adopted -
       March 11, 2003
Article 6, paragraphs 6.1(f)(i) and (ii) amended June 10, 2003

EX-11

                                  EXHIBIT (11)

                  THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
                  ---------------------------------------------

                        Computation of Earnings Per Share
                        ---------------------------------

Amounts in millions except per share amounts



                                                                                      Years Ended June 30
                                                                -------------------------------------------------------------
                                                                  1999         2000         2001          2002        2003
                                                                --------     --------    ---------     ---------    ---------
                                                                                                     
BASIC NET EARNINGS PER SHARE
- ----------------------------

Net earnings                                                    $  3,763     $  3,542    $   2,922     $   4,352    $   5,186
Preferred dividends, net of tax benefit                              109          115          121           124          125
                                                                --------     --------    ---------     ---------    ---------
Net earnings available to common shareholders                   $  3,654     $  3,427    $   2,801     $   4,228    $   5,061
                                                                ========     ========    =========     =========    =========

Basic weighted average common
    shares outstanding                                           1,328.1      1,313.2      1,300.3       1,297.4      1,296.6
                                                                ========     ========    =========     =========    =========

Basic net earnings per common share                             $   2.75     $   2.61    $    2.15     $    3.26    $    3.90
                                                                ========     ========    =========     =========    =========

DILUTED NET EARNINGS PER SHARE
- ------------------------------

Net earnings                                                    $  3,763     $  3,542    $   2,922     $   4,352    $   5,186
Deduct preferred dividend impact on
    funding of ESOP                                                   22           18           15            12            9
                                                                --------     --------    ---------     ---------    ---------
Diluted net earnings                                            $  3,741     $  3,524    $   2,907     $   4,340    $   5,177
                                                                ========     ========    =========     =========    =========

Basic weighted average common
    shares outstanding                                           1,328.1      1,313.2      1,300.3       1,297.4      1,296.6
Add potential effect of:
    Conversion of preferred shares (1)                              97.2         94.3         91.9          88.8         85.1
    Exercise of stock options (2)                                   21.5         19.7         13.4          18.7         19.6
                                                                --------     --------    ---------     ---------    ---------
Diluted weighted average common
    shares outstanding                                           1,446.8      1,427.2      1,405.6       1,404.9      1,401.3
                                                                ========     ========    =========     =========    =========

Diluted net earnings per common share                           $   2.59     $   2.47    $    2.07     $    3.09    $    3.69
                                                                ========     ========    =========     =========    =========


(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 through 2021.

(2)      Approximately 33 million in 2003, 36 million in 2002 and 38 million in
         2001 of the Company's 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.)

EX-12

                                  EXHIBIT (12)

                  THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
                  ---------------------------------------------

                Computation of Ratio of Earnings to Fixed Charges
                -------------------------------------------------

Millions of Dollars



                                                                 Years Ended June 30
                                                    ------------------------------------------
                                                     1999     2000     2001     2002     2003
                                                    ------   ------   ------   ------    -----
                                                                         
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                                $5,866   $5,474   $4,574   $6,442   $7,760

  Fixed charges                                        751      881      872      687      657
                                                    ------   ------   ------   ------    -----

    TOTAL EARNINGS, AS DEFINED                      $6,617   $6,355   $5,446   $7,129   $8,417
                                                    ======   ======   ======   ======   ======
FIXED CHARGES, AS DEFINED

  Interest expense                                  $  650   $  792   $  794   $  603   $  561
  1/3 of rental expense                                101       89       78       84       96
                                                    ------   ------   ------   ------    -----
    TOTAL FIXED CHARGES, AS DEFINED                 $  751   $  881   $  872   $  687   $  657
                                                    ======   ======   ======   ======   ======
    RATIO OF EARNINGS TO FIXED CHARGES                 8.8      7.2      6.2     10.4     12.8

EX-13

                                  EXHIBIT (13)



                          Annual Report to Shareholders
                                  (pages 1-56)


SUSTAINING GROWTH
2003 ANNUAL REPORT

[COVER PAGE GRAPHIC]



P&G'S PROMISE

Two billion times a day, P&G brands touch the lives of people around the world.
We have one of the largest and strongest portfolios of trusted, quality brands,
including Pampers, Tide, Ariel, Always, Whisper, Pantene, Bounty, Pringles,
Folgers, Charmin, Downy, Lenor, Iams, Crest, Clairol Nice 'n Easy, Actonel, Dawn
and Olay. Nearly 98,000 P&G people working in almost 80 countries worldwide make
sure P&G brands live up to their promise to make everyday life just a little
better.

FINANCIAL HIGHLIGHTS



                                                             Years ended June 30
Amounts in millions                                  ------------------------------------
except per share amounts                               2003          2002        % Change
- -----------------------------------------------------------------------------------------
                                                                        
Net Sales                                            $ 43,377     $  40,238           8%
- ---------------------------------------------------------------------------------------
Operating Income                                        7,853         6,678          18%
- ---------------------------------------------------------------------------------------
Net Earnings                                            5,186         4,352          19%
- ---------------------------------------------------------------------------------------
Per Common Share
- ---------------------------------------------------------------------------------------
  Diluted Net Earnings                                   3.69          3.09          19%
- ---------------------------------------------------------------------------------------
  Dividends                                              1.64          1.52           8%
- ---------------------------------------------------------------------------------------


Net Sales
(in billions of dollars)

[BAR CHART]

          
2001         39.2
2002         40.2
2003         43.4



Operating Cash Flow
(in billions of dollars)

[BAR CHART]

          
2001         5.8
2002         7.7
2003         8.7



Diluted Net Earnings
(per common share)

[BAR CHART]

2001  $2.07
2002  $3.09
2003  $3.69

Additional Earnings Information(1)
(per common share, on a diluted basis)

[BAR CHART]

2001  $3.27
2002  $3.59
2003  $4.08

- -    Reported EPS

- -    Goodwill

- -    Restructuring Charges

TABLE OF CONTENTS

                                                 
Letter to Shareholders                               1
P&G's Billion-Dollar Brands                          6
Business Perspective                                 8
Directors and Corporate Officers                    20
Financial Contents                                  22
Shareholder Information                             56



(1)Restructuring charges per share total $1.05 in 2001, $0.50 in 2002 and $0.39
   in 2003. 2001 includes charges of $0.15 per share for the amortization of
   goodwill and indefinite-lived intangibles no longer required under accounting
   rules beginning in 2002.



FELLOW SHAREHOLDERS,

[PHOTO OF A.G. LAFLEY]

A.G. LAFLEY
Chairman of the Board,
President and Chief Executive

Fiscal 2003 was a year of significant progress for Procter & Gamble - our best
overall performance in nearly a decade.

- -    Volume was up 8%.

- -    Sales were up 8% to $43.4 billion.

- -    Earnings were up 19% to $5.2 billion; earnings per share were $3.69, up
     19%.

- -    The Company's multi-year restructuring program is now complete, a full year
     ahead of schedule. Restructuring program charges for the year were $538
     million.

- -    Earnings per share increased 14%, excluding the impact of the restructuring
     program.

- -    Net earnings margins reached the highest level in more than 50 years.

- -    Total Shareholder Return outperformed the Dow Jones Industrial Average and
     the S&P 500.

- -    P&G has declared a dividend increase of 11%, the 48th consecutive year of
     increased dividend payments.

These excellent results represent broad-based strength:

- -    All five Global Business Units grew earnings.

- -    Six of seven Market Development Organizations delivered top-line growth.

- -    19 of the top 20 global brands grew volume.

- -    P&G brands worldwide grew share in categories accounting for nearly 80% of
     sales.

Most important, these results were driven from P&G's core existing businesses,
in a challenging global economy and political environment. In fact, 100% of this
year's growth was organic. The key element of P&G's growth strategy can most
simply be described as growth from the core. We are building on P&G's core
foundation of categories and brands, customers and countries, capabilities and
competencies to deliver long-term, sustainable growth.

That, of course, is the key challenge. It's long-term performance that counts.
P&G focuses on strategies that do what is right for the long-term health of the
business. Over the past 20 years, P&G has delivered an annualized Total
Shareholder Return of nearly 17%, ahead of both the Dow Jones Industrial Average
and the S&P 500.



2

Unit Volume Growth
(% increase versus previous year)

[BAR CHART]

          
2001         0.2%
2002         6.7%
2003         8.3%




100% of P&G's growth this year was organic.


The fundamental strengths that have driven this performance over time remain
relevant and important. The strategic choices we've made over the past three
years remain right. And the capabilities and systems we have developed
throughout the Company are key reasons to believe that we can build on what
we've done in the past to keep P&G growing in the future.

STRATEGIC CHOICES

We made five key choices to get P&G back on track. There are considerable
opportunities for continued growth within each area of strategic focus.

BUILD EXISTING CORE BUSINESSES AND LEADING BRANDS INTO STRONGER LEADERS. P&G's
four core categories - Fabric Care, Hair Care, Baby Care and Feminine Care -
account for nearly 50% of sales and an even greater percentage of profit. It's
essential that we keep these businesses healthy and growing. And we are. In
Fabric Care, where P&G is the global leader, we have a worldwide share of over
30%. In Hair Care, we are also the global leader - yet we have only about a 20%
share. There's plenty of upside in all four categories.

GROW FASTER WITH LEADING CUSTOMERS. In the U.S., the top 10 retailers increased
their share of the market from 30% to 55% in the past five years. In Europe,
concentration at the country level is even greater. This plays to P&G strengths.
We understand shoppers and partner with retailers in ways and on a scale few
competitors can match. We're helping retailers grow with joint business plans,
P&G's leading brand portfolio, and category-leading new product innovation. As
leading retailers grow, so do P&G brands.

GROW IN BIG COUNTRIES. More than 80% of P&G sales come from the top 10 markets.
We need to keep driving P&G growth in these countries, which are some of the
biggest and strongest economies in the world. P&G's business in the top 10
countries taken together is growing at a rate of 11% per year. P&G is a leader
in these markets. We have deep understanding of local consumers, strong retail
partnerships and important scale advantages. Yet, despite this strength in P&G's
10 largest countries, we still have significant opportunities to grow. In the
U.S. for example, P&G is the leader in 23 categories, but we have shares above
30% in only 18. We know we can extend P&G leadership in these big countries.

DEVELOP AND INVEST IN FASTER-GROWING, HIGHER-MARGIN BUSINESSES. We're
strengthening P&G's leadership in Health Care and Beauty Care, two of the
fastest-growing categories in which we compete. We have five billion-dollar
health and beauty brands today. The acquisition of Wella will add a sixth. In
fact, with the addition of Wella, Health Care and Beauty Care will account for
nearly half of P&G sales and profits, up from about one-fourth at the beginning
of the 1990s. We expect these two high-growth businesses to represent an
increasing share of P&G's total business in the future.

BUILD P&G LEADERSHIP IN FAST-GROWING DEVELOPING MARKETS. The consumer products
business is driven significantly by three basic demographic factors: population
growth, household formation and household income growth. These factors have
driven developed-market growth for decades, and are now driving strong growth in
many developing markets. China, for example, is now P&G's sixth largest market -
up from tenth just three years ago. We've focused decisively on higher-growth,
structurally attractive markets where P&G can achieve sustainable growth.



                                                                               3

P&G's strategic choices are working. We have continued opportunities for
substantial growth in every strategic area. We will stay the strategic course.

COST AND CASH MANAGEMENT

The next plank of P&G's sustained growth strategy is a relentless focus on
productivity, cost reduction and cash management.

Free Cash Flow
(in billions of dollars)

[BAR CHART]

          
2001         3.3
2002         6.1
2003         7.2



- -    Over the last three years, we've generated nearly $17 billion in free cash
     flow, which is cash flow from operations less capital spending. This is
     two-and-a-half times the amount generated in the previous three years and
     more than enough to fund dividend growth, share repurchases and
     acquisitions such as Clairol and Wella.

- -    We've delivered substantial operating margin progress, excluding
     restructuring charges. We've been disciplined and delivered both
     restructuring savings and other structural cost improvements.

- -    In the past three years, we've reduced annual capital spending by $1.5
     billion - without foregoing any strategic investments in capacity or
     innovation.


Capital Spending
(as % of sales)

[BAR CHART]

          
2001         6.3%
2002         4.2%
2003         3.4%



- - Goal


We're not letting up. There are more opportunities in virtually every area. We
will continue to improve productivity, to spend capital efficiently, to reduce
inventories and to increase the return on investments in marketing and new
products. We must conserve cash and control costs to continue to deliver
superior consumer and shareholder value.

CORE STRENGTHS

Three core capabilities set P&G apart from competition: branding, innovation and
scale.

BRANDING. P&G is one of the world's most successful brand-creation and
brand-building companies. Three years ago, we marketed 10 billion-dollar brands.
Today, we have 13, with Olay joining this exclusive club in 2003. We are
leveraging the advantages created by P&G's brand-building capabilities. Our deep
and global consumer research helps us to understand, anticipate and respond to
consumer needs and wants. Our expertise enables us to create marketing and
advertising innovations more effectively and efficiently than many other
companies. P&G's brand leadership, category and country scale helps us implement
brand-building innovations with retail and media partners in ways that few
companies can match.

INNOVATION. P&G creates more new brands and categories than any other consumer
goods company. Last year alone, three of the top 10 new non-food products
introduced in the U.S. were P&G products. Over the past eight years, P&G has had
the #1 or #2 new non-food product in the U.S. every single year.(1) P&G's
brand-creation and product development leadership is driven by the Company's
enormous innovative capacity. We have nearly 7,500 Ph.D.'s and researchers
working in 20 technical centers on four continents. We have more than 29,000
patented technologies for products that are in the market today. We are more
focused than ever on turning patents into products that consumers buy and use
every day. We're multiplying this capability by collaborating more extensively
with external innovation partners. The vision is that 50% of all P&G discovery
and invention will come from outside the Company.

(1)Source: Information Resources, Inc. New Product Pacesetters Annual Reports,
   Dollar Sales, top FDMx Non-Food products (excludes Wal-Mart)



4

Total Shareholder Return
(indexed versus July 2000)

[LINE GRAPH]


GLOBAL SCALE. P&G has significant scale advantages. We're the global leader in
all four core categories. We know we can leverage these scale advantages for
even greater value. We have the resources to interact with retail customers on
multiple levels including finance, logistics, marketing, shopper understanding
and a wide range of services. We bring deep category understanding with global
consumer research. We create greater value through the total supply chain by
pooling knowledge, expertise and reach.

We've designed the new P&G organization with an eye toward these core
capabilities, and are focused more explicitly than ever on getting the greatest
value from them. The restructuring program is complete, and the new organization
structure is fully implemented. We have created an organization unlike any other
in the consumer products industry - and it is producing significant competitive
advantage.

- -    The Global Business Units enhance speed to market. It used to take three
     years or more to rollout new products around the world. We're now able to
     expand an initiative worldwide in less than 18 months - as illustrated by
     the recent Pantene, Head & Shoulders and Pampers Baby Stages of Development
     rollouts.

- -    The Market Development Organizations enable us to collaborate better with
     customers. As the retail industry consolidates, it's more important to add
     value at multiple levels with key customers. The multi-functional expertise
     of our global and local MDOs enables us to leverage P&G's brand portfolio
     and innovation capability in ways that drive retailers' growth as well as
     our own. As a result, P&G brands are growing faster with the world's
     largest customers.

- -    Global Business Services provides best-in-class cost structures and service
     levels. This organization enables P&G to leverage its global scale, and
     increases our ability to collaborate with leading-edge business services
     partners. The recent information technology services and facilities
     management agreements with Hewlett-Packard and Jones Lang LaSalle are great
     examples. Partnerships like these enable us to achieve best-in-class costs
     that would not be possible without the unique combination of P&G's new
     organization design, global scale and the capabilities of best-in-class
     partners.

As we gain experience with the new organization, we are learning it offers
benefits we've only begun to tap.

P&G people are delivering the best results this Company has company achieved in
years.

INSPIRATIONAL LEADERS, UNSUNG HEROES

P&G's strategic choices, financial discipline, core strengths and unique
organization structure create a platform for growth from the core that is
sustainable. This growth is being led by the most diverse group of leaders in
P&G history.

We've built a substantially new leadership team in the past three years.
Two-thirds of the top 38 leaders are new to their present roles. They hail from
13 different countries. Half of the line presidents are from outside the U.S.
Most have worked in two or three major regions, in a number of categories and a
number of countries. Most of them have experience in developing countries as
well as developed markets. They know what it's like to compete against well-
entrenched international and local competitors. Most important, they are
inspirational leaders deeply committed to developing and energizing the men and
women in their organizations.



                                                                               5

Those men and women - 98,000 unsung heroes - are the heart of our Company. They
have demonstrated remarkable dedication in the past three years and have
distinguished themselves as one of the strongest generations of P&G people in
our Company's 165-year history. I spend time with these professionals every
single day. They are inspired. They share a single purpose - to improve the
lives of the world's consumers. They focus on common goals and pursue clear
strategies. They operate with shared values and principles. They have unleashed
their passion for serving consumers - and creating value for shareholders - in a
way that is building billion-dollar brands and delivering the best results this
Company has achieved in years.

It's a privilege to be part of such an extraordinary organization.

/s/ A.G. Lafley

A.G. Lafley
Chairman of the Board,                                             July 31, 2003
President and Chief Executive

[TIDE LOGOS]



6

P&G's BILLION-DOLLAR BRANDS

[PRODUCTS GRAPHIC]



                                                                               7

With combined revenues of more than $24 billion, P&G's 13 billion-dollar brands
would rank among the top 70 U.S. companies in the Fortune 500.(R)

[PRODUCTS GRAPHIC]


[GRAPHIC]

FABRIC AND HOME CARE

Fabric and Home Care is the Company's largest and oldest business - and it
continues to grow to record levels with its fastest and most balanced growth in
a decade. Key brands include Tide, Ariel, Downy, Lenor, Gain, Cascade, Swiffer
and Febreze.

- -    Fabric and Home Care net sales grew 8% to $12.6 billion.

- -    Fabric and Home Care net earnings grew 12% to $2.1 billion.

Net Sales
(in billions of dollars)

[BAR CHART]

        
2001       11.7
2002       11.6
2003       12.6



Net Earnings
(in billions of dollars)

[BAR CHART]

        
2001       1.6
2002       1.8
2003       2.1



[GRAPHIC]

BOLD

P&G launched Bold in Japan in August 2002. Bold achieved nearly a 10% share, and
pushed P&G's total detergent category share in Japan to nearly 30%.

[GRAPHIC]

SWIFFER DUSTERS

Swiffer has changed the way we clean our homes and created a new $1.2 billion
(retail sales) surface cleaning systems category in North America and Western
Europe. More than five out of every $10 spent in this category are for Swiffer
products.



                                                                               9

We're P&G's oldest business and still one of its most important engines of
growth. This past year, the growth we generated was nearly the same as adding a
very profitable, new billion-dollar brand to P&G.

[GRAPHIC]

ROBERT A. MCDONALD
President

P&G's Fabric and Home Care business is focused on growing global scale, market
share and profit. Given its size and importance to the Company, Fabric and Home
Care's goals are the same as the Company's goals. We're delivering broader,
stronger volume and sales growth to strengthen scale advantages and help ensure
sustainable double-digit profit growth.

This focus is paying off. We delivered record volume, sales and profits in
2002/03 - our third straight year of double-digit profit growth. Volume was up
9% - the highest in over a decade. We grew market share in the majority of
categories and countries in which we compete.

Two strategies are driving these results:

INNOVATION. We're growing our top-line with innovation across a broad portfolio
of brands. We have more than doubled the success rate of new product initiatives
on the strength of industry-leading product and commercial innovation. Tide and
Downy Clean Breeze enable consumers to get the same fresh scent in both their
detergent and fabric softener. Improved versions of Ariel and Tide have resulted
in our largest worldwide share gains in years. New Gain was the fastest-growing
brand in the U.S. Laundry detergent category. Improved dishwashing liquids have
broadened P&G's share leadership.

At the same time, we're driving overall category growth. Revolutionary products
like Swiffer WetJet and Swiffer Dusters are expanding the new surface cleaning
systems category. Febreze single-handedly created the new fabric refresher
category, creating a brand that generates over $250 million in sales.

In addition, we're expanding P&G's portfolio of Fabric and Home Care brands with
Mr. Proper in Germany, Bold in Japan and Gain Fabric Enhancer in North America.

INCREASING PRODUCTIVITY. We are increasing productivity to sustain double-digit
profit growth. This is an equally important strategy that leverages P&G's global
scale in the Fabric and Home Care business. We've built this scale through P&G's
portfolio of market-leading brands, as well as the size of our worldwide
business. This leads to increased productivity, which enables better value and
growing profits. In the past year, we have significantly reduced cost of goods
sold and have set the industry benchmark for capital spending as a percentage of
sales. We have strengthened decision-planning capabilities, reduced overheads as
a percentage of sales and improved the way we allocate financial and human
resources. Our target benchmarks are the companies that are best-in-class in
each area.

Innovation and productivity are critical. When Fabric and Home Care grows, P&G
grows. In 2002/03, Fabric and Home Care added $941 million in sales and $228
million in Company profit - nearly the same as adding a very profitable, new
billion-dollar brand to P&G.

P&G's biggest and oldest business is still one of its most important engines of
growth.



[GRAPHIC]

BEAUTY CARE

With the addition of Wella, Beauty Care will be one of the largest beauty care
companies in the world in sales and profits. Key brands include Pantene, Always,
Whisper, Olay, Head & Shoulders, Tampax, Cover Girl and Clairol Nice 'n Easy.

- -    Beauty Care net sales grew 14% to $12.2 billion.

- -    Beauty Care net earnings grew 23% to $2.0 billion.

Net Sales
(in billions of dollars)

[BAR CHART]

     
2001    10.0
2002    10.7
2003    12.2



Net Earnings
(in billions of dollars)

[BAR CHART]

     
2001    1.4
2002    1.6
2003    2.0



[GRAPHIC]

HEAD & SHOULDERS

Head & Shoulders achieved its second consecutive year of double-digit growth
with 16% volume growth in Fiscal 2003.

[GRAPHIC]

TAMPAX PEARL

Feminine Care is extending its brands to reach millions of new consumers in
developing markets and new segments, such as plastic applicator tampons. Each
additional global share point earned in Feminine Care is worth $100 million of
P&G sales.



                                                                              11

We're working to combine the best of P&G and the best of beauty companies to
create something better. P&G is now one of the world's largest beauty companies.

[GRAPHIC]

BRUCE L. BYRNES
President

Our clear goal is to become the best Beauty Care company in the world - for
consumers, customers and shareholders - and to lead the Company's growth. We
want to combine the best of P&G with the best of "beauty" companies to create
something even better.

We're well on our way to achieving this. With the addition of Wella, Beauty Care
will be one of the largest beauty care companies in the world in sales and
profits. We will have more billion-dollar brands than any competitor and profit
margins among the highest in the industry.

INNOVATION IS AT THE HEART OF OUR SUCCESS. We've grown Olay to billion-dollar
sales behind continuous step-change innovation that better meets women's skin
care needs. Daily Facials is the #1 cleansing cloth in the U.S. market - a novel
breakthrough that removes makeup, cleanses the skin, exfoliates and conditions
in a simple, single step. Total Effects, based on our proprietary VitaNiacin
ingredient, established Olay as the anti-aging leader in Skin Care. Regenerist,
our latest breakthrough in anti-aging, comes out of wound-healing cellular
science and is off to a tremendous start - already the U.S. market leader only
three months after launch.

In Cosmetics, Cover Girl Outlast and Max Factor Lipfinity products offer
patented, longer-wearing lip color and have been the most successful lipstick
launches ever. Outlast is now the single largest makeup product in the entire
U.S. market. In Feminine Care, we introduced Tampax Pearl. This new plastic
tampon was redesigned from top to bottom to better meet consumer needs and
wants. We've been very pleased with results to date, and both shipments and
share continue to grow. Our two largest brands, Pantene - the world's leading
hair care brand - and Head & Shoulders, each grew sales in double digits over
the last two-year period behind a series of product and marketing initiatives.
Much of the success here reflects hair conditioning technology unsurpassed in
the world.

WE'RE COMPLEMENTING INNOVATION WITH ACQUISITIONS. We have successfully
complemented internal innovation with acquisitions. The Clairol acquisition
moved P&G into the faster-growing Hair Colorants segment. Colorants appeal to
both aging baby boomers and experimental teens. This business is now fully
integrated, and we're launching our first innovations - on Nice 'n Easy and with
Herbal Essences Highlighting. At acquisition, Hugo Boss fragrance was a small
unknown brand with sales under $50 million. Hugo Boss is now the largest male
fine fragrance franchise in the world. At acquisition, SK-II was another small,
unknown brand with sales of less than $50 million. SK-II is now the leading
prestige skin care brand in Asia.

The Wella acquisition will give us access to the large and growing professional
hair care market, provide a geographic complement and a strong technology
partner to Clairol's colorant business, give us a greater presence in hair
styling and a complementary fragrance portfolio.

WE'RE MAINTAINING A STRONG COST FOCUS. A strong cost focus underpins all of our
activity in Beauty Care, which enables us to earn attractive margins while
providing value to consumers.

We're excited about the growth Beauty Care will continue to bring to the Company
as we go forward.


[GRAPHIC]

BABY AND FAMILY CARE

Baby and Family Care is home to the Company's single largest billion-dollar
brand, Pampers, and two other billion-dollar brands, Bounty and Charmin. Other
brands include Luvs, Puffs, Tempo and Dodot.

- -    Baby and Family Care net sales grew 8% to $9.9 billion.

- -    Baby and Family Care net earnings grew 20% to $882 million.

Net Sales
(in billions of dollars)

[BAR CHART]

     
2001    9.2
2002    9.2
2003    9.9



Net Earnings
(in millions of dollars)

[BAR CHART]

     
2001    658
2002    738
2003    882



[GRAPHIC]

BABY STAGES OF DEVELOPMENT

Around the world, parents bought 1.5 billion more Pampers diapers in 2002/03
than the previous year.

[GRAPHIC]

CHARMIN

Charmin was introduced in Germany/Austria/Switzerland in February 2002, and has
contributed over 25% of the total worldwide volume growth of Charmin since.



                                                                              13

The challenge in Baby and Family Care is to be consumer- and customer-friendly
on the outside while managing complex innovation inside. We're meeting this
challenge.

[GRAPHIC]

MARK D. KETCHUM
President

Our goal is to delight consumers through better-performing products at a good
value, while delivering superior shareholder returns. The challenge in Baby and
Family Care is to do this in an environment of much higher capital costs and
longer innovation lead times. Our approach to managing complex innovation in
this environment is paying dividends with consumers and shareholders alike.

Baby and Family Care includes three of the Company's most recognizable
billion-dollar brands: Pampers, Bounty, and Charmin. Industry consolidation and
consumer expectations have increased competition and the importance of staying
in front on innovation. Babies are only in diapers about three years, so
one-third of our Baby Care consumer base turns over every year. New moms are
very interested in finding the latest and greatest performance and value.

We're focused on four strategies:

BETTER AND CHEAPER DESIGNS. Historically, we invented product improvements first
and cost-saved them later. We asked consumers to pay for this inefficiency with
higher prices. Today, we build structural cost reduction into original designs.
It's working. In the past year, unit costs have declined by more than $300
million. While delivering strong profit progress, we've still invested a
substantial portion of this cost reduction into more innovation and lower prices
to improve consumer value and grow market share.

360 degree INNOVATION. We're getting more out of every initiative by what we
call "360 degree innovation." We expect innovation in all elements that impact
consumer value: product, design, package, in-store presentation, price, and
clear, compelling marketing communication. We've developed a new research
technique to evaluate how these elements interact with each other for each new
initiative. Pampers Baby Stages of Development doubled the size of P&G's premium
diaper business, and Charmin was successfully launched in Mexico and Germany
leveraging 360 degree innovation.

INNOVATION-FRIENDLY EQUIPMENT. Consumers don't care what kind of equipment we
use to make products, but they will switch brands if we fall behind on
performance or value. This is why we invested $1 billion in a sustainable
capital standardization program over the past several years to make it easier
and more cost effective to innovate in Baby Care. Diaper production lines that
were different in every part of the world were replaced with a standard modular
converter. We can now innovate off-line and then quickly replace one or two
modules. Today, we make more diapers than we did five years ago with 30% fewer
lines - and our capital needs in the future will be lower. Total capital
spending in Baby and Family Care finished 2002/03 below 6% of sales, better than
key competition and well below our historical average.

VIRTUAL DESIGN. Designing physical prototypes of products and equipment is
expensive and time-consuming. Again, consumers don't want to pay for this. We've
expanded our capability to use computer-aided virtual design for everything from
better-fitting diapers to faster, more efficient paper machines. This has cut
development costs and accelerated time to market.

Baby Care and Family Care are very large categories that present significant
opportunities for category growth, share growth, geographic expansion and
improved shareholder returns. Being consumer- and customer-friendly on the
outside while managing complex innovation inside is the key to success.



[GRAPHIC]

HEALTH CARE

Health Care is the Company's fastest growing business, with innovations over the
last three years representing more than $1 billion in new sales. Key brands
include Crest, Iams, Eukanuba, Vicks, Actonel, Asacol, Scope, Pepto-Bismol and
ThermaCare.

- -   Health Care net sales grew 16% to $5.8 billion.

- -   Health Care net earnings grew 35% to $706 million.

Net Sales
(in billions of dollars)

[BAR CHART]

      
2001     4.4
2002     5.0
2003     5.8



Net Earnings
(in millions of dollars)

[BAR CHART]

     
2001    390
2002    521
2003    706



[GRAPHIC]

ACTONEL

Actonel delivered $650 million in global alliance sales worldwide.

[GRAPHIC]

PRILOSEC

Prilosec, the world's #1 selling drug in its class, is now available over the
counter to treat frequent heartburn.



                                                                              15

We expect the future of Health Care to be one of continued high growth. We've
built a fast-growing, profitable business with breakthrough innovation,
strategic acquisitions and partnerships, and operating cost discipline.

[GRAPHIC]

BRUCE L. BYRNES
President

Our objective in Health Care is to lead Company growth by helping people and
pets live longer, healthier lives.

We've built a rapidly growing, profitable Health Care business by focusing on
the successful commercialization of breakthrough innovation, strategic
acquisitions and partnerships, and operating cost discipline.

INNOVATION. Successful innovations include Actonel, our prescription
osteoporosis drug, which reached $650 million in worldwide alliance sales after
only three years in the market. In Oral Care, Crest Whitestrips has reached
almost $300 million in sales and continues to grow. We've added another
whitening innovation with Night Effects, a "liquid strip" that whitens your
teeth while you sleep. In Personal Health Care, we created a new category with
ThermaCare, a therapeutic heat wrap that is 33% more effective than ibuprofen in
reducing lower back pain. We've grown our Pet Health and Nutrition business
behind breakthroughs such as Iams and Eukanuba Dental Defense. In just the last
three years, we've introduced innovations across Health Care that represent well
over $1 billion in new sales.

ACQUISITIONS, PARTNERSHIPS AND ALLIANCES. We actively seek to add to our own
innovation by identifying and effectively executing strategic acquisitions,
partnerships and alliances. We look for opportunities where the combination of
an external brand, product or technology and P&G's capabilities can create
significant incremental value for shareholders. We bought the Iams Company four
years ago. Since then, we've nearly doubled sales to $1.5 billion. Iams is now
the #1 dog and cat food brand in both the U.S. and Canada, up from #5 at
acquisition. We acquired the Dr. John's SpinBrush business in January of 2001
and more than doubled this business to more than $200 million, stimulating
growth of the power brush segment, which is increasing 25% per year. We're
creating a growing water purification business with PUR, which we bought three
years ago and have grown by more than 50%.

COST CONTROL. Innovations are successfully commercialized only if they provide
meaningful value to consumers. To ensure that we can offer good value to retail
customers and consumers day in and day out, and at the same time create value
for shareholders, we maintain constant focus on cost control. Our capital
spending as a percentage of sales in 2003 was 2.5% - among the lowest in the
Company and the industry in which we compete. Margins have improved over the
last two years, as profit growth has outpaced sales growth.

We believe the future for Health Care is one of continued high growth. We're
currently launching Prilosec OTC for the treatment of frequent heartburn.
Prescription-strength Prilosec was the top-selling pharmaceutical drug in the
world. Actonel continues to build share in major markets, including the U.S.,
Germany, France, Canada and the UK - and the prescription market for
osteoporosis treatments continues to grow. Less than 25% of consumers who have
osteoporosis are currently diagnosed.

We have an exciting pipeline of innovation across Health Care that we'll be
commercializing in the months and years ahead. We'll continue to develop this
with smart acquisitions, partnerships and alliances. With ongoing cost
optimization, we expect that profits will continue to grow ahead of sales.



[GRAPHIC]

SNACKS AND BEVERAGES

Snacks and Beverages is focused on salted snacks and coffee. Folgers is the #1
coffee brand in North America. Pringles is P&G's most global franchise, sold in
over 140 countries.

- -   Snacks and Beverages net sales were flat at $3.2 billion.

- -   Snacks and Beverages net earnings grew 1% to $306 million.

Net Sales
(in billions of dollars)

[BAR CHART]

     
2001    3.5
2002    3.2
2003    3.2



Net Earnings
(in millions of dollars)

[BAR CHART]

     
2001    242
2002    303
2003    306



[GRAPHIC]

FOLGERS PLASTIC PACKAGING

Folgers new AromaSeal(TM) Canister preserves freshness and has an easy-grip
handle and peel-off seal for greater convenience.

[GRAPHIC]

PRINGLES SNACK STACKS

Snack Stacks is one of the most successful initiatives in P&G's North America
snacks history.



                                                                              17

We're providing sustained cash flow with rigorous cost discipline and a strong
innovation program supporting Folgers and Pringles, our two billion-dollar
brands.

[GRAPHIC]

JORGE P. MONTOYA
President

In Snacks and Beverages, the goal is to build our focused brands and provide
strong, sustained cash flow. Behind the strength of two billion-dollar brands -
Folgers and Pringles - rigorous cost discipline and a strong innovation program,
we're positioned to deliver.

We have faced a number of challenges over the past three years, but we have
responded to them squarely. Recognizing the need to deliver growth, we have
streamlined our Snacks and Beverages portfolio. Last year, we spun off the Jif
and Crisco brands, and we recently announced that we're exploring strategic
options for the juice business.

We're now sharply focused on salted snacks and coffee. These are the categories
in which P&G can leverage leadership to deliver value to consumers, customers
and shareholders. Folgers is the #1 coffee brand in North America. It has strong
retailer support and deep consumer loyalty. Pringles - P&G's most global
franchise - is one of the leading salted snack brands, sold in over 140
countries.

Three strategies will drive the growth of these big brands:

INNOVATION. P&G brings significant innovation scale to this business. Because of
the breadth of P&G businesses, our brands can access a broader portfolio of
relevant product and packaging technologies - inside and outside P&G - than many
competitors. For example, we recently introduced the new plastic AromaSeal(TM)
Canister on Folgers in the U.S., leveraging both technology and supplier
partnerships from elsewhere in the Company. This new package - a category first
- - is easier to carry and provides fresh aroma and taste day after day. Pringles'
innovations include Snack Stacks (a 23-gram lunchbox size) and customized
solutions for retailers: unique colors, flavors and sizes.

ENHANCED GO TO MARKET CAPABILITY. Our goal is for Folgers and Pringles to be
available to consumers whenever and wherever they shop. To do this, we're
developing stronger go to market capability. We're combining the scale and
leverage of P&G's Market Development Organizations with external distribution
and merchandising partners. New distribution alliances with Meiji in Japan and
Arnott's Snackfoods in Australia are expanding Pringles' presence in immediate
consumption channels.

COST DISCIPLINE. We continue to focus on improving the financial strength of
Snacks and Beverages. P&G Coffee margins are among the best-in-class. While
we've improved over the past four years, P&G Snacks margins remain below
best-in-class. We intend to close this gap by focusing on more efficient asset
utilization and ongoing cost reduction.

We want to acknowledge the heroic achievements of P&G employees, both active and
retired, during this past year. The Pringles plant in Jackson, Tennessee was
struck by a devastating tornado in May. Homes and businesses near the plant were
destroyed and virtually every tree surrounding the plant was snapped in two.
Fortunately, none of our employees was injured. Once safety had been assured,
these unsung heroes mounted an extraordinary effort to get the plant back up and
running. They worked in 24-hour shifts and, remarkably, in only two weeks, plant
lines had started producing again. The Jackson plant story is a profile in P&G
courage and dedication.

The Snacks and Beverages business is more focused today than ever. We have hard
work ahead of us. We must respond to aggressive competitive coffee discounting
and merchandising with better consumer value and category-leading innovation. We
must continue to improve margins in Snacks, while sustaining the pace of
consumer innovation and retailer customization. These are significant
challenges, but I'm convinced we have the brands, strategies and organization to
meet them head-on.



[GRAPHIC]

MARKET DEVELOPMENT ORGANIZATION

P&G's Market Development Organization is the Company's on-the-ground connection
to local consumers and customers. The global organization includes seven
regions:

- -   ASEAN, Australasia and India

- -   Central and Eastern Europe, Middle East and Africa

- -   Greater China

- -   Latin America

- -   North America

- -   Northeast Asia

- -   Western Europe



- -   P&G's top 10 countries grew volume 11% in fiscal 2003.

- -   P&G grew volume 13% with its top 10 customers in fiscal 2003.

Top Ten Countries
Volume Growth

[BAR CHART]

     
2002     7%
         7%
2003     7%
        11%



Top Ten Customers
Volume Growth

[BAR CHART]

     
2002     5%
        12%
2003     6%
        13%



- -   Balance

- -   Top Ten


                                                                              19

We combine deep brand and consumer knowledge with local market knowledge. We're
confident we have only scratched the surface of what this organization is
capable of delivering.

[GRAPHIC]

R. KERRY CLARK
President

P&G's Market Development Organization (MDO) is a unique, growing source of
competitive advantage. MDO professionals lead retailer and country business
teams to build P&G brands in the local markets, ranging from North America to
Greater China.

We combine deep brand and consumer knowledge embedded in P&G's Global Business
Units (GBUs) with local market knowledge in the MDOs. We bring together
initiatives from every GBU and create business-building plans for retail
partners in more than 160 countries. As a result, we go to market as one company
in every country to help leverage scale and get the full benefit of
understanding what works and what doesn't work across categories.

The Market Development Organization focuses primarily on winning the first
moment of truth - when the consumer chooses P&G brands at the retail shelf.

We have four key priorities:

FOCUS ON THE BIG OPPORTUNITIES. We focus on top P&G brands in top countries with
top retailers that account for most of P&G's business. Over the last year, the
top 10 countries grew volume four percentage points faster than the balance, and
top 10 customers grew seven percentage points faster.

CREATE VALUE FOR CONSUMERS. We know we must provide brands that represent good
value for consumers. Three years ago, too many P&G brands were failing this
test. Their prices were higher than competition, and not justified by
performance advantages that warranted the premium. We've fixed that. Our brand
pricing and promotion strategies have been reviewed, changes made and progress
tracked. While there will always be strong price competition, the vast majority
of top brands in major markets are now priced competitively, and will stay
priced competitively.

CREATE VALUE FOR RETAILERS. We've deepened P&G's extensive database of shopper
research to help retailers better understand the needs of shoppers and provide
shopping experiences that earn loyalty and generate profitable sales. We've
customized go to market plans around the world to reflect the unique needs of
retail customers. For large global, regional and local customers, we organize
around geographic scope; we have individual programs in place with virtually all
our top retailers. For developing markets, we tailor programs for very small
stores that are part of each retail landscape. As a result, we're seeing very
positive business results in both developed and developing markets.

MAKE SURE P&G PRODUCTS ARE AVAILABLE. We're improving availability and
replenishment of P&G products on store shelves. We've reduced the number of
incomplete orders by two-thirds. We're developing in-store programs to reduce
out-of-stock products. Our vision is to create a retail customer supply chain
driven by consumer purchases rather than factory production schedules.

P&G's Market Development Organization is gaining momentum. We have learned a
great deal since designing this unique organization in 1999. This knowledge is
resulting in better business plans, tighter customer relationships and stronger,
sustainable growth for P&G. We're confident we've only scratched the surface of
what this organization is capable of delivering.



20

DIRECTORS

                              [PHOTO OF DIRECTORS]

In order, from left to right:

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. Director since 1994. Age 63. Member of the
Finance and Public Policy 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. Age 65. Member of the
Compensation, Executive and Finance Committees.

CHARLES R. LEE

Chairman of the Board of Directors, Verizon Communications (telecommunication
services). Director since 1994. Age 63. Member of the Audit, Compensation and
Governance and Nominating Committees.

MARINA V.N. WHITMAN

Professor of Business Administration and Public Policy, University of Michigan.
Director since 1976. Age 68. Chairman of the Governance and Nominating
Committee, and member of the Compensation and Finance Committees.

ROBERT D. STOREY

Partner in the law firm of Thompson Hine, L.L.P. Director since 1988. Age 67.
Chairman of the Public Policy Committee and member of the Finance Committee.

BRUCE L. BYRNES

Vice Chairman of the Board and President - Global Beauty and Feminine Care and
Global Health Care. Director since 2002. Age 55.

W. JAMES MCNERNEY, JR.

Chairman of the Board and Chief Executive Officer, 3M Company (diversified
technology). Director since 2003. Age 54. Member of the Audit and Governance and
Nominating Committees.

SCOTT D. COOK

Chairman of the Executive Committee of the Board, Intuit Inc. (a software and
web services firm). Director since 2000. Age 51. Member of the Compensation and
Innovation and Technology Committees.

A.G. LAFLEY

Chairman of the Board, President and Chief Executive. Director since 2000. Age
56. Chairman of the Executive Committee.

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. Age 68.
Chairman of the Compensation Committee and member of the Executive and
Innovation and Technology Committees.

JOHN F. SMITH, JR.

Retired Chairman of the Board and CEO, General Motors Corporation (automobile
and related businesses). Director since 1995. Age 65. Chairman of the Audit
Committee and member of the Governance and Nominating and Public Policy
Committees.

MARGARET C. WHITMAN

President and Chief Executive Officer, eBay Inc. (a global online marketplace
for the sale of goods and services). Director since 2003. Age 47. Member of the
Compensation and Governance and Nominating Committees.

JOHN E. PEPPER

Retired Chairman of the Board (retired from the Board on July 1, 2003).

R. KERRY CLARK

Vice Chairman of the Board and President - Global Market Development and
Business Operations. Director since 2002. Age 51.

RICHARD J. FERRIS

Retired Co-Chairman, Doubletree Corporation. Director since 1979. Age 66.
Chairman of the Finance Committee and member of the Executive and Public Policy
Committees.

DOMENICO DESOLE

President and Chief Executive Officer and Chairman of the Management Board,
Gucci Group N.V. (multibrand luxury goods company). Director since 2001. Age 59.
Member of the Audit 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. Age 51. Member of the Finance and
Public Policy Committees.

RALPH SNYDERMAN

Chancellor for Health Affairs and Executive Dean, School of Medicine at Duke
University, and President/CEO of Duke University Health Systems. Director since
1995. Age 63. Chairman of the Innovation and Technology Committee.

JOHNATHAN A. RODGERS

President and Chief Executive Officer, TV One (media and communications).
Director since 2001. Age 57. Member of the Innovation and Technology 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


                                                                              21

CORPORATE OFFICERS

A.G. LAFLEY

Chairman of the Board, President
and Chief Executive

BRUCE L. BYRNES

Vice Chairman of the Board and
President - Global Beauty and
Feminine Care and Global Health Care

R. KERRY CLARK

Vice Chairman of the Board and
President - Global Market
Development and Business Operations

FERNANDO AGUIRRE

President - Special Projects

JEFFREY P. ANSELL

President - Global Pet Health and
Nutrition

SUSAN E. ARNOLD

President - Global Personal Beauty
Care and Global Feminine Care

CHARLES V. BERGH

President - ASEAN, Australasia and
India

MARK A. COLLAR

President - Global Pharmaceuticals

FABRIZIO FREDA

President - Global Snacks

WERNER GEISSLER

President - Northeast Asia

MICHAEL J. GRIFFITH

President - Global Beverage

DEBORAH A. HENRETTA

President - Global Baby Care

MARK D. KETCHUM

President - Global Baby and
Family Care

ROBERT A. MCDONALD

President - Global Fabric and
Home Care

JORGE S. MESQUITA

President - Global Home Care

JORGE P. MONTOYA

President - Global Snacks and
Beverages and Latin America

TOM A. MUCCIO

President on Special Assignment

MARTIN J. NUECHTERN

President - Global Hair Care

DIMITRI PANAYOTOPOULOS

President - Central and Eastern
Europe, Middle East and Africa

LAURENT L. PHILIPPE

President - Greater China

CHARLES E. PIERCE

President - Global Family Care

PAUL POLMAN

President - Western Europe

ROBERT A. STEELE

President - North America

RICHARD G. PEASE

Senior Vice President - Human
Resources, Global Baby and
Family Care

NABIL Y. SAKKAB

Senior Vice President - Research
and Development, Global Fabric
and Home Care

RICHARD L. ANTOINE

Global Human Resources Officer

G. GILBERT CLOYD

Chief Technology Officer

CLAYTON C. DALEY, JR.

Chief Financial Officer

STEPHEN N. DAVID

Chief Information Officer and
Business-to-Business Officer

R. KEITH HARRISON, JR.

Global Product Supply Officer

JAMES J. JOHNSON

Chief Legal Officer

MARIANO MARTIN

Global Customer Business
Development Officer

CHARLOTTE R. OTTO

Global External Relations Officer

FILIPPO PASSERINI

Global Business Services Officer

JAMES R. STENGEL

Global Marketing Officer

JUAN PEDRO HERNANDEZ

Vice President and Treasurer

JOHN K. JENSEN

Vice President and Comptroller

SHARON E. ABRAMS

Secretary



22 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

At Procter & Gamble, our actions - the actions of all employees - are governed
by our Purpose, Values and Principles. These core values set a tone of integrity
for the entire Company - one that is reinforced consistently at all levels and
in all countries. We have maintained strong governance policies and practices
for many years.

The management of Procter & Gamble is responsible for the objectivity and
integrity of the accompanying Consolidated Financial Statements. The Board of
Directors has engaged independent auditors, Deloitte & Touche LLP, to audit our
financial statements and they have expressed an unqualified opinion.

We are committed to providing timely, accurate and understandable information to
investors. This encompasses:

Maintaining a strong internal control environment. Our system of internal
controls includes written policies and procedures, segregation of duties and a
careful selection and development of employees. The system is designed to
provide reasonable assurance that transactions are executed as authorized and
accurately recorded, that assets are safe-guarded 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 maintain disclosure controls and procedures
designed to ensure that information required to be disclosed in reports under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the specified time periods. We monitor these internal controls
through self-assessments and an ongoing program of internal audits. Key employee
responsibilities are reinforced through the Company's "Worldwide Business
Conduct Manual," which sets forth management's commitment to conduct its
business affairs with high ethical standards.

Focusing on financial stewardship. We maintain a specific program 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 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 and
financial performance. The intent is to ensure we remain objective in our
assessments, constructively challenge the approach to business opportunities and
potential issues and monitor results and controls.

Engaging our Disclosure Committee. Last fall, we formalized a Disclosure
Committee, a group of senior level executives responsible for ensuring that
significant business activities and events are appropriately identified,
reported to management and the Board of Directors and disclosed, as appropriate.

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 key accounting policies and financial reporting and
internal control matters with them and encourage their independent discussions
with Deloitte & Touche LLP, our independent auditors.

Providing investors with financial results that are complete and under-
standable. The Consolidated Financial Statements and financial information
included in this report are the responsibility of management. This includes
preparing the financial statements in accordance with accounting principles
generally accepted in the United States of America, which require estimates
based on management's best judgment.

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.

/s/ A.G. Lafley                               /s/ Clayton C. Daley, Jr.
- ---------------                               -------------------------
A.G. Lafley                                   Clayton C. Daley, Jr.

Chairman of the Board,                        Chief Financial Officer
President and Chief Executive



                                The Procter & Gamble Company and Subsidiaries 23

TABLE OF CONTENTS

                                                           
FINANCIAL REVIEW
  Results of Operations                                       23
  Segment Results                                             25
  Financial Condition                                         28
  Key Accounting Policies                                     29
  Hedging and Derivative Financial Instruments                31
  Restructuring Program                                       31
  Forward-Looking Statements                                  33



                                                           
INDEPENDENT AUDITORS' REPORT                                  34

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Earnings                                                    35
  Balance Sheets                                              36
  Shareholders' Equity                                        38
  Cash Flows                                                  39
  Notes to Consolidated Financial Statements                  40



FINANCIAL REVIEW

RESULTS OF OPERATIONS

The Company markets nearly 300 products in more than 160 countries around the
world in five distinct business segments: Fabric and Home Care, Beauty Care,
Baby and Family Care, Health Care and Snacks and Beverages.

The Company's results for the fiscal year ended June 30, 2003 reflect
broad-based business strength, with four of the five segments delivering
top-line sales growth and all five business segments delivering net earnings
growth.

The Company continues to make clear choices about where to play and how to win.
The framework for these decisions is grounded in focus areas that include:
building core categories and leading brands, growing with leading customers and
in the biggest geographic markets, investing in faster-growing, higher-margin
businesses and building leadership in fast-growing developing markets.

Consistent with this framework, in March 2003 the Company reached an agreement
with the controlling shareholders of Wella AG to acquire 77.6% of the voting
class shares. In June 2003, the Company completed a tender offer for the
remaining outstanding voting class shares and preference shares, securing
approximately 81% of the total outstanding Wella AG shares (99% of the voting
class shares and 45% of the preference shares). This acquisition is expected to
close in the first quarter of fiscal 2004. Wella AG 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.

This framework also requires some difficult decisions, including the Company's
announcement in July 2003 to seek strategic alternatives for its Sunny Delight
and Punica juice drink brands. Another example is the Company's continuing
evaluation of outsourcing arrangements in areas where the Company can leverage
industry expertise and scale to obtain high quality services at a lower cost.
The Company has announced plans to outsource real estate and facilities
management, information technology and certain other administrative and
manufacturing processes.

Volume and Net Sales

The Company achieved record sales of $43.38 billion in 2003, 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. In
fact, 19 of the Company's top 20 brands increased volume as compared to the
prior year. Excluding the impacts of acquisitions and divestitures, volume was
also up 8%, as the impact of the Clairol acquisition in November 2001 was offset
by the impact of the Jif and Crisco spin-off in May 2002. 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 stimulate growth and remain
competitive in key categories, including diapers, tissue, hair care, feminine
care, teeth whitening and coffee. Future pricing activities will be aimed at
providing value to both consumers and customers and will be influenced by
competitive activity and the Company's product initiative program.



24 The Procter & Gamble Company and Subsidiaries                Financial Review

Fiscal year 2002 sales were $40.24 billion, an increase of 3%, compared to
$39.24 billion in 2001, on volume growth of 7% driven by Health Care and Beauty
Care. Net sales grew less than volume due to a 1% impact for exchange effects, a
1% impact for pricing and a 2% impact for mix.

Net Earnings

Net earnings were $5.19 billion in 2003, an increase of 19% compared to $4.35
billion in 2002. Reported results included after-tax restructuring charges of
$538 million in 2003 and $706 million in 2002. 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 costs and lower manufacturing
costs as a percentage of net sales. Net earnings in 2001 were $2.92 billion,
including after-tax restructuring charges of $1.48 billion. Net earnings in 2002
exceeded 2001 due to volume growth, manufacturing savings and lower
restructuring charges. The restructuring program covered enrollment reductions,
manufacturing consolidations and portfolio choices to scale back or discontinue
under-performing businesses and initiatives and was substantially complete at
June 30, 2003. It is discussed in more detail in the Restructuring Program
section and Note 2 to the Consolidated Financial Statements.

Diluted net earnings per share were $3.69 in 2003 compared to $3.09 in 2002 and
$2.07 in 2001, including the restructuring charge impact of $0.39, $0.50 and
$1.05 per share, respectively.

Operating Costs

Cost of products sold was $22.14 billion in 2003 compared to $20.99 billion in
2002 and $22.10 billion in 2001. Before-tax restructuring charges included in
cost of products sold were $381 million in 2003, $508 million in 2002 and $1.14
billion in 2001. Gross margin in 2003 improved to 49.0%, an increase of 120
basis points versus the previous year. Lower restructuring costs accounted for
40 basis points of the improvement with the remainder achieved behind lower
material costs and the benefits of restructuring and base business savings
delivered outside the restructuring program. Gross margin of 47.8% in 2002
improved versus 43.7% in 2001, which was more significantly impacted by
restructuring charges.

Marketing, research, administrative and other expense (MRA&O) was $13.38 billion
in 2003 versus $12.57 billion in 2002 and $12.41 billion in 2001. MRA&O included
before-tax restructuring charges of $374 million in 2003, $519 million in 2002
and $583 million in 2001. The increase in MRA&O in 2003 versus 2002 was driven
by additional marketing investments behind new product launches and expansions
of existing brands, including Tide with Bleach, Swiffer Duster, Crest
Whitestrips and Olay Regenerist. Marketing investments were partially offset by
lower research and administrative costs, reflecting savings from the Company's
restructuring program.

As a percent of net sales, MRA&O has improved with 2003 down 30 basis points to
30.9%. Marketing expenses as a percentage of net sales increased 75 basis points
due to the marketing investments discussed in the preceding paragraph as well as
other product launches and brand equity building activities. This was more than
offset by lower research and administrative expenses as a percentage of net
sales due to scale efficiencies and lower restructuring costs. MRA&O was 31.2%
of net sales in 2002 versus 31.6% in 2001, with higher marketing investments
more than offset by lower restructuring costs.

Non-Operating Items

Interest expense was $561 million in 2003, compared to $603 million in 2002 and
$794 million in 2001. The decline in interest expense in 2003 was driven by
lower interest rates and debt balances. The decline in 2002 versus 2001 was
driven by lower interest rates partially offset by an increase in debt to fund
the Clairol acquisition in November 2001.

Other non-operating income, which consists primarily of interest and investment
income and divestitures, contributed $238 million in 2003 compared to $308
million in 2002 and $674 million in 2001. This decline was driven by
significantly lower gains from divestitures and asset sales in 2003 and 2002
versus 2001, as the Company's activity to divest non-strategic brands declined.

The Company's effective tax rate for 2003 was 31.1%, a reduction of 70 basis
points compared to the 2002 rate of 31.8%. The effective tax rate for 2001 was
36.7%. The decline in the current year was driven primarily by the country mix
impact of foreign operations, as earnings increased in countries with lower
overall tax rates. The declining rate since 2001 also reflected the impact of
lower restructuring charges and amortization of goodwill and indefinite-lived
intangibles prior to the adoption of Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets."

Net Earnings Margins

Net earnings margin was 12.0% in 2003 versus 10.8% in 2002 and 7.4% in 2001. The
margin increase in 2003 was primarily driven by higher volume, lower unit cost
of products sold due to lower materials costs, the benefits of restructuring, as
well as base business savings, and a reduction in restructuring charges. In
2002, the margin increase reflected a reduction in restructuring charges, the
benefit of base and restructuring cost savings projects on both manufacturing
and overhead costs and the benefits of lower interest expense.



Financial Review                The Procter & Gamble Company and Subsidiaries 25

2003 Net Sales by Business Segment (1)

[PIE CHART]

                                                          
Fabric and Home Care                                         29%

Beauty Care                                                  28%

Baby and Family Care                                         23%

Health Care                                                  13%

Snacks and Beverages                                          7%



(1)  Excludes net sales and net earnings held in Corporate

2003 Net Earnings by Business Segment (1)

                                                          
Fabric and Home Care                                         35%

Beauty Care                                                  33%

Baby and Family Care                                         15%

Health Care                                                  12%

Snacks and Beverages                                          5%





                             Percentage Change in Net Sales vs. Prior Year
                          ---------------------------------------------------
                                   Foreign                            Total
                          Volume   Exchange   Pricing   Mix/Other   Net Sales
- -----------------------------------------------------------------------------
                                                     
Fabric and Home Care        9%        1%        -1%       -1%           8%
- -----------------------------------------------------------------------------
Beauty Care                15%        3%        -2%       -2%          14%
- -----------------------------------------------------------------------------
Baby and Family Care        7%        3%        -3%        1%           8%
- -----------------------------------------------------------------------------
Health Care                18%        2%        -2%       -2%          16%
- -----------------------------------------------------------------------------
Snacks and Beverages       -2%        3%        -2%        1%           -%
- -----------------------------------------------------------------------------
Total Company               8%        2%        -2%        -%           8%
- -----------------------------------------------------------------------------


SEGMENT RESULTS

The following pages provide perspective on the Company's business segments. To
reflect management and business changes, the Company realigned its reporting
segments. Effective July 1, 2002, the feminine care business is included in the
Beauty Care segment and the former Baby, Feminine and Family Care segment was
renamed the Baby and Family Care segment. Prior year operating information has
been restated to conform to this change. In addition, the Food and Beverage
segment was renamed Snacks and Beverages to reflect its remaining businesses.
The historical results for the elements of the former Food and Beverage segment
that have been divested or spun off (i.e., Jif, Crisco and commercial
shortening and oils) are now reflected in Corporate.

Product-based segment results exclude items that are not included in measuring
business performance for management reporting purposes, most notably certain
financing, investing, employee benefit and restructuring costs.

Investments in companies over which the Company exerts significant influence,
but does not control the financial and operating decisions, are managed as
integral parts of the Company's business units. Consistent with internal
management reporting, these investments are accounted for as if they were
consolidated subsidiaries in segment reporting, with 100% recognition of the
income statement and separate elimination of minority interest. Entries to
eliminate the individual revenue and expense line items, adjusting the method of
accounting to the equity method as required by accounting principles generally
accepted in the United States of America (U.S. GAAP), are included in Corporate.
Taxes are reflected in the business segments at estimated local statutory tax
rates. The effects of this convention are also eliminated in Corporate to adjust
management reporting conventions to U.S. GAAP.

Fabric and Home Care

Fabric and Home Care delivered balanced top and bottom line growth behind a
program of new product launches and cost reductions. Volume growth of 9% was
balanced across both fabric care and home care as well as across regions, with
particular strength in developing markets. Net sales increased 8% to $12.56
billion. Foreign exchange contributed a positive impact of 1% to overall sales,
driven primarily by the strong Euro. Sales were negatively impacted by 1% due to
pricing investments to deliver improved in-store presence and increased
merchandising, 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, including the launches of Mr. Proper in Western
Europe and Bold in Japan.


26 The Procter & Gamble Company and Subsidiaries                Financial Review

Net earnings were up 12% to $2.06 billion, driven primarily by strong volume
growth, with additional benefits from lower manufacturing costs. Approximately
half of the manufacturing cost savings were achieved from restructuring and base
cost reduction programs, with the remainder coming from a combination of lower
material costs and commodity prices. The impact of strong volumes and lower
manufacturing costs on earnings was partially offset by increased marketing
spending in support of new product launches and expansion of existing brands,
including Bold in Japan, Mr. Proper in Western Europe, and Tide with Bleach and
Swiffer in North America.

For fiscal year 2002, unit volume grew 3%, with growth across every geographic
region. Net sales for the year were flat at $11.62 billion, and were negatively
impacted by 1% of foreign exchange and 2% of negative price and mix. The
negative price and mix was the result of growth in lower-priced products,
including mid-tier brands, larger sizes and developing market business. Net
earnings were $1.83 billion in 2002, up 11% behind lower material prices, cost
savings from product reformulations and manufacturing plant efficiencies.

Beauty Care

Beauty Care delivered double-digit unit volume, sales and net earnings
growth in 2003. Unit volume grew 15%. Excluding the impacts of the Clairol
acquisition, unit volume increased 8% behind solid growth in hair care. Net
sales grew 14% to $12.22 billion, as volume and a positive 3% impact from
foreign exchange were partially offset by a negative 2% impact from pricing and
2% from mix. The pricing impact was driven by price reductions taken to expand
the Company's 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 results also benefited from the Clairol acquisition, which
was completed in the second quarter. Unit volume increased 13%, driving sales
growth of 7% to $10.72 billion. Excluding the impact of the Clairol acquisition,
unit volume increased 3%, primarily behind the base hair care business and fine
fragrances and cosmetics. Sales were negatively impacted by 2% of foreign
exchange, pricing of 1% and product mix of 3%, driven by lower revenue per unit
for the Clairol brands and higher volume growth in developing regions. Earnings
were $1.61 billion, up 18%, driven by more efficient marketing spending against
a growing business and a continued focus on cost reductions.

Baby and Family Care

Baby and Family Care delivered volume growth of 7%. Baby care growth was driven
by the continued success of the Baby Stages of Development initiative launch.
Family care growth was driven by strength in the North American Bounty and
Charmin businesses. Net sales grew 8% to $9.93 billion as 3% positive foreign
exchange impact and 1% positive mix impact were partially offset by a 3%
negative impact from pricing. Positive mix was driven by increased sales of
higher priced, premium tier diapers behind the Baby Stages of Development
initiative launch. 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 grew 20% to $882 million behind continued cost reductions,
primarily achieved through increased scale from volume growth and lower product
cost behind base business and restructuring savings.

In 2002, Baby and Family Care delivered earnings progress driven by volume
growth and extensive cost reductions. Volume grew 5%, with increases in both
baby care and family care. Net sales for the year were essentially flat at $9.23
billion versus 2001 as volume growth was offset by commodity driven price
declines and pricing adjustments on Luvs in North America and diapers in Western
Europe and a negative 2% impact from foreign exchange. Net earnings were $738
million, up 12%, behind an ongoing program of product and overhead cost
reductions, including benefits from restructuring activities that streamlined
manufacturing operations.

Health Care

Health Care delivered 18% volume growth with every geographic region and
category contributing, led by oral care and pharmaceuticals. Oral care grew
behind Crest Whitestrips and Crest Night Effects. Pharmaceutical volume growth
continued behind Actonel, including the Once-a-week dosage. Net sales for the
year were $5.80 billion, an increase of 16% as compared to 2002. A favorable
foreign exchange impact of 2%, driven primarily by the strength of the Euro, was
more than offset by a negative pricing impact of 2%, primarily driven by lower
pricing on Crest Whitestrips to match a competitive entry, and a



Financial Review                The Procter & Gamble Company and Subsidiaries 27

negative mix impact of 2%. The negative product mix impact was primarily driven
by growth in developing regions and a shift in Actonel volume mix, which is sold
under an alliance agreement, to support the global Once-a-week dosage launch.
Under the agreement, the sales rate differs based upon geography.

Net earnings for Health Care were $706 million, an increase of 35%. The majority
of the increase was driven by volume growth and the shift to higher margin
products, partially offset by additional marketing investments to support
product initiatives, including Actonel, Crest Whitestrips and Crest Night
Effects.

In 2002, Health Care delivered a 15% increase in unit volume, driven by growth
in the oral care and pharmaceutical businesses. Net sales increased 14% to $4.98
billion, including a 1% negative impact of foreign exchange. Health Care's
volume growth from high-margin products funded increased marketing investments
while still delivering a net earnings increase of 34% to $521 million.

Snacks and Beverages

Snacks and Beverages 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 prior
year, as a positive 3% impact from foreign exchange and 1% from mix were
partially offset by a negative 2% impact from pricing, primarily driven by price
declines in the coffee category in response to increased competitive promotional
spending. Despite the impact of the tornado and lower volume, net earnings
increased 1% to $306 million, driven by reductions in cost of products sold,
reflecting the impact of both base business and restructuring savings.

In 2002, Snacks and Beverages delivered earnings growth despite top-line
challenges. Unit volume declined 2% and sales declined 6% to $3.25 billion
driven by commodity-related pricing actions in coffee and negative foreign
exchange impacts. Net earnings grew 25%, to $303 million, as broad-based cost
reductions more than offset declining volumes.

In July 2003, the Company announced it was exploring strategic alternatives with
respect to the global juice business, which could include the sale of its brands
and related assets. The impacts of any potential sale of this business are not
currently determinable. While clearly a significant portion of Snacks and
Beverages, the ongoing impacts of a potential divestiture are not expected to be
material to the Company's operations or financial condition.

Corporate

Corporate includes certain operating and non-operating activities 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 line item results
for companies over which the Company exerts significant influence, but does not
control the operations. Operating elements also include intangible asset
amortization charges, restructuring program charges, 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 net sales in 2003 primarily reflected the elimination of sales by
companies over which the Company exerts significant influence, but does not
control. Sales in 2002 included these eliminations along with net sales of the
divested businesses of the former Food and Beverage segment. 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 financing elements
of employee benefit plans and hedging impacts from a stronger Euro, partially
offset by decreased restructuring costs.

In 2002, Corporate earnings reflected lower restructuring costs, lower interest
expense and the discontinuation of amortization of goodwill and indefinite-lived
intangibles. These were partially offset by reduced gains from hedging.



28 The Procter & Gamble Company and Subsidiaries                Financial Review

FINANCIAL CONDITION

The Company's financial condition remains solid, particularly as demonstrated by
cash flow generation. One of the Company's key focus areas is cash management,
including capital spending targets, to achieve superior shareholder return.

Cash

Operating cash flow provides the primary source of funds to finance operating
needs, capital expenditures and shareholder dividends. This is supplemented by
additional borrowings to provide funds to finance the share repurchase program
and acquisitions. The overall cash position of the Company reflects a global
strategy to optimize cash management while considering offshore funding needs,
liquidity management objectives and other economic considerations.

The Company continues to generate strong operating cash flow. In 2003, operating
cash flow was $8.70 billion, up $958 million from $7.74 billion in 2002. The
increase in 2003 was primarily driven by higher earnings. Changes in working
capital also contributed, primarily behind an increase in current liabilities.
Operating cash flow in 2002 was up $1.94 billion from $5.80 billion in 2001,
driven by higher earnings as adjusted for lower depreciation and amortization
charges, and an increase in taxes payable.

Operating cash flow less capital spending, or free cash flow, was $7.22 billion
for 2003, a 19% increase over the prior year. The majority of the year-over-year
improvement was driven by increased earnings with lower capital spending also
contributing. Free cash flow was $6.06 billion in 2002 and $3.32 billion in
2001.

Free Cash Flow
(in billions of dollars)

[BAR CHART]

        
2001       3.32
2002       6.06
2003       7.22



Net cash used for acquisitions in 2003 was $61 million. This compares to $5.47
billion in cash used in 2002, primarily for the Clairol acquisition, and $138
million in 2001. The pending acquisition of Wella AG will be funded using a
combination of debt and available cash balances.

Proceeds from the divestiture of certain non-strategic brands and other asset
sales generated $143 million in cash flow in the current year, compared to $227
million generated in 2002. Divestitures in both years reflect historical levels,
but represent a significant decline when compared to the $788 million generated
in 2001 during the Company's program to divest minor brands.

The Company maintains a share repurchase program, which authorizes the purchase
of shares of Company stock annually on the open market. A primary purpose of the
program is to mitigate the dilutive impact of stock option grants, effectively
prefunding the exercise obligation. Additionally, there is a discretionary
component under which the Company may repurchase additional outstanding shares.
Current year purchases under the combined programs were $1.24 billion,
reflecting a return to historical levels, compared to $568 million in 2002 and
$1.25 billion in 2001. The decline in 2002 was primarily due to cash
requirements associated with the Clairol acquisition.

Common share dividends grew 8% to $1.64 per share in 2003 versus $1.52 in 2002
and $1.40 in 2001. The annual dividend rate will increase 11% to $1.82 per
common share in 2004, marking the 48th consecutive fiscal year of increased
common share dividend payments. Total dividend payments, to both common and
preferred shareholders, were $2.25 billion, $2.10 billion and $1.94 billion in
2003, 2002 and 2001, respectively.

Total debt decreased from $14.93 billion in 2002 to $13.65 billion in 2003, a
reduction of $1.28 billion. Total debt in 2001 was $12.02 billion. The decrease
in 2003 was primarily due to the utilization of cash flow from operations to pay
down existing balances. The increase in debt in 2002 was primarily driven by the
Clairol acquisition.

Long-term borrowing available under the Company's current shelf registration
statement filed in March 2002 was $3.50 billion at June 30, 2003. Additionally,
due to strong credit ratings, the Company is able to issue commercial paper at
favorable rates and to readily access general bank financing. The Company's
Standard & Poor's (S&P) and Moody's short-term credit ratings are A-1+ and P-1,
respectively.

Capital Spending

Capital spending efficiency continues to be a focus area for the Company. Total
capital spending in 2003 was $1.48 billion, a decrease of $197 million compared
to 2002 spending of $1.68 billion. Capital spending in 2001 was $2.49 billion.
Capital spending in 2003 as a percentage of net sales was 3.4%, the lowest level
in over a decade. Capital spending was 4.2% and 6.3% of net sales in 2002 and
2001,



Financial Review                The Procter & Gamble Company and Subsidiaries 29

respectively. This is a result of the systemic interventions the Company has
made to improve capital spending efficiencies and asset utilization and is
primarily the result of lower spending in Baby and Family Care. On an ongoing
basis, while there may be exceptional years when specific business
circumstances, such as capacity additions, may lead to higher spending, the
Company's goal is to maintain capital spending at about 4% of net sales.

Capital Spending
(in billions of dollars)

[BAR CHART]

[PLOT POINTS TO COME]

Guarantees and Other Off-Balance Sheet Arrangements

The Company does not have guarantees or other off-balance sheet financing
arrangements that the Company believes could have a material impact on financial
condition or liquidity.

Purchase Commitments

The Company has purchase commitments for materials, supplies, services and fixed
assets 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 either early termination or failure to purchase
contracted quantities. The Company does not expect potential payments under
these provisions to materially affect results of operations or financial
condition. This conclusion is made based upon reasonably likely outcomes assumed
by reference to historical experience and current business plans.

Liquidity

As discussed previously, the Company's primary source of liquidity is cash
generated from operations. Additionally, the Company is able to support its
short-term liquidity, if necessary, through agreements with a diverse group of
creditworthy financial institutions. The Company has never drawn on these
facilities and does not intend to do so in the foreseeable future. However,
should the facilities be needed, when combined with cash on hand, the Company
believes they would provide sufficient credit funding to meet any short-term
financing requirements. The Company does not have other commitments or related
party transactions that are considered material to the Consolidated Financial
Statements.

KEY ACCOUNTING POLICIES

The Company applies certain key accounting policies as required by accounting
principles generally accepted in the United States of America. These key
accounting policies govern revenue recognition, restructuring, income taxes,
certain employee benefits and goodwill and intangible assets. These accounting
policies, and others set forth in Note 1 to the Consolidated Financial
Statements, are integral to understanding the results of operations and
financial condition of the Company.

Inherent in the application of accounting principles are necessary estimates,
judgments and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Due to the nature of the
Company's 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 the Company's results of operations or
financial condition in any given year.

The Company has discussed the selection of key accounting policies and the
effect of estimates with the Audit Committee of the Company's Board of
Directors.

Revenue Recognition

Sales are recognized when revenue is realized or realizable and earned. Most
revenue transactions represent sales of inventory, and revenue is recognized
when risk and title to the product 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. Given the nature of
the Company's business, revenue recognition practices do not contain estimates
that materially affect results of operations.

Restructuring

Restructuring charges relate to the restructuring program that began in 1999 and
was substantially complete at the end of 2003. The Company provides
forward-looking information about the overall program, including estimated
savings and costs. Such disclosures represent management's best estimate and do
require significant estimates about the program. The specific reserves related
to the restructuring program also require judgment and estimation, but are not
considered highly uncertain. See Note 2 to the Consolidated Financial
Statements.



30 The Procter & Gamble Company and Subsidiaries                Financial Review

Income Taxes

Under SFAS No. 109, "Accounting for Income Taxes," income taxes are recorded
based on the current year amounts payable or refundable, as well as the
consequences of events that give rise to deferred tax assets and liabilities
based on differences in how those events are treated for tax purposes (see Note
10 to the Consolidated Financial Statements). The Company bases its estimate of
deferred tax assets and liabilities on current tax laws and rates and, in
certain cases, business plans and other expectations about future outcomes.

Changes in existing tax laws and rates, and their related interpretations, may
affect the Company's ability to successfully manage regulatory matters around
the world, and future business results may affect the amount of deferred tax
liabilities or the valuation of deferred tax assets over time. The Company's
accounting for deferred tax consequences represents management's best estimate
of future events that can be appropriately reflected in the accounting
estimates. Certain changes or future events, such as changes in legislation, tax
rates or the geographic mix of earnings, could have an impact on the Company's
estimates.

Employee Benefits

The Company sponsors 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.

The expected rates of return on the various defined benefit pension plans'
assets are based on the asset allocation of each plan and the long-term
projected return of those assets, which represent a diversified mix of U.S. and
international corporate equities and government and corporate debt securities.
For 2003, the average return on assets assumption is 7.7%. A change in the rate
of return of 1% would impact annual benefit expense by approximately $10 million
after tax. The rate of return on OPEB assets, comprised primarily of Company
stock, also is based on the long-term projected return and reflects the
historical pattern of favorable returns on the Company's stock relative to
broader market indices (e.g., S&P 500). For 2003, the return on assets
assumption is 9.5%. A 1% change in the rate of return would impact annual
benefit expense by approximately $20 million after tax.

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 5.1% represents a weighted average
of local rates in countries where such plans exist. A 1% reduction in the
discount rate would increase annual benefit expense by approximately $50 million
after tax. The rate on the OPEB plan of 5.8% reflects the higher interest rates
generally available in the U.S., which is where a majority of the plan
participants receive benefits. A 1% reduction in the discount rate would
increase annual benefit expense by approximately $20 million after tax.

Certain defined contribution pension and OPEB benefits in the U.S. are funded by
the Employee Stock Ownership Plan (ESOP), as described in Note 9 to the
Consolidated Financial Statements. The ESOP is accounted for under the
provisions of the American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) No. 76-3, "Accounting Practices for Certain Employee
Stock Ownership Plans." Series A shares are used to fund a portion of the
defined contribution plan. Series B shares, used to fund a portion of retiree
health care benefits, a component of OPEB, are considered plan assets (net of
related debt) under SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions."

The Company also has 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 cost 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 SFAS No. 123, "Accounting for
Stock-Based Compensation." That methodology yields an estimate of fair value
based in part on a number of management estimates, including estimated option
life and future volatility. Changes in these assumptions could significantly
impact the estimated fair value of the stock options.

Goodwill and Intangible Assets

The Company has significant goodwill and intangible assets. Management's
assessment of the recovery of these assets involves a number of estimates. The
Company tests goodwill and indefinite-lived intangible assets for impairment at
least annually. For intangible assets subject to amortization, the Company
reviews 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 Company's assessments to date have indicated that goodwill and
indefinite-lived intangible assets have not been impaired.



Financial Review                The Procter & Gamble Company and Subsidiaries 31

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

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 prices. To manage the volatility relating to these
exposures, the Company evaluates its exposures on a global basis to take
advantage of the netting opportunities that exist. For the remaining exposures,
the Company enters into various derivative transactions in accordance with the
Company's hedging policies. The financial impacts of these hedging instruments
are offset in part or in whole by corresponding changes in the underlying
exposures being hedged. The Company does not hold or issue derivative financial
instruments for speculative trading purposes. Note 7 to the Consolidated
Financial Statements includes a detailed discussion of the Company's 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 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, 2003.
In cases where data is unavailable in RiskMetrics(TM), a reasonable proxy is
included.

The Company's market risk exposures relative to interest and currency rates, as
discussed below, have not changed materially versus the previous reporting
period. In addition, the Company is not aware of any facts or circumstances that
would significantly impact such exposures in the near term.

Interest Rate Exposure

Interest rate swaps are used to hedge underlying debt obligations. Certain
currency interest rate swaps are designated as hedges of the Company's foreign
net investments.

Based on the Company's overall interest rate exposure as of and during the year
ended June 30, 2003, including derivative and other instruments sensitive to
interest rates, the Company does not believe a near-term change in interest
rates, at a 95% confidence level based on historical interest rate movements,
would materially affect the Company's financial statements.

Currency Rate Exposure

The Company manufactures and sells products in a number of countries throughout
the world and, as a result, is 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 the Company's financial
position will be adversely affected by short-term changes in exchange rates.
Corporate policy prescribes the range of allowable hedging activity. The Company
primarily uses forward exchange contracts and purchased options with maturities
of less than 18 months.

In addition, the Company enters into certain currency swaps with maturities of
up to five years to hedge 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 the Company's overall currency rate exposure as of and during the year
ended June 30, 2003, including derivative and other instruments sensitive to
currency movements, the Company does not believe a near-term change in currency
rates, at a 95% confidence level based on historical currency rate movements,
would materially affect the Company's financial statements.

Commodity Price Exposure

Raw materials used by the Company are subject to price volatility caused by
weather, supply conditions, political and economic variables and other
unpredictable factors. The Company uses futures, options and swap contracts to
manage the volatility related to the above exposures. Commodity hedging activity
is not considered material to the Company's financial statements.

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.
The program was designed to accelerate growth and deliver cost reductions by
streamlining management decision-making, manufacturing and other work processes
and discontinuing under-performing businesses and initiatives. Charges for the
program are reflected in Corporate because they are corporate-driven decisions
and are not reflected in the operating results used internally to measure and
evaluate the operating segments.



32 The Procter & Gamble Company and Subsidiaries                Financial Review

The program was substantially complete at the end of 2003. Cumulative charges
through June 30, 2003 totaled $4.85 billion before tax ($3.79 billion after
tax), below the initial estimate of $5.60 billion before tax ($4.40 billion
after tax). Because the program is substantially complete, the Company intends
to discontinue separate reporting of the program in future periods. The Company
will continue to undertake projects to maintain a competitive cost structure,
including manufacturing consolidation and work force rationalization, as a part
of its normal operations.

Summary of Restructuring Charges



                                               Years ended June 30
                                        ----------------------------------
Amounts in millions                      2003          2002          2001
- --------------------------------------------------------------------------
                                                           
Separations                             $  351        $  393        $  341
- --------------------------------------------------------------------------
Accelerated Depreciation                    87           135           276
- --------------------------------------------------------------------------
Asset Write-Downs                          190           208           731
- --------------------------------------------------------------------------
Other                                      123           222           502
- --------------------------------------------------------------------------
TOTAL (BEFORE TAX)                         751           958         1,850
- --------------------------------------------------------------------------
TOTAL (AFTER TAX)                          538           706         1,475
==========================================================================


Separations represent the cost of packages offered to employees, which generally
are accrued upon employee acceptance. The separation packages are predominantly
voluntary and are formula driven based on salary levels and past service.
Separation costs are charged to cost of products sold for manufacturing
employees and marketing, research, administrative and other expense for all
other employees.

Approximately 21,600 separation packages have been provided for through June 30,
2003: 5,000 in 2003, 7,400 in 2002, 6,000 in 2001 and 3,200 from 1999 to 2000.
While all geographies and businesses are impacted by the enrollment reduction
programs, a higher number of United States employees are affected, given the
concentration of operations. The changes in the net enrollment for the Company
are different from the total separations, as terminations have been offset by
increased enrollment at remaining sites, acquisitions and other impacts.

Accelerated depreciation relates to long-lived assets that will be taken out of
service prior to the end of their normal service period due to manufacturing
consolidations, technology standardization, plant closures or strategic choices
to discontinue initiatives. The Company has shortened the estimated useful lives
of such assets, resulting in incremental depreciation expense. For segment and
management reporting purposes, normal depreciation expense is reported by the
business segments, with the incremental accelerated depreciation reported in
Corporate. Accelerated depreciation is charged to cost of products sold for
manufacturing assets and marketing, research, administrative and other expense
for all other assets.

Asset write-downs relate to establishment of new fair-value bases for assets
held for sale or disposal and for assets whose future cash flow expectations
have declined significantly as a direct result of restructuring decisions.
Assets held for sale or disposal represent excess capacity that is in the
process of being removed from service as well as businesses held for sale within
the next 12 months. Such assets are written down to the net amount expected to
be realized upon sale or disposal. Assets continuing in operation, but whose
nominal cash flows are no longer sufficient to recover existing book values, are
written down to estimated fair value, generally determined by reference to the
discounted expected future cash flows. Write-downs of assets that will continue
to be used were approximately $60 million before tax ($40 million after tax) in
2003, $45 million before tax ($33 million after tax) in 2002 and $160 million
before tax ($133 million after tax) in 2001. Asset writedowns are not expected
to significantly impact future annual depreciation expense.

Other contains charges incurred as a direct result of restructuring decisions
including relocation, training, discontinuation of initiatives and the
establishment of global business services and the new legal and organization
structure. These costs are charged to the applicable income statement line item
based on the underlying nature of the charge.

Restructuring accruals are classified as current liabilities. Reserve balances
were $335 million, $245 million and $460 million at June 30, 2003, 2002 and
2001, respectively. Approximately 60% of restructuring charges incurred during
2003 are expected to be settled with cash, compared to 60% in 2002 and 40% in
2001.

Savings from the restructuring program are difficult to estimate, given the
nature of the activities, the corollary benefits achieved, timing and the degree
of reinvestment. Overall, the program is expected to deliver nearly $1.65
billion in after-tax annual savings, including additional after-tax savings of
approximately $200 million in 2004 as a result of charges incurred in the
current year. Estimated after-tax incremental savings delivered were $450
million in 2003, $700 million in 2002, $235 million in 2001 and $65 million in
2000.

While the total charges and incremental savings for the program are less than
previous estimates, the ratio of savings to charges is in line with the original
expectations.



Financial Review                The Procter & Gamble Company and Subsidiaries 33

FORWARD-LOOKING STATEMENTS

The Company has made and will make certain forward-looking statements in the
Annual Report and in other contexts relating to volume and sales growth,
increases in market shares, financial goals and reduction of costs, 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 necessary to achieve
the Company's goals are: (1) the ability to achieve business plans, including
growing existing sales and volume profitably and successfully managing and
integrating key acquisitions (including Wella) and completing planned
divestitures (including a potential sale of the Company's juice business),
despite high levels of competitive activity, especially with respect to the
product categories and geographical markets (including developing markets) on
which the Company has chosen to focus; (2) the ability to manage and maintain
key customer relationships; (3) the ability to maintain key manufacturing and
supply sources (including sole supplier and plant manufacturing sources); (4)
the ability to successfully manage regulatory, tax and legal matters (including
product liability matters), and to resolve pending matters within current
estimates; (5) the ability to successfully implement, achieve and sustain cost
improvement plans in manufacturing and overhead areas, including successful
completion of the Company's outsourcing projects; (6) the ability to
successfully manage currency (including currency issues in volatile countries),
interest rate and certain commodity cost exposures; (7) the ability to manage
the continued global political and/or economic uncertainty, especially in the
Company's significant geographical markets, as well as any political and/or
economic uncertainty due to terrorist activities; and (8) the ability to
successfully manage increases in the prices of raw materials used to make the
Company's products. If the Company's assumptions and estimates are incorrect or
do not come to fruition, or if the Company does not achieve all of these key
factors, then the Company's actual performance could vary materially from the
forward-looking statements made herein.



34 The Procter & Gamble Company and Subsidiaries

INDEPENDENT AUDITORS' REPORT

Deloitte
& Touche

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 as of June 30, 2003 and 2002 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 2003. 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 auditing standards generally accepted
in the United States of America. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at June 30, 2003
and 2002 and the results of its operations and cash flows for each of the three
years in the period ended June 30, 2003, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
250 East Fifth Street                                             July 31, 2003
Cincinnati, Ohio 45202


                                The Procter & Gamble Company and Subsidiaries 35

CONSOLIDATED STATEMENTS OF EARNINGS



                                                                        Years Ended June 30
                                                                 ----------------------------------
Amounts in millions except per share amounts                        2003        2002        2001
- ---------------------------------------------------------------------------------------------------
                                                                                
Net Sales                                                        $   43,377  $   40,238  $   39,244
- ---------------------------------------------------------------------------------------------------
Cost of products sold                                                22,141      20,989      22,102
- ---------------------------------------------------------------------------------------------------
Marketing, research, administrative and other expense                13,383      12,571      12,406
===================================================================================================
Operating Income                                                      7,853       6,678       4,736
===================================================================================================

Interest expense                                                        561         603         794
- ---------------------------------------------------------------------------------------------------
Other non-operating income, net                                         238         308         674
- ---------------------------------------------------------------------------------------------------
Earnings Before Income Taxes                                          7,530       6,383       4,616
- ---------------------------------------------------------------------------------------------------

Income taxes                                                          2,344       2,031       1,694
===================================================================================================
NET EARNINGS                                                     $    5,186  $    4,352  $    2,922
===================================================================================================

BASIC NET EARNINGS PER COMMON SHARE                              $     3.90  $     3.26  $     2.15
- ---------------------------------------------------------------------------------------------------
DILUTED NET EARNINGS PER COMMON SHARE                            $     3.69  $     3.09  $     2.07
- ---------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE                                       $     1.64  $     1.52  $     1.40
===================================================================================================


See accompanying Notes to Consolidated Financial Statements





36 The Procter & Gamble Company and Subsidiaries

CONSOLIDATED BALANCE SHEETS

ASSETS



                                                        June 30
                                                ----------------------
Amounts in millions                                2003          2002
- ----------------------------------------------------------------------
                                                        
Current Assets
- ----------------------------------------------------------------------
Cash and cash equivalents                       $  5,912      $  3,427
- ----------------------------------------------------------------------
Investment securities                                300           196
- ----------------------------------------------------------------------
Accounts receivable                                3,038         3,090
- ----------------------------------------------------------------------
Inventories
- ----------------------------------------------------------------------
  Materials and supplies                           1,095         1,031
- ----------------------------------------------------------------------
  Work in process                                    291           323
- ----------------------------------------------------------------------
  Finished goods                                   2,254         2,102
======================================================================
  Total Inventories                                3,640         3,456
======================================================================
Deferred income taxes                                843           521
- ----------------------------------------------------------------------
Prepaid expenses and other receivables             1,487         1,476
======================================================================
TOTAL CURRENT ASSETS                              15,220        12,166
======================================================================

Property, Plant and Equipment
- ----------------------------------------------------------------------
  Buildings                                        4,729         4,532
- ----------------------------------------------------------------------
  Machinery and equipment                         18,222        17,963
- ----------------------------------------------------------------------
  Land                                               591           575
======================================================================
                                                  23,542        23,070
- ----------------------------------------------------------------------
  Accumulated depreciation                       (10,438)       (9,721)
======================================================================
NET PROPERTY, PLANT AND EQUIPMENT                 13,104        13,349
======================================================================

Goodwill and Other Intangible Assets
- ----------------------------------------------------------------------
  Goodwill                                        11,132        10,966
- ----------------------------------------------------------------------
  Trademarks and other intangible assets, net      2,375         2,464
======================================================================
NET GOODWILL AND OTHER INTANGIBLE ASSETS          13,507        13,430
======================================================================

Other Non-Current Assets                           1,875         1,831
======================================================================
TOTAL ASSETS                                    $ 43,706      $ 40,776
======================================================================


See accompanying Notes to Consolidated Financial Statements





                                The Procter & Gamble Company and Subsidiaries 37

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY



                                                        June 30
                                                ------------------------
Amounts in millions                                2003          2002
- ------------------------------------------------------------------------
                                                        
Current Liabilities
- ------------------------------------------------------------------------
Accounts payable                                $    2,795    $    2,205
- ------------------------------------------------------------------------
Accrued and other liabilities                        5,512         5,330
- ------------------------------------------------------------------------
Taxes payable                                        1,879         1,438
- ------------------------------------------------------------------------
Debt due within one year                             2,172         3,731
========================================================================
TOTAL CURRENT LIABILITIES                           12,358        12,704
========================================================================

Long-Term Debt                                      11,475        11,201
- ------------------------------------------------------------------------
Deferred Income Taxes                                1,396         1,077
- ------------------------------------------------------------------------
Other Non-Current Liabilities                        2,291         2,088
========================================================================
TOTAL LIABILITIES                                   27,520        27,070
========================================================================

Shareholders' Equity
- ------------------------------------------------------------------------
Convertible Class A preferred stock,
 stated value $1 per share
 (600 shares authorized)                             1,580         1,634
- ------------------------------------------------------------------------
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:
 2003 - 1,297.2, 2002 - 1,300.8)                     1,297         1,301
- ------------------------------------------------------------------------
Additional paid-in capital                           2,931         2,490
- ------------------------------------------------------------------------
Reserve for ESOP debt retirement                    (1,308)       (1,339)
- ------------------------------------------------------------------------
Accumulated other comprehensive income              (2,006)       (2,360)
- ------------------------------------------------------------------------
Retained earnings                                   13,692        11,980
========================================================================
TOTAL SHAREHOLDERS' EQUITY                          16,186        13,706
========================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $   43,706    $   40,776
========================================================================


See accompanying Notes to Consolidated Financial Statements





38 The Procter & Gamble Company and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



                                                                                        Accumulated
                                     Common                     Additional Reserve for     Other                          Total
Dollars in millions/                 Shares   Common  Preferred  Paid-In    ESOP Debt  Comprehensive Retained          Comprehensive
Shares in thousands               Outstanding  Stock    Stock     Capital  Retirement     Income      Income   Total      Income
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                            
Balance June 30, 2000              1,305,867  $1,306  $  1,737  $ 1,794    $   (1,418) $     (1,842) $10,710  $12,287
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                                                           2,922    2,922   $    2,922
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income:
- ----------------------------------------------------------------------------------------------------------------------------------
  Financial statement translation                                                              (715)             (715)        (715)
- ----------------------------------------------------------------------------------------------------------------------------------
  Net investment hedges,
- ----------------------------------------------------------------------------------------------------------------------------------
   net of $276 tax                                                                              460               460          460
- ----------------------------------------------------------------------------------------------------------------------------------
  Other, net of tax benefit                                                                     (23)              (23)         (23)
- ----------------------------------------------------------------------------------------------------------------------------------
  Total comprehensive income                                                                                            $    2,644
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------------
  Common                                                                                              (1,822)  (1,822)
- ----------------------------------------------------------------------------------------------------------------------------------
  Preferred, net of tax benefit                                                                         (121)    (121)
- ----------------------------------------------------------------------------------------------------------------------------------
Treasury purchases                   (18,238)    (18)                 6(1)                            (1,238)  (1,250)
- ----------------------------------------------------------------------------------------------------------------------------------
Employee plan issuances                5,924       6                223                                           229
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred stock conversions            2,185       2       (36)      34                                             -
- ----------------------------------------------------------------------------------------------------------------------------------
ESOP debt guarantee reduction                                                      43                              43
- ----------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2001              1,295,738   1,296     1,701    2,057        (1,375)       (2,120)  10,451   12,010
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                                                           4,352    4,352   $    4,352
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income:
- ----------------------------------------------------------------------------------------------------------------------------------
  Financial statement translation                                                               263               263          263
- ----------------------------------------------------------------------------------------------------------------------------------
  Net investment hedges,
- ----------------------------------------------------------------------------------------------------------------------------------
   net of $238 tax                                                                             (397)             (397)        (397)
- ----------------------------------------------------------------------------------------------------------------------------------
  Other, net of tax benefits                                                                   (106)             (106)        (106)
- ----------------------------------------------------------------------------------------------------------------------------------
  Total comprehensive income                                                                                            $    4,112
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------------
  Common                                                                                              (1,971)  (1,971)
- ----------------------------------------------------------------------------------------------------------------------------------
  Preferred, net of tax benefits                                                                        (124)    (124)
- ----------------------------------------------------------------------------------------------------------------------------------
  Spin-off of Jif and Crisco                                                                            (150)    (150)
- ----------------------------------------------------------------------------------------------------------------------------------
Treasury purchases                    (7,681)     (8)                18(1)                              (578)    (568)
- ----------------------------------------------------------------------------------------------------------------------------------
Employee plan issuances                8,323       9                352                                           361
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred stock conversions            4,390       4       (67)      63                                             -
- ----------------------------------------------------------------------------------------------------------------------------------
ESOP debt guarantee reduction                                                      36                              36
- ----------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2002              1,300,770   1,301     1,634    2,490        (1,339)       (2,360)  11,980   13,706
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                                                           5,186    5,186   $    5,186
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income:
- ----------------------------------------------------------------------------------------------------------------------------------
  Financial statement translation                                                               804               804          804
- ----------------------------------------------------------------------------------------------------------------------------------
  Net investment hedges,
- ----------------------------------------------------------------------------------------------------------------------------------
   net of $251 tax                                                                             (418)             (418)        (418)
- ----------------------------------------------------------------------------------------------------------------------------------
  Other, net of tax benefits                                                                    (32)              (32)         (32)
- ----------------------------------------------------------------------------------------------------------------------------------
  Total comprehensive income                                                                                            $    5,540
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------------
  Common                                                                                              (2,121)  (2,121)
- ----------------------------------------------------------------------------------------------------------------------------------
  Preferred, net of tax benefit                                                                         (125)    (125)
- ----------------------------------------------------------------------------------------------------------------------------------
Treasury purchases                   (14,138)    (14)                 6(1)                            (1,228)  (1,236)
- ----------------------------------------------------------------------------------------------------------------------------------
Employee plan issuances                7,156       7                384                                           391
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred stock conversions            3,409       3       (54)      51                                             -
- ----------------------------------------------------------------------------------------------------------------------------------
ESOP debt guarantee reduction                                                      31                              31
- ----------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2003              1,297,197  $1,297  $  1,580  $ 2,931    $   (1,308) $     (2,006) $13,692  $16,186
- ----------------------------------------------------------------------------------------------------------------------------------


(1) Premium on equity put options.

See accompanying Notes to Consolidated Financial Statements





                                The Procter & Gamble Company and Subsidiaries 39

CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                        Years Ended June 30
                                                                 ---------------------------------
Amounts in millions                                                2003         2002         2001
- --------------------------------------------------------------------------------------------------
                                                                                  
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                     $ 3,427      $ 2,306      $ 1,415
- --------------------------------------------------------------------------------------------------
Operating Activities
- --------------------------------------------------------------------------------------------------
Net earnings                                                       5,186        4,352        2,922
- --------------------------------------------------------------------------------------------------
Depreciation and amortization                                      1,703        1,693        2,271
- --------------------------------------------------------------------------------------------------
Deferred income taxes                                                 63          389         (102)
- --------------------------------------------------------------------------------------------------
Change in accounts receivable                                        163           96         (122)
- --------------------------------------------------------------------------------------------------
Change in inventories                                                (56)         159          (67)
- --------------------------------------------------------------------------------------------------
Change in accounts payable, accrued and other liabilities            936          684          801
- --------------------------------------------------------------------------------------------------
Change in other operating assets and liabilities                     178          (98)          57
- --------------------------------------------------------------------------------------------------
Other                                                                527          467           44
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING ACTIVITIES                                         8,700        7,742        5,804
- --------------------------------------------------------------------------------------------------
Investing Activities
- --------------------------------------------------------------------------------------------------
Capital expenditures                                              (1,482)      (1,679)      (2,486)
- --------------------------------------------------------------------------------------------------
Proceeds from asset sales                                            143          227          788
- --------------------------------------------------------------------------------------------------
Acquisitions                                                         (61)      (5,471)        (138)
- --------------------------------------------------------------------------------------------------
Change in investment securities                                     (107)          88           (7)
- --------------------------------------------------------------------------------------------------
TOTAL INVESTING ACTIVITIES                                        (1,507)      (6,835)      (1,843)
- --------------------------------------------------------------------------------------------------
Financing Activities
- --------------------------------------------------------------------------------------------------
Dividends to shareholders                                         (2,246)      (2,095)      (1,943)
- --------------------------------------------------------------------------------------------------
Change in short-term debt                                         (2,052)       1,394       (1,092)
- --------------------------------------------------------------------------------------------------
Additions to long-term debt                                        1,230        1,690        1,356
- --------------------------------------------------------------------------------------------------
Reductions of long-term debt                                      (1,060)        (461)        (226)
- --------------------------------------------------------------------------------------------------
Proceeds from the exercise of stock options                          269          237          141
- --------------------------------------------------------------------------------------------------
Treasury purchases                                                (1,236)        (568)      (1,250)
- --------------------------------------------------------------------------------------------------
TOTAL FINANCING ACTIVITIES                                        (5,095)         197       (3,014)
- --------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents         387           17          (56)
- --------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS                                2,485        1,121          891
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $ 5,912      $ 3,427      $ 2,306
- --------------------------------------------------------------------------------------------------

Supplemental Disclosure
- --------------------------------------------------------------------------------------------------
Cash payments for:
- --------------------------------------------------------------------------------------------------
  Interest                                                       $   538      $   629      $   735
- --------------------------------------------------------------------------------------------------
  Income taxes                                                     1,703          941        1,701
- --------------------------------------------------------------------------------------------------
Non-cash spin-off of Jif and Crisco businesses                         -          150            -
- --------------------------------------------------------------------------------------------------
Liabilities assumed in acquisitions                                    -          571          108
- --------------------------------------------------------------------------------------------------


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

Basis of Presentation

The Consolidated Financial Statements include The Procter & Gamble Company and
its controlled subsidiaries (the Company). Intercompany transactions are
eliminated in consolidation, except for certain translation impacts resulting
from the application of Statement of Financial Accounting Standards (SFAS) No.
52, "Foreign Currency Translation." Investments in companies over which the
Company exerts significant influence, but does not control the financial and
operating decisions, are managed as integral parts of the Company's business
units. Consistent with internal management reporting, these investments are
accounted for as if they were consolidated subsidiaries in segment reporting,
with 100% recognition of the individual income statement line items and separate
elimination of the minority interest. Entries to eliminate the individual
revenues and expenses, adjusting the method of accounting to the equity method
as required by accounting principles generally accepted in the United States of
America (U.S. GAAP), are included in Corporate.

Use of Estimates

Preparation of financial statements in conformity with 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 under take in the future. Actual results may ultimately differ
from estimates, although management does not believe such changes will
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 risk
and title to the product transfers 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 within 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 (see Note 5).

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.
Reimbursements of shipping and handling costs charged to customers are included
in net sales.

Marketing, Research, Administrative and Other

Marketing, research, administrative and other expenses primarily include: the
cost of media, advertising and related marketing costs; selling expenses;
research and development; corporate, administrative and other indirect overhead
costs; and other miscellaneous operating items.

Currency Translation

Financial statements of subsidiaries outside the United States 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 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 cash flows arising from investing and financing
activities, which are 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 cash flows from 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.

Millions of dollars except per share amounts



                                                     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              The Procter & Gamble Company and Subsidiaries 41



Cash Equivalents

Highly liquid investments with maturities of three months or less when purchased
are considered cash equivalents and recorded at cost, which approximates fair
value.

Investment Securities

Investment securities consist of short-term readily marketable instruments that
mature within one year. 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.

Inventory Valuation

Inventories are valued at cost, which is not in excess of current market prices.
Product-related inventories are primarily maintained on the first-in, first-out
method. Minor amounts of product inventories, including certain pet health,
cosmetics and commodities are maintained on the last-in, first-out method. The
replacement cost of last-in, first-out inventories exceeded carrying value by
approximately $26 and $27 at June 30, 2003 and 2002, respectively. 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. The Company's policy
is to amortize trademarks with determinable lives over periods ranging from 5 to
40 years. Patents, technology and other intangibles with contractual terms are
amortized over the respective contractual lives, with the remainder generally
amortized over periods ranging from 5 to 20 years. Goodwill and indefinite-lived
intangibles are not amortized, but are evaluated annually for impairment. The
annual evaluation is based on valuation models that incorporate expected future
cash flows and profitability projections. To date, there has been no impairment
of these assets. Prior to 2002, goodwill was amortized over periods not
exceeding 40 years.

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 (3 to 5-year
lives), manufacturing equipment (3 to 20-year lives) and building services
(20-year life). Buildings are depreciated over an estimated useful life of 40
years. Estimated useful lives are periodically reviewed and, where appropriate,
changes are made prospectively.

Fair Values of Financial Instruments

Fair values of cash equivalents, short-term and long-term investments and
short-term debt approximate cost. The estimated fair values of other financial
instruments, including debt, equity and financial 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.

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 cost has resulted.

Had compensation cost 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
                                     -----------------------------
                                      2003       2002        2001
- ------------------------------------------------------------------
                                                   
Net Earnings
- ------------------------------------------------------------------
    As reported                      $5,186     $4,352      $2,922
- ------------------------------------------------------------------
    Pro forma adjustments              (398)      (442)       (310)
- ------------------------------------------------------------------
    PRO FORMA                         4,788      3,910       2,612
- ------------------------------------------------------------------

Net Earnings Per Common Share
- ------------------------------------------------------------------
Basic
- ------------------------------------------------------------------
    As reported                      $ 3.90     $ 3.26      $ 2.15
- ------------------------------------------------------------------
    Pro forma adjustments             (0.30)     (0.34)      (0.23)
- ------------------------------------------------------------------
    PRO FORMA                          3.60       2.92        1.92
- ------------------------------------------------------------------
Diluted
- ------------------------------------------------------------------
    As reported                        3.69       3.09        2.07
- ------------------------------------------------------------------
    Pro forma adjustments             (0.28)     (0.32)      (0.22)
- ------------------------------------------------------------------
    PRO FORMA                          3.41       2.77        1.85
- ------------------------------------------------------------------


                                    Millions of dollars except per share amounts



                                                     
42 The Procter & Gamble Company and Subsidiaries        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Reclassifications

Certain reclassifications of prior years' amounts have been made to conform to
the current year presentation.

New Pronouncements

On July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 eliminates the amortization of
goodwill and indefinite-lived intangible assets and initiates an annual
review for impairment. Identifiable intangible assets with determinable
useful lives continue to be amortized.

On July 1, 2002, the Company adopted SFAS No. 143, "Accounting for Asset
Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 143 addresses the financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. Adoption of this
Statement did not have a material impact on the Company's financial statements.
SFAS No. 144 addresses the financial accounting and re porting for the
impairment or disposal of long-lived assets. This Statement did not have a
material impact on the Company's financial statements.

The Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," for exit or disposal activities that were initiated after
December 31, 2002. This Statement requires these costs to be recognized pursuant
to specific guidance on when the liability is incurred and not at project
initiation. This Statement did not have a material impact on the Company's
financial statements.

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
This Statement amends the transition alter- natives for companies choosing to
adopt the fair value method of accounting for the compensation cost of options
issued to employees and requires additional disclosure on all stock-based
compensation plans. The Company has adopted the disclosure provisions.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 addresses the disclosures to
be made by a guarantor in its financial statements about its obligations under
certain guarantees and clarifies the need for a guarantor to recognize, at the
inception of certain guarantees, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of the Interpretation were adopted by the Company for
guarantees issued or modified after December 31, 2002. Adoption of FIN No. 45
did not have a material impact on the Company's financial statements.

In January 2003, the FASB is issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
the primary economic beneficiary as a result of their variable economic
interests. The adoption of FIN No. 46 on July 1, 2003 did not have a material
impact on the Company's financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." In May 2003, the FASB issued
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." The Company will adopt both SFAS No. 149 and
SFAS No. 150 on July 1, 2003 and does not expect these Statements to materially
impact the Company's financial statements.

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.
The program was designed to accelerate growth and deliver cost reductions by
streamlining management decision making, manufacturing and other work processes
and discontinuing under-performing businesses and initiatives. Costs include
separation-related costs, asset write-downs, accelerated depreciation and other
costs directly related to the restructuring effort.

Since inception, the overall program resulted in total charges of $4.85 billion
before tax ($3.79 billion after tax). At the end of 2003, this restructuring
program was substantially complete.

Many restructuring charges are not recognized at project initiation, but rather
are charged to expense as established criteria for recognition are met. This
accounting yields ongoing charges over the entire restructuring period, rather
than a large reserve at initiation. Charges for the program are reflected in
Corporate because they are corporate-driven decisions and are not reflected in
the operating results used internally to measure and evaluate the operating
segments.

Millions of dollars except per share amounts



                                                     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              The Procter & Gamble Company and Subsidiaries 43



Before-tax restructuring activity was as follows:



                                         Asset         Accelerated
                        Separations   Write-Downs     Depreciation     Other       Total
- -----------------------------------------------------------------------------------------
                                                                   
RESERVE BALANCE
  JUNE 30, 2000            $  88         $   -           $   -        $    -      $    88
- -----------------------------------------------------------------------------------------
2001
- -----------------------------------------------------------------------------------------
Charges                      341           731             276           502        1,850
- -----------------------------------------------------------------------------------------
Cash spent                  (186)            -               -          (199)        (385)
- -----------------------------------------------------------------------------------------
Charged against
  assets                       -          (731)           (276)          (86)      (1,093)
- -----------------------------------------------------------------------------------------
RESERVE BALANCE
  JUNE 30, 2001              243             -               -           217          460
- -----------------------------------------------------------------------------------------
2002
- -----------------------------------------------------------------------------------------
Charges                      393           208             135           222          958
- -----------------------------------------------------------------------------------------
Cash spent                  (477)            -               -          (336)        (813)
- -----------------------------------------------------------------------------------------
Charged against
  assets                       -          (208)           (135)          (17)        (360)
- -----------------------------------------------------------------------------------------
RESERVE BALANCE
  JUNE 30, 2002              159             -               -            86          245
- -----------------------------------------------------------------------------------------
2003
- -----------------------------------------------------------------------------------------
Charges                      351           190              87           123          751
- -----------------------------------------------------------------------------------------
Cash spent                  (265)            -               -           (94)        (359)
- -----------------------------------------------------------------------------------------
Charged against
  assets                       -          (190)            (87)          (25)        (302)
- -----------------------------------------------------------------------------------------
RESERVE BALANCE
  JUNE 30, 2003              245             -               -            90          335
- -----------------------------------------------------------------------------------------


Separation Costs

Employee separation charges relate to severance packages for approximately 5,000
people in 2003, 7,400 people in 2002 and 6,000 people in 2001. The packages are
predominantly voluntary and are formula driven based on salary levels and past
service. Severance costs related to voluntary separations are charged to
earnings when the employee accepts the offer. The separations span the entire
organization, including manufacturing, selling, research and administrative
positions across substantially all geographies. Separation costs are charged to
cost of products sold for manufacturing employees and marketing, research,
administrative and other expense for all other employees.

Asset Write-Downs

Asset write-downs relate to the establishment of new carrying values for assets
held for sale or disposal. These assets represent excess capacity in the process
of being removed from service or disposed of, as well as assets held for sale in
the next 12 months. These assets are written down to the amounts expected to be
realized upon sale or disposal, less minor disposal costs. Such before-tax
charges were $130 in 2003, $163 in 2002 and $571 in 2001 and are generally
included in cost of products sold.

Additionally, asset write-downs include certain manufacturing assets that are
expected to operate at levels significantly below their planned capacity,
primarily capital expansions related to recent initiatives that have not met
expectations. The projected cash flows from such assets over their remaining
useful lives are no longer estimated to be greater than their current carrying
values; therefore, they are written down to estimated fair value, generally
determined by reference to discounted expected future cash flows. Such
before-tax charges were $60 in 2003, $45 in 2002 and $160 in 2001 and generally
are included in cost of products sold.

Accelerated Depreciation

Charges for accelerated depreciation relate to long-lived assets that will be
taken out of service prior to the end of their normal service period due to
manufacturing consolidations, technology standardization, plant closures or
strategic choices to discontinue initiatives. The Company has shortened the
estimated useful lives of such assets, resulting in incremental depreciation
expense. Accelerated depreciation is charged to cost of products sold for
manufacturing assets and marketing, research, administrative and other expense
for all other assets.

Other Restructuring Charges

Other costs incurred as a direct result of the program include relocation,
training, certain costs associated with discontinuation of initiatives and the
establishment of global business services, and the new legal and organization
structure. These costs are charged to the applicable income statement line item
based on the underlying nature of the charge.

NOTE 3 ACQUISITIONS AND SPIN-OFF

2003 Acquisitions

In March 2003, the Company reached an agreement with the controlling
shareholders of Wella AG, a beauty and hair care company based in Darmstadt,
Germany, to acquire 77.6% of the voting class shares. In June 2003, the Company
completed a tender offer for the remaining outstanding voting class shares and
preference shares, securing approximately 81% of the outstanding Wella shares
(99% of the voting class shares and 45% of the preference shares). Total
consideration for shares to be acquired under the agreement with the controlling
shareholders and the tender offer is 4.65 billion Euros (approximately $5.35
billion based on June 30, 2003 exchange rates). The acquisition will be financed
with a combination of available cash and debt. Completion of the transaction is
expected to occur in the first quarter of fiscal 2004.

                                    Millions of dollars except per share amounts



                                                     
44 The Procter & Gamble Company and Subsidiaries        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2002 Acquisitions

In 2002, purchase acquisitions, primarily the Clairol business, totaled $5.47
billion and resulted in additions to goodwill of $3.61 billion and other
intangible assets of $1.73 billion.

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 years ended
June 30, 2002 and 2001 as if Clairol had been acquired as of the beginning of
each fiscal year presented. Pro forma information for 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 debt and amortization of intangible assets, excluding goodwill
and indefinite-lived intangibles. 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.



                                        Years ended June 30
                                        -------------------
Pro forma results                         2002        2001
- -----------------------------------------------------------
                                              
Net Sales                               $40,780     $40,801
- -----------------------------------------------------------
Net Earnings                              4,406       2,927
- -----------------------------------------------------------
Diluted Net Earnings per Common Share   $  3.13     $  2.07
- -----------------------------------------------------------


The following table presents the allocation of purchase price related to the
Clairol business as of the date of acquisition.



                                   Opening Balance
- --------------------------------------------------
                                
Current assets                         $  487
- --------------------------------------------------
Property, plant and equipment             184
- --------------------------------------------------
Intangible assets                       1,533
- --------------------------------------------------
Goodwill (1)                            3,300
- --------------------------------------------------
Other non-current assets                   18
- --------------------------------------------------
TOTAL ASSETS ACQUIRED                   5,522
- --------------------------------------------------

Current liabilities                       450
- --------------------------------------------------
Non-current liabilities                    47
- --------------------------------------------------
TOTAL LIABILITIES ASSUMED                 497
- --------------------------------------------------
NET ASSETS ACQUIRED                     5,025
- --------------------------------------------------


(1) Approximately $2,600 in goodwill is deductible for tax purposes.

The Company finalized the purchase price allocation of Clairol in the second
quarter of 2003. There were no significant changes to the initial allocation.

The Clairol acquisition resulted in $3,330 in goodwill, all of which was
allocated to the Beauty Care segment, and $1,533 in total intangible assets
acquired with $1,220 allocated to trademarks with indefinite lives. The
remaining $313 of acquired intangibles have determinable useful lives and were
assigned to trademarks ($128), patents and technology ($146) and other
intangible assets ($39). Total intangible assets acquired with determinable
lives have a weighted average useful life of 9 years (11 years for trademarks, 9
years for patents and technology and 5 years for other intangible assets).

The Company completed a buyout of the purchase price contingency associated with
the prior acquisition of Dr. John's Spinbrush during 2002. The total adjusted
purchase price approximates $475, with the incremental payment resulting in
additional goodwill in the Health Care segment.

2001 Acquisitions

In 2001, purchase acquisitions totaled $246 resulting in additions to goodwill
and other intangibles of $208.

2002 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.

NOTE 4  GOODWILL AND INTANGIBLE ASSETS

The change in the net carrying amount of goodwill for the years ended June 30,
2003 and 2002 was allocated by reportable business segment as follows:

Millions of dollars except per share amounts



                                                     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              The Procter & Gamble Company and Subsidiaries 45





                                                    2003       2002
- ---------------------------------------------------------------------
                                                       
Fabric and Home Care, beginning of year           $    451   $    457
- ---------------------------------------------------------------------
    Translation and other                                9         (6)
- ---------------------------------------------------------------------
  END OF YEAR                                          460        451
- ---------------------------------------------------------------------
Baby and Family Care, beginning of year                830        987
- ---------------------------------------------------------------------
    Translation and other                               54       (157)
- ---------------------------------------------------------------------
  END OF YEAR                                          884        830
- ---------------------------------------------------------------------
Beauty Care, beginning of year                       6,542      3,163
- ---------------------------------------------------------------------
    Acquisitions                                         -      3,330
- ---------------------------------------------------------------------
    Translation and other                               58         49
- ---------------------------------------------------------------------
  END OF YEAR                                        6,600      6,542
- ---------------------------------------------------------------------
Health Care, beginning of year                       2,866      2,544
- ---------------------------------------------------------------------
    Acquisitions                                         -        284
- ---------------------------------------------------------------------
    Translation and other                               42         38
- ---------------------------------------------------------------------
  END OF YEAR                                        2,908      2,866
- ---------------------------------------------------------------------
Snacks and Beverages, beginning of year                277        278
- ---------------------------------------------------------------------
    Translation and other                                3         (1)
- ---------------------------------------------------------------------
  END OF YEAR                                          280        277
- ---------------------------------------------------------------------
Goodwill, Net, beginning of year                    10,966      7,429
- ---------------------------------------------------------------------
    Acquisitions                                         -      3,614
- ---------------------------------------------------------------------
    Translation and other                              166        (77)
- ---------------------------------------------------------------------
  END OF YEAR                                       11,132     10,966
- ---------------------------------------------------------------------


Feminine care goodwill was moved from Baby and Family Care to Beauty Care for
all periods presented, consistent with the segment realignment discussed in Note
12.

Identifiable intangible assets as of June 30, 2003 and 2002 were composed of:



                                 June 30, 2003            June 30, 2002
                            -------------------------------------------------
                              Gross                    Gross
                            Carrying   Accumulated    Carrying   Accumulated
                             Amount    Amortization    Amount    Amortization
- -----------------------------------------------------------------------------
                                                     
Intangible Assets with
 Determinable Lives
Trademarks                   $  499       $   85       $  457    $         48
- -----------------------------------------------------------------------------
Patents and technology          492          204          494             160
- -----------------------------------------------------------------------------
Other                           316          140          385             173
- -----------------------------------------------------------------------------
                              1,307          429        1,336             381
- -----------------------------------------------------------------------------
Trademarks with
 Indefinite Lives             1,666          169        1,678             169
- -----------------------------------------------------------------------------
                              2,973          598        3,014             550
- -----------------------------------------------------------------------------


The amortization of intangible assets for the years ended June 30, 2003, 2002
and 2001 was $100, $97 and $80, respectively. Amortization of intangibles is
determined based on the estimated useful life of the underlying asset as more
fully discussed in Note 1. Estimated amortization expense over the next five
years is as follows: 2004 - $95, 2005 - $92, 2006 - $91, 2007 - $61 and 2008 -
$51. Such estimates do not reflect the impact of future foreign exchange rate
changes or the pending acquisition of Wella AG (see Note 3).

The following table provides pro forma disclosure of net earnings and earnings
per common share for the year ended June 30, 2001 as if goodwill and
indefinite-lived intangible assets had not been amortized.



Pro forma results                                       2001
- -------------------------------------------------------------
                                                   
Net earnings                                          $ 2,922
- -------------------------------------------------------------
Amortization, net of tax (1)                              218
- -------------------------------------------------------------
ADJUSTED NET EARNINGS                                   3,140
- -------------------------------------------------------------

Basic net earnings per common share                   $  2.15
- -------------------------------------------------------------
Amortization, net of tax (1)                             0.15
- -------------------------------------------------------------
ADJUSTED BASIC NET EARNINGS PER COMMON SHARE             2.30
- -------------------------------------------------------------

Diluted net earnings per common share                    2.07
- -------------------------------------------------------------
Amortization, net of tax (1)                             0.15
- -------------------------------------------------------------
ADJUSTED DILUTED NET EARNINGS PER COMMON SHARE           2.22
- -------------------------------------------------------------


(1) Amortization of goodwill and indefinite-lived in tangible assets.

NOTE 5 SUPPLEMENTAL FINANCIAL INFORMATION

Selected components of current and non-current liabilities were as follows:



                                              June 30
                                          ---------------
                                           2003     2002
- ---------------------------------------------------------
                                             
Accrued and Other Current Liabilities
Marketing and promotion                   $1,802   $1,658
- ---------------------------------------------------------
Compensation expenses                        804      771
- ---------------------------------------------------------
Restructuring reserves                       335      245
- ---------------------------------------------------------
Other                                      2,571    2,656
- ---------------------------------------------------------
                                           5,512    5,330
- ---------------------------------------------------------

Other Non-Current Liabilities
Pension benefits                          $1,301   $1,158
- ---------------------------------------------------------
Other postretirement benefits                181      344
- ---------------------------------------------------------
Other                                        809      586
- ---------------------------------------------------------
                                           2,291    2,088
- ---------------------------------------------------------


                                    Millions of dollars except per share amounts


                                                        
46 The Procter & Gamble Company and Subsidiaries           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Selected Operating Expenses

Research and development costs are charged to earnings as incurred and were
$1,665 in 2003, $1,601 in 2002 and $1,769 in 2001. Advertising costs are charged
to earnings as incurred and were $4,373 in 2003, $3,773 in 2002 and $3,612 in
2001. Both of these are components of marketing, research, administrative and
other expense.

NOTE 6 SHORT-TERM AND LONG-TERM DEBT



                                                       June 30
                                                 -------------------
                                                  2003         2002
- --------------------------------------------------------------------
                                                        
Short-Term Debt
USD commercial paper                             $  717       $2,142
- --------------------------------------------------------------------
Non-USD commercial paper                            147          461
- --------------------------------------------------------------------
Current portion of long-term debt                 1,093          618
- --------------------------------------------------------------------
Other                                               215          510
- --------------------------------------------------------------------
                                                  2,172        3,731
- --------------------------------------------------------------------


The weighted average short-term interest rates were 3.6% and 2.9% as of June 30,
2003 and 2002, respectively. The rate increase reflected a change in mix between
short-term debt and the current portion of long-term debt.



                                                          June 30
                                                   ----------------------
                                                     2003         2002
- -------------------------------------------------------------------------
                                                          
Long-Term Debt
5.25% USD note due September, 2003                 $    750     $     750
- -------------------------------------------------------------------------
8.00% USD note due November, 2003                       200           200
- -------------------------------------------------------------------------
6.60% USD note due December, 2004                     1,000         1,000
- -------------------------------------------------------------------------
4.00% USD note due April, 2005                          400           400
- -------------------------------------------------------------------------
5.75% EUR note due September, 2005                    1,725         1,478
- -------------------------------------------------------------------------
1.50% JPY note due December, 2005                       459           459
- -------------------------------------------------------------------------
3.50% CHEF note due February, 2006                      222           201
- -------------------------------------------------------------------------
4.75% USED note due June, 2007                        1,000         1,000
- -------------------------------------------------------------------------
6.13% USD note due May, 2008                            500           500
- -------------------------------------------------------------------------
4.30% USD note due August, 2008                         500             -
- -------------------------------------------------------------------------
6.88% USD note due September, 2009                    1,000         1,000
- -------------------------------------------------------------------------
2.00% JPY note due June, 2010                           417           417
- -------------------------------------------------------------------------
9.36% Series B ESOP debentures due 2007-2021          1,000         1,000
- -------------------------------------------------------------------------
8.00% USD note due September, 2024                      200           200
- -------------------------------------------------------------------------
6.45% USD note due January, 2026                        300           300
- -------------------------------------------------------------------------
6.25% GBP note due January, 2030                        827           763
- -------------------------------------------------------------------------
5.25% GBP note due January, 2033                        331             -
- -------------------------------------------------------------------------
All other long-term debt                              1,737         2,151
- -------------------------------------------------------------------------
Current portion of long-term debt                    (1,093)         (618)
- -------------------------------------------------------------------------
                                                     11,475        11,201
- -------------------------------------------------------------------------


Long-term weighted average interest rates were 3.7% and 4.0% as of June 30, 2003
and 2002, respectively, and included the effects of related interest rate swaps
discussed in Note 7.

The fair value of the long-term debt was $12,396 and $11,673 at June 30, 2003
and 2002, respectively. Long-term debt maturities during the next five fiscal
years are as follows: 2004-$1,093; 2005-$1,495; 2006-$2,463; 2007-$1,091 and
2008-$804. The Company has no material obligations that are secured.

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 in accordance with the Company's
policies in areas such as counterparty exposure and hedging practices. For all
periods presented, such derivative transactions 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.

Millions of dollars except per share amounts



                                                        
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 The Procter & Gamble Company and Subsidiaries 47



Interest Rate Management

The Company's policy is to manage interest cost using a mix 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. Accordingly, the changes in the fair value
of these agreements are immediately recorded in earnings. The mark-to-market
values of both the fair value hedging instruments and the underlying debt
obligations are recorded 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 $322 at June 30, 2003 and $231 at
June 30, 2002. 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
five 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. The fair value of
these instruments at June 30, 2003 and June 30, 2002 was $27 and $60 in assets
and $92 and $29 in liabilities, respectively. The effective portion of the
changes in fair value for these instruments, which have been designated as cash
flow hedges, are reported in OCI and reclassified in 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.

The Company also utilizes the same instruments for purposes that do not meet the
requirements for hedge accounting treatment. In these cases, the change in value
of the instruments offsets 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, 2003 and 2002 was
$113 and $93 in assets and $26 and $25 in liabilities, respectively. The gain or
loss on these instruments is immediately recognized in earnings. The net impact
included in marketing, research, administrative and other expense was $264, $50
and $38 of gains in 2003, 2002 and 2001, respectively, which substantially
offset foreign currency transaction losses of the items being hedged.

Net Investment Hedging

The Company hedges its net investment position in major currencies and generates
foreign currency interest payments that offset other transactional exposures in
these 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 $418 and $397
after-tax loss in 2003 and 2002, respectively. Accumulated net balances were a
$238 after-tax loss in 2003 and a $180 after-tax gain in 2002.

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 the years
ended June 30,2003,2002 and 2001.

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 convertible preferred
stock (see Note 9).

                                    Millions of dollars except per share amounts



                                                        
48 The Procter & Gamble Company and Subsidiaries           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Net earnings and common shares balances used to calculate basic and diluted net
earnings per share were as follows:



                                                      Years ended June 30
                                              -----------------------------------
                                                2003         2002         2001
- ---------------------------------------------------------------------------------
                                                               
Net Earnings                                  $   5,186    $   4,352    $   2,922
- ---------------------------------------------------------------------------------
Preferred dividends,
       net of tax benefit                          (125)        (124)        (121)
- ---------------------------------------------------------------------------------
NET EARNINGS AVAILABLE
       TO COMMON SHAREHOLDERS                     5,061        4,228        2,801
- ---------------------------------------------------------------------------------
Preferred dividends,
       net of tax benefit                           125          124          121
- ---------------------------------------------------------------------------------
Preferred dividend impact
       on funding of ESOP                            (9)         (12)         (15)
- ---------------------------------------------------------------------------------
DILUTED NET EARNINGS                              5,177        4,340        2,907
- ---------------------------------------------------------------------------------




                                                      Years ended June 30
                                              -----------------------------------
Shares in millions                              2003         2002         2001
- ---------------------------------------------------------------------------------
                                                                 
Basic weighted average
       common shares outstanding                1,296.6      1,297.4      1,300.3
- ---------------------------------------------------------------------------------
Effect of dilutive securities
- ---------------------------------------------------------------------------------
       Conversion of preferred shares (1)          85.1         88.8         91.9
- ---------------------------------------------------------------------------------
       Exercise of stock options (2)               19.6         18.7         13.4
- ---------------------------------------------------------------------------------
DILUTED WEIGHTED AVERAGE
       COMMON SHARES OUTSTANDING                1,401.3      1,404.9      1,405.6
- ---------------------------------------------------------------------------------


(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 through 2021.

(2) Approximately 33 million in 2003, 36 million in 2002 and 38 million in
2001 of the Company's 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 and 2001. 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 grants to
employees, for which vesting terms and option lives differ.

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 in 2003 and 2002, the
Company has estimated the fair value of each grant using the Black-Scholes
option-pricing model. The fair value of grants issued in 2001 was estimated
using the binomial options-pricing model. The fair value estimates of these
models is not materially different. Assumptions are evaluated and revised, as
necessary, to reflect market conditions and experience. The following
assumptions were used:



                                                     Years ended June 30
                                                -------------------------------
Options Granted                                 2003         2002         2001
- -------------------------------------------------------------------------------
                                                                 
Interest rate                                    3.9%         5.4%         5.8%
- ------------------------------------------------------------------------------
Dividend yield                                   1.8%         2.2%         2.0%
- ------------------------------------------------------------------------------
Expected volatility                               20%          20%          26%
- ------------------------------------------------------------------------------
Expected life in years                             8           12            9
- ------------------------------------------------------------------------------


The following table summarizes stock option activity during 2003, 2002 and 2001:



                                                            June 30
                                              -----------------------------------
Options in Thousands                            2003         2002         2001
- ---------------------------------------------------------------------------------
                                                                 
Outstanding, beginning of year                  120,163      104,196       82,744
- ---------------------------------------------------------------------------------
Granted                                          17,880       25,040       28,400
- ---------------------------------------------------------------------------------
Jif and Crisco spin-off adjustment                    -          811            -
- ---------------------------------------------------------------------------------
Exercised                                        (6,952)      (8,149)      (5,709)
- ---------------------------------------------------------------------------------
Canceled                                         (1,292)      (1,735)      (1,239)
- ---------------------------------------------------------------------------------
OUTSTANDING, END OF YEAR                        129,799      120,163      104,196
- ---------------------------------------------------------------------------------

Exercisable                                      59,101       46,332       48,805
- ---------------------------------------------------------------------------------
Available for grant                             101,797      114,536       27,994
- ---------------------------------------------------------------------------------
Average price
- ---------------------------------------------------------------------------------
  Outstanding, beginning of year              $   66.68    $   63.64    $   61.73
- ---------------------------------------------------------------------------------
  Granted                                         91.37        70.19        62.20
- ---------------------------------------------------------------------------------
  Exercised                                       38.70        29.07        24.77
- ---------------------------------------------------------------------------------
  Outstanding, end of year                        71.50        66.68        63.64
- ---------------------------------------------------------------------------------
  Exercisable, end of year                        70.87        56.99        49.14
- ---------------------------------------------------------------------------------
Weighted average fair value of
  options granted during the year                 21.99        21.14        22.45
- ---------------------------------------------------------------------------------


Millions of dollars except per share amounts



                                                        
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 The Procter and Gamble Company and Subsidiaries 49



Stock options outstanding at June 30, 2003 were in the following exercise price
ranges:



                                                          Outstanding Options
                                          --------------------------------------------------
                                                                               Weighted Avg.
                                              Number                             Remaining
                                           Outstanding      Weighted Avg.       Contractual
Range of Prices                            (Thousands)     Exercise Price       Life Years
- --------------------------------------------------------------------------------------------
                                                                      
$28 to 46                                      15,847       $     35.78               2.0
- -----------------------------------------------------------------------------------------
 54 to 66                                      36,470             61.35              10.2
- -----------------------------------------------------------------------------------------
 67 to 85                                      40,575             74.85               9.7
- -----------------------------------------------------------------------------------------
 85 to 106                                     36,907             93.17              10.0
- -----------------------------------------------------------------------------------------


Stock options exercisable at June 30, 2003 were in the following exercise price
ranges:



                                                                Exercisable Options
                                                         --------------------------------
                                                              Number          Weighted
                                                           Exercisable        Average
Range of Prices                                            (Thousands)     Exercise Price
- -----------------------------------------------------------------------------------------
                                                                     
$28 to 46                                                     15,847        $     35.78
- ---------------------------------------------------------------------------------------
 54 to 66                                                      7,938              59.77
- ---------------------------------------------------------------------------------------
 67 to 85                                                     16,826              82.63
- ---------------------------------------------------------------------------------------
 85 to 106                                                    18,490              95.02
- ---------------------------------------------------------------------------------------


As a component of its treasury share repurchase program, the Company generally
repurchases common shares to fund the stock options granted.

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 insignificant.

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 United States as well as
employees in certain other countries. These plans are fully funded.

Under the defined contribution plans, the Company generally makes annual
contributions to participants' accounts based on individual base salaries and
years of service. In the United States, the Company makes annual contributions
to participants' accounts that do not exceed 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 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 serves to reduce the Company's cash contribution required to fund the
profit sharing plan contributions earned. Under the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 76-3, shares of
the ESOP are allocated at original cost based on debt service requirements, net
of advances made by the Company to the Trust.

Defined contribution expense pursuant to this plan was $286, $279 and $303 in
2003, 2002 and 2001, respectively, which approximates the amount funded by the
Company.

Defined Benefit Retirement Plans and Other Retiree Benefits

Certain other employees, primarily outside the United States, are covered by
local defined benefit pension, 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 contributions from 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.

                                    Millions of dollars except per share amounts



                                                        
50 The Procter & Gamble Company and Subsidiaries           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table sets forth the aggregate change in benefit obligation for
the Company's defined benefit and other retiree benefit plans:



                                                         Years ended June 30
                                       -------------------------------------------------------
                                           Pension Benefits            Other Retiree Benefits
                                       -------------------------------------------------------
                                          2003           2002           2003           2002
- ----------------------------------------------------------------------------------------------
                                                                        
Benefit obligation at
     beginning of year                 $    2,970     $    2,567     $    2,135     $    1,577
- ----------------------------------------------------------------------------------------------
Service cost                                  124            114             62             49
- ----------------------------------------------------------------------------------------------
Interest cost                                 173            153            150            116
- ----------------------------------------------------------------------------------------------
Participants' contributions                     7              7             27             22
- ----------------------------------------------------------------------------------------------
Amendments                                    (33)             1             (2)             5
- ----------------------------------------------------------------------------------------------
Actuarial loss                                138             72            645            401
- ----------------------------------------------------------------------------------------------
Acquisitions                                   42             40              -             32
- ----------------------------------------------------------------------------------------------
Curtailments and
     settlements                              (29)          (101)             -             (1)
- ----------------------------------------------------------------------------------------------
Special termination
     benefits                                   1              9              7             37
- ----------------------------------------------------------------------------------------------
Currency translation                          305            255             13              5
- ----------------------------------------------------------------------------------------------
Benefit payments                             (155)          (147)          (123)          (108)
- ----------------------------------------------------------------------------------------------
BENEFIT OBLIGATION
     AT END OF YEAR                         3,543          2,970          2,914          2,135
- ----------------------------------------------------------------------------------------------


The following table sets forth the aggregate change in plan assets, as well as
the cash contributions made for each plan:



                                                         Years ended June 30
                                       -------------------------------------------------------
                                           Pension Benefits            Other Retiree Benefits
                                       -------------------------------------------------------
                                          2003           2002           2003           2002
- ----------------------------------------------------------------------------------------------
                                                                        
Fair value of plan assets
     at beginning of year              $    1,332     $    1,432     $    2,347     $   1,449
- ----------------------------------------------------------------------------------------------
Actual return on
     plan assets                              (36)          (150)             1            947
- ----------------------------------------------------------------------------------------------
Acquisitions                                    1             18              -              -
- ----------------------------------------------------------------------------------------------
Employer contributions                        337            116             25             38
- ----------------------------------------------------------------------------------------------
Participants' contributions                     7              7             27             22
- ----------------------------------------------------------------------------------------------
Settlements                                   (27)           (22)             -              -
- ----------------------------------------------------------------------------------------------
Currency translation                           99             78              -             (1)
- ----------------------------------------------------------------------------------------------
Benefit payments                             (155)          (147)          (123)          (108)
- ----------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS
     AT END OF YEAR                         1,558          1,332          2,277          2,347
- ----------------------------------------------------------------------------------------------


Pension plan assets comprise a diversified mix of assets including corporate
equities, government securities and corporate debt securities. The asset
allocation is based on the structure of the liability. Other retiree plan assets
were comprised of Company stock, net of Series B ESOP debt (see Note 6), of
$2,182 and $2,243, as of June 30, 2003 and 2002, respectively.

The accrued pension and other retiree benefit costs recognized in the
accompanying Consolidated Balance Sheets were computed as follows:



                                                         Years ended June 30
                                       -------------------------------------------------------
                                           Pension Benefits            Other Retiree Benefits
                                       -------------------------------------------------------
                                          2003           2002           2003           2002
- ----------------------------------------------------------------------------------------------
                                                                        
Funded status
- ----------------------------------------------------------------------------------------------
     at end of year                    $   (1,985)    $   (1,638)    $     (637)    $      212
- ----------------------------------------------------------------------------------------------
Unrecognized net
     actuarial loss (gain)                    930            571            435           (579)
- ----------------------------------------------------------------------------------------------
Unrecognized
     transition amount                         13             14              -              -
- ----------------------------------------------------------------------------------------------
Unrecognized
     prior service cost                        (9)            21             (2)            (1)
- ----------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED                      (1,051)        (1,032)          (204)          (368)
- ----------------------------------------------------------------------------------------------

Prepaid benefit cost                          173             94              2              2
- ----------------------------------------------------------------------------------------------
Accrued benefit cost                       (1,407)        (1,250)          (206)          (370)
- ----------------------------------------------------------------------------------------------
Intangible asset                               31             18              -              -
- ----------------------------------------------------------------------------------------------
Accumulated other
     comprehensive income                     152            106              -              -
- ----------------------------------------------------------------------------------------------
NET LIABILITY RECOGNIZED                   (1,051)        (1,032)          (204)          (368)
- ----------------------------------------------------------------------------------------------


The underfunding of pension benefits primarily is a function of the different
funding incentives that exist outside of the United States. In certain countries
where the Company has major operations, there are no legal requirements or
financial incentives provided to companies for pension fund contributions. In
these instances, the associated pension liabilities are typically financed
directly from the Company's cash as they become due, rather than through the
creation of a separate pension fund. Both the benefit and the financing costs
have been reflected in net earnings.

The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the defined benefit pension plans with accumulated benefit
obligations in excess of plan assets were $2,945, $2,310 and $979, respectively,
as of June 30, 2003, and $1,718, $1,385 and $276, respectively, as of June 30,
2002.

The recent underfunding of other retiree benefits is primarily due to changes in
the assumed discount and health care cost trend rates. Benefit obligations
exceed the fair value of plan assets for each retiree benefit plan. Annual
funding requirements are met through cash from operations.

Millions of dollars except per share amounts



                                                        
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 The Procter & Gamble Company and Subsidiaries 51



The Company evaluates its actuarial assumptions on an annual basis. These
assumptions are revised based on an evaluation of long-term trends and market
conditions in each country that may have an impact on the cost of providing
retirement benefits.

Assumptions for the defined benefit and other retiree benefit calculations,
which are reflected on a weighted average basis of individual country plans,
were as follows:



                                                         Years ended June 30
                                       -------------------------------------------------------
                                           Pension Benefits            Other Retiree Benefits
                                       -------------------------------------------------------
                                          2003           2002           2003           2002
- ----------------------------------------------------------------------------------------------
                                                                           
Discount rate                                 5.1%           5.6%           5.8%           7.0%
- ----------------------------------------------------------------------------------------------
Expected return
     on plan assets                           7.7%           8.6%           9.5%           9.5%
- ----------------------------------------------------------------------------------------------
Rate of compensation
     increase                                 3.1%           3.5%             -              -
- ----------------------------------------------------------------------------------------------
Initial health care
     cost trend rate (1)                        -              -           11.4%          11.3%
- ----------------------------------------------------------------------------------------------


(1) Trend rate assumption was adjusted in 2003 to reflect market trends. Rate is
assumed to decrease to 5.0% by 2010 and remain at that level thereafter. Rate
is applied to current plan costs net of Medicare; estimated initial rate for
"gross eligible charges" (charges inclusive of Medicare) is 8.8% for 2003 and
9.1% for 2002.

Components of the net periodic benefit cost were as follows:



                                                          Years ended June 30
                                  --------------------------------------------------------------------
                                          Pension Benefits                 Other Retiree Benefits
                                  --------------------------------------------------------------------
                                    2003        2002        2001        2003        2002        2001
- ------------------------------------------------------------------------------------------------------
                                                                            
Service cost                      $    124    $    114    $    115    $     62    $     49    $     40
- ------------------------------------------------------------------------------------------------------
Interest cost                          173         153         149         150         116         101
- ------------------------------------------------------------------------------------------------------
Expected return
     on plan assets                   (127)       (133)       (127)       (333)       (320)       (317)
- ------------------------------------------------------------------------------------------------------
Amortization of
     prior service cost                  2           4           5          (1)         (1)         (1)
- ------------------------------------------------------------------------------------------------------
Amortization of prior
     transition amount                   2           3           3           -           -           -
- ------------------------------------------------------------------------------------------------------
Settlement loss                          5           -           6           -           -           -
- ------------------------------------------------------------------------------------------------------
Curtailment loss (gain)                  -           1         (13)          -          (1)          -
- ------------------------------------------------------------------------------------------------------
Recognized net
     actuarial loss (gain)              13           9           3         (27)        (64)        (85)
- ------------------------------------------------------------------------------------------------------
GROSS BENEFIT COST                     192         151         141        (149)       (221)       (262)
- ------------------------------------------------------------------------------------------------------
Dividends on ESOP
     preferred stock                     -           -           -         (74)        (76)        (76)
- ------------------------------------------------------------------------------------------------------
NET PERIODIC
     BENEFIT COST                      192         151         141        (223)       (297)       (338)
- ------------------------------------------------------------------------------------------------------


In addition to the net periodic benefit cost, additional expense of $8 and $46
was recognized during the fiscal years ended June 30, 2003 and 2002,
respectively, for special termination benefits provided as part of early
retirement packages in connection with the Company's restructuring program.

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:



                                                    One-Percentage     One-Percentage
                                                    Point Increase     Point Decrease
- -------------------------------------------------------------------------------------
                                                                
Effect on total of service
     and interest cost components                   $           37    $           (30)
- -------------------------------------------------------------------------------------
Effect on postretirement benefit obligation                    435               (422)
- -------------------------------------------------------------------------------------


Employee Stock Ownership Plan

The Company maintains the ESOP to provide funding for certain employee benefits
discussed in the preceding paragraphs.

The ESOP borrowed $1,000 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 United States. Principal and interest
requirements are $117 per year, paid by the Trust from dividends on the
preferred shares and from cash contributions and advances from the Company. Each
share is convertible at the option of the holder into one share of the Company's
common stock. The liquidation value is $13.64 per share.

In 1991, the ESOP borrowed an additional $1,000. 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 $94 per year, 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 liquidation value
is $25.92 per share.

The number of preferred shares outstanding at June 30 was as follows:



                                                            June 30
                                                --------------------------------
Shares in Thousands                              2003         2002        2001
- --------------------------------------------------------------------------------
                                                                 
Allocated                                       32,246       33,095       34,459
- --------------------------------------------------------------------------------
Unallocated                                     15,767       17,687       19,761
- --------------------------------------------------------------------------------
TOTAL SERIES A                                  48,013       50,782       54,220
- --------------------------------------------------------------------------------

Allocated                                       10,324        9,869        9,267
- --------------------------------------------------------------------------------
Unallocated                                     25,359       26,454       27,338
- --------------------------------------------------------------------------------
TOTAL SERIES B                                  35,683       36,323       36,605
- --------------------------------------------------------------------------------


                                        Millions of dollars except share amounts


                                                 
52 The Procter & Gamble Company and Subsidiaries    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



As permitted by 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 in
short-term and long-term liabilities (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.

The preferred shares held by the ESOP are considered outstanding from inception
for purposes of calculating diluted net earnings per common share. 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 following: a) amount of taxes payable for the current year, and b)
deferred tax liabilities and assets for 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 adjusted for tax rate changes. Earnings before income
taxes consisted of the following:



                                 Years ended June 30
                          --------------------------------
                            2003        2002        2001
- ----------------------------------------------------------
                                         
United States             $  4,920    $  4,411    $  3,340
- ----------------------------------------------------------
International                2,610       1,972       1,276
- ----------------------------------------------------------
                             7,530       6,383       4,616
- ----------------------------------------------------------


The income tax provision consisted of the following:



                                 Years ended June 30
                          --------------------------------
                            2003        2002        2001
- ----------------------------------------------------------
                                         
CURRENT TAX EXPENSE
  U.S. Federal            $  1,595    $    975    $  1,030
- ----------------------------------------------------------
  International                588         551         676
- ----------------------------------------------------------
  U.S. State and Local          98         116          90
- ----------------------------------------------------------
                             2,281       1,642       1,796
- ----------------------------------------------------------
DEFERRED TAX EXPENSE
  U.S. Federal                 125         571         142
- ----------------------------------------------------------
  International and other      (62)       (182)       (244)
- ----------------------------------------------------------
                                63         389        (102)
- ----------------------------------------------------------
                             2,344       2,031       1,694
- ----------------------------------------------------------


The Company's effective income tax rate was 31.1%, 31.8% and 36.7% in 2003, 2002
and 2001, 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 2003 and 2002 than in 2001 - 3.8% in 2003 and 3.1% in
2002. The Company's higher tax rate in 2001 reflected the impact of
restructuring costs and amortization of goodwill and indefinite-lived
intangibles prior to the adoption of SFAS No. 142. Taxes impacted shareholders'
equity with credits of $361 and $477 for the years ended June 30, 2003 and 2002,
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 $14,021 at
June 30, 2003, 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.

Realization of certain deferred tax assets is dependent upon generating
sufficient taxable income in the appropriate jurisdiction prior to expiration of
the carryforward periods. Although realization is not assured, management
believes it is more likely than not the deferred tax assets, net of applicable
valuation allowances, will be realized.

Deferred income tax assets and liabilities were comprised of the following:




                                                    Years ended June 30
                                                    --------------------
                                                      2003        2002
- ------------------------------------------------------------------------
                                                          
TOTAL DEFERRED TAX ASSETS
  Loss and other carryforwards                      $    311    $    454
- ------------------------------------------------------------------------
  Unrealized loss on financial instruments               287          55
- ------------------------------------------------------------------------
  Advance payments                                       182           -
- ------------------------------------------------------------------------
  Other postretirement benefits                           93         109
- ------------------------------------------------------------------------
  Other                                                  820         687
- ------------------------------------------------------------------------
  Valuation allowances                                  (158)       (106)
- ------------------------------------------------------------------------
                                                       1,535       1,199
- ------------------------------------------------------------------------

TOTAL DEFERRED TAX LIABILITIES
  Fixed assets                                        (1,175)     (1,110)
- ------------------------------------------------------------------------
  Goodwill and other non-current intangible assets      (410)       (286)
- ------------------------------------------------------------------------
  Other                                                 (287)       (209)
- ------------------------------------------------------------------------
                                                      (1,872)     (1,605)
- ------------------------------------------------------------------------


Millions of dollars except per share amounts



                                                 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          The Procter & Gamble Company and Subsidiaries 53



Net operating loss carryforwards were $1,222 at June 30, 2003. Net operating
losses and other tax credit carryforwards were $1,211 at June 30, 2002. If
unused, $348 will expire between 2004 and 2013. The remainder, totaling $874 at
June 30, 2003, 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. Where appropriate, an obligation for such
indemnifications is recorded as a liability. 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 that construct
assets to produce materials for sale to P&G. The total amount of guarantees
issued under such arrangements is not material.

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.

Minority Partner Put Option

At various points from 2007 to 2017, the minority partner in a subsidiary that
holds most of the Company's China operations has the right to exercise a put
option to require the Company to purchase from half to all of its outstanding
20% interest at a price not greater than fair market value. The impact of this
put option is dependent on factors that can change prior to its exercise. Given
that the put price cannot exceed fair market value and the Company's current
liquidity, the Company does not believe that exercise of the put would
materially impact its results of operations or financial condition.

Operating Leases

The Company leases certain property and equipment for varying periods under
operating leases. Future minimum rental payments with terms in excess of one
year total approximately $550.

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 $34 and $39 at June 30, 2003 and 2002,
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.

NOTE 12 SEGMENT INFORMATION

The Company's reportable segments are 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 hair care, skin care, cosmetics, fine fragrances,
   deodorants, tampons, pads and pantiliners.

- -  Baby and Family Care includes diapers, wipes, tissue and 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.

To reflect management and business changes, the Company realigned its reporting
segments. Effective July 1, 2002, the feminine care business, which had been
managed within the Baby and Family Care segment, is included in the Beauty Care
segment. In addition, the Food and Beverage segment was renamed Snacks and
Beverages to reflect its remaining businesses. The historical results for the
elements of the former Food and Beverage segment that have been divested or
spun-off (i.e., Jif, Crisco and commercial shortening and oils) are now
reflected in

                                    Millions of dollars except per share amounts



                                                 
54 The Procter & Gamble Company and Subsidiaries    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Corporate, consistent with management reporting. As required by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," prior
year operating information in the following table, as well as other segment in
formation presented in the footnotes, has been restated to conform to the
current year presentation.

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 treatment of unconsolidated investees (see Note 1); and the recording
of fixed assets at historical exchange rates in certain high inflation
economies.

Corporate includes certain operating and non-operating activities 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, including amortization of indefinite-lived intangibles and
goodwill prior to SFAS No. 142 adoption on July 1, 2001, charges related to
restructuring, certain employee benefit costs and other general corporate items.
The non-operating elements include financing and investing activities. These
items have not been allocated to operating segments because they are
corporate-driven decisions and are not reflected in the operating results used
internally to measure and evaluate the operating segments. 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 United States of $21,853, $21,198 and $20,334
for the years ended June 30, 2003, 2002 and 2001, respectively. Assets in the
United States totaled $23,424 and $23,434 as of June 30, 2003 and
2002, respectively.

The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates,
accounted for 18%, 17% and 15% of consolidated net sales in 2003, 2002 and 2001,
respectively. These sales occurred primarily in the United States.




                                       Fabric and    Beauty     Baby and      Health    Snacks and
                                       Home Care      Care     Family Care     Care      Beverages   Corporate     Total
- --------------------------------------------------------------------------------------------------------------------------
                                                                                         
Net Sales                       2003   $   12,560   $ 12,221   $     9,933   $  5,796   $    3,238   $    (371)  $  43,377
- --------------------------------------------------------------------------------------------------------------------------
                                2002       11,618     10,723         9,233      4,979        3,249         436      40,238
- --------------------------------------------------------------------------------------------------------------------------
                                2001       11,660     10,027         9,221      4,353        3,460         523      39,244
- --------------------------------------------------------------------------------------------------------------------------
Before-Tax Earnings             2003        3,080      2,899         1,448      1,034          460      (1,391)      7,530
- --------------------------------------------------------------------------------------------------------------------------
                                2002        2,728      2,354         1,272        795          476      (1,242)      6,383
- --------------------------------------------------------------------------------------------------------------------------
                                2001        2,430      2,017         1,119        584          401      (1,935)      4,616
- --------------------------------------------------------------------------------------------------------------------------
Net Earnings                    2003        2,059      1,984           882        706          306        (751)      5,186
- --------------------------------------------------------------------------------------------------------------------------
                                2002        1,831      1,610           738        521          303        (651)      4,352
- --------------------------------------------------------------------------------------------------------------------------
                                2001        1,643      1,361           658        390          242      (1,372)      2,922
- --------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization   2003          332        345           558        156          125         187       1,703
- --------------------------------------------------------------------------------------------------------------------------
                                2002          326        339           503        163          121         241       1,693
- --------------------------------------------------------------------------------------------------------------------------
                                2001          328        293           563        159          128         800       2,271
- --------------------------------------------------------------------------------------------------------------------------
Total Assets                    2003        5,174      5,389         6,974      2,642        2,040      21,487      43,706
- --------------------------------------------------------------------------------------------------------------------------
                                2002        5,149      5,500         7,069      2,542        2,012      18,504      40,776
- --------------------------------------------------------------------------------------------------------------------------
Capital Expenditures            2003          357        343           548        144          125         (35)      1,482
- --------------------------------------------------------------------------------------------------------------------------
                                2002          368        354           702        158          125         (28)      1,679
- --------------------------------------------------------------------------------------------------------------------------
                                2001          516        416         1,152        231          217         (46)      2,486
- --------------------------------------------------------------------------------------------------------------------------


Millions of dollars except per share amounts



                                                 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          The Procter & Gamble Company and Subsidiaries 55



NOTE 13 QUARTERLY RESULTS (UNAUDITED)




                                                                  Quarters Ended
                                                    --------------------------------------------
                                                     Sept. 30    Dec. 31     Mar. 31     June 30    Total Year
- --------------------------------------------------------------------------------------------------------------
                                                                                  
Net Sales                               2002-2003   $  10,796   $  11,005   $  10,656   $  10,920   $   43,377
- --------------------------------------------------------------------------------------------------------------
                                        2001-2002       9,766      10,403       9,900      10,169       40,238
- --------------------------------------------------------------------------------------------------------------
Operating Income                        2002-2003       2,179       2,248       1,957       1,469        7,853
- --------------------------------------------------------------------------------------------------------------
                                        2001-2002       1,762       1,864       1,654       1,398        6,678
- --------------------------------------------------------------------------------------------------------------
Net Earnings                            2002-2003       1,464       1,494       1,273         955        5,186
- --------------------------------------------------------------------------------------------------------------
                                        2001-2002       1,104       1,299       1,039         910        4,352
- --------------------------------------------------------------------------------------------------------------
Diluted Net Earnings Per Common Share   2002-2003   $    1.04   $    1.06   $    0.91   $    0.68   $     3.69
- --------------------------------------------------------------------------------------------------------------
                                        2001-2002        0.79        0.93        0.74        0.64         3.09
- --------------------------------------------------------------------------------------------------------------


FINANCIAL SUMMARY (UNAUDITED)




                                          2003       2002       2001       2000       1999       1998       1997       1996
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                             
Net Sales                               $ 43,377   $ 40,238   $ 39,244   $ 39,951   $ 38,125   $ 37,154   $ 35,764   $ 35,284
- -----------------------------------------------------------------------------------------------------------------------------
Operating Income                           7,853      6,678      4,736      5,954      6,253      6,055      5,488      4,815
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings                               5,186      4,352      2,922      3,542      3,763      3,780      3,415      3,046
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings Margin                         12.0%      10.8%       7.4%       8.9%       9.9%      10.2%       9.5%       8.6%
- -----------------------------------------------------------------------------------------------------------------------------

Basic Net Earnings Per Common Share     $   3.90   $   3.26   $   2.15   $   2.61   $   2.75   $   2.74   $   2.43   $   2.14
- -----------------------------------------------------------------------------------------------------------------------------
Diluted Net Earnings Per Common Share       3.69       3.09       2.07       2.47       2.59       2.56       2.28       2.01
- -----------------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share                  1.64       1.52       1.40       1.28       1.14       1.01       0.90       0.80
- -----------------------------------------------------------------------------------------------------------------------------

Restructuring Program Charges (1)       $    751   $    958   $  1,850   $    814   $    481   $      -   $      -   $      -
- -----------------------------------------------------------------------------------------------------------------------------
Research and Development Expense           1,665      1,601      1,769      1,899      1,726      1,546      1,469      1,399
- -----------------------------------------------------------------------------------------------------------------------------
Advertising Expense                        4,373      3,773      3,612      3,793      3,639      3,801      3,574      3,374
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets                              43,706     40,776     34,387     34,366     32,192     31,042     27,598     27,762
- -----------------------------------------------------------------------------------------------------------------------------
Capital Expenditures                       1,482      1,679      2,486      3,018      2,828      2,559      2,129      2,179
- -----------------------------------------------------------------------------------------------------------------------------
Long-Term Debt                            11,475     11,201      9,792      9,012      6,265      5,774      4,159      4,678
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                      16,186     13,706     12,010     12,287     12,058     12,236     12,046     11,722
- -----------------------------------------------------------------------------------------------------------------------------


(1)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



56 THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

SHAREHOLDER INFORMATION

IF ...

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CONTACT P&G 24 HOURS A DAY

Visit our Web site at www.pg.com/investor
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, Cincinnati, Amsterdam, Paris, Basle, Geneva,
Lausanne, Zurich, Frankfurt, Brussels, Tokyo

SHAREHOLDERS OF COMMON STOCK

There were approximately 1,234,000 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 August 1, 2003.

FORM 10-K

Shareholders may obtain a copy of the Company's 2003 report to the Securities
and Exchange Commission on Form 10-K by going to P&G's investor Web site at
www.pg.com/investor 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 14,
2003. 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.

WWW.PG.COM/INVESTOR

You can access your Shareholder Investment Program account, including your
account balance and transactions, 24 hours a day at www.pg.com/investor. And
pg.com is your one-stop connection to stock purchase information, transaction
forms, 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
www.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 www.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 www.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



                                 Price Range                          Dividends
                ---------------------------------------------   ---------------------
                2002-2003   2002-2003   2001-2002   2001-2002   2002-2003   2001-2002
Quarter ended     HIGH         LOW         High        Low
- -------------------------------------------------------------   ---------------------
                                                          
September 30    $   93.50   $   74.08   $   77.28   $   63.75   $    0.41   $    0.38
- -------------------------------------------------------------   ---------------------
December 31         92.35       82.00       81.72       69.73        0.41        0.38
- -------------------------------------------------------------   ---------------------
March 31            90.00       79.57       90.73       76.38        0.41        0.38
- -------------------------------------------------------------   ---------------------
June 30             92.53       87.60       94.75       87.00        0.41        0.38
- -------------------------------------------------------------   ---------------------


                                                       Design: Landor Associates



P&G AT A GLANCE




                                                                                       Net Sales
                                                                                       by Segment*
Global Business Unit   Product Lines            Key Brands                            (in billions)
- --------------------------------------------------------------------------------------------------
                                                                             
Fabric and Home Care   Laundry detergent,       Tide, Ariel, Downy, Lenor,            $       12.6
                       fabric conditioners,     Dawn, Fairy, Joy, Gain, Ace
                       dish care, household     Laundry and Bleach, Swiffer,
                       cleaners, fabric         Bold, Cascade, Dash, Cheer,
                       refreshers, bleach       Bounce, Febreze, Mr.
                       and care for special     Clean/Proper, Era, Bonux,
                       fabrics                  Dreft, Daz, Vizir, Flash,
                                                Salvo, Viakal, Rindex,
                                                Alomatik, Dryel, Myth, Maestro
                                                Limpio, Ivory Dish, Hi Wash,
                                                Lang
- --------------------------------------------------------------------------------------------------
Beauty Care            Hair care/hair color,    Pantene, Olay, Head &                         12.2
                       skin care and            Shoulders, Cover Girl,
                       cleansing, cosmetics,    Clairol's Herbal Essences,
                       fragrances and           Nice'n Easy, Natural Instincts
                       antiperspirants/         and Hydrience, SK-II, Max Factor,
                       deodorants               Hugo Boss, Secret, Zest,
                                                Old Spice, Safeguard, Rejoice,
                                                Vidal Sassoon, Pert, Ivory
                                                Personal Care, Aussie,
                                                Lacoste, Infusion 23, Noxzema, Camay,
                                                Sure, Physique, Infasil, Laura
                                                Biagiotti, Muse, Wash&Go, Giorgio, Mum
                       Feminine protection      Always, Whisper, Tampax,
                       pads, tampons and        Lines Feminine Care, Naturella,
                       pantiliners              Evax, Ausonia, Orkid
- --------------------------------------------------------------------------------------------------
Baby and Family Care   Baby diapers, baby       Pampers, Luvs, Kandoo, Dodot                   9.9
                       and toddler wipes,
                       baby bibs, baby
                       change and bed mats
                       Paper towels, toilet     Charmin, Bounty, Puffs, Tempo,
                       tissue and facial        Codi
                       tissue
- --------------------------------------------------------------------------------------------------
Health Care            Oral care, pet health    Crest, Iams, Bukanuba, Vicks,                  5.8
                       and nutrition,           Actonel, Asacol, Metamucil,
                       pharmaceuticals and      Fixodent, PUR, Scope,
                       personal health care     Pepto-Bismol, Macrobid,
                                                Didronel, ThermaCare

- --------------------------------------------------------------------------------------------------
Snacks and Beverages   Snacks and beverages     Pringles, Folgers, Millstone,                  3.2
                                                Torengos, Sunny Delight, Punica
- --------------------------------------------------------------------------------------------------


[PIE CHART]

                         
- - Fabric and Home Care      29%

- - Beauty Care               28%

- - Baby and Family Care      23%

- - Health Care               13%

- - Snacks and Beverages       7%




RECOGNITION

- -    P&G is in the top 10 of the World's Most Admired Companies (Fortune
     magazine) and Best Corporate Citizens (Business Ethics magazine).

- -    P&G ranks among the top companies for Executive Women (National Association
     of Female Executives), African Americans (Family Digest magazine), and Best
     Companies to Work For (Fortune magazine).

                                                                       [GRAPHIC]

* Includes $0.4 billion of net sales generated by companies for which P&G exert
significant influence but does not consolidate.



                                   [GRAPHIC]

                       TOUCHING LIVES, IMPROVING LIFE. P&G

(C) 2003 Procter & Gamble

0038-7121

EX-21

                                  EXHIBIT (21)

                  THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
                  ---------------------------------------------
                         Subsidiaries of the Registrant
                         ------------------------------

Alejandro Llauro E. Hijos S.A.I.C. [Argentina]
Anjali (HK) Corporation Limited [Hong Kong]
Anjali Corporation [Delaware]
An-Pro Company [Ohio]
B&C International Co. (BVI) Ltd. [British Virgin Islands]
Betrix Cosmetic GmbH [Germany]
Blendax Unterstutzungskasse GmbH [Germany]
Carlos BT [Hungary]
Celtic Insurance Company Limited [Bermuda]
Cheladerm, Inc. [Delaware]
Clairol (China) Ltd. [China]
Clairol Brasil Higiene e Cosmeticos Ltda [Brazil]
Clairol Limited [U.K.]
Clairol Peru S.R.L. [Peru]
Compania Procter & Gamble Mexico, S. de R.L. de C.V. [Mexico]
Compania Quimica S.A. [Argentina]
Comunivers sa [Morocco]
Corpydes S.A. de C.V. [Mexico]
Crest Toothpaste Inc. [Canada]
Detergent Products A.G. [Switzerland]
Digibrands S.p.A. [Italy]
District Pet Imaging, LLC [Ohio]
Eczacibasi Yatirim Holding Ortakligi A.S. [Turkey]
Elysee BT [Hungary]
Eurocos Cosmetic GmbH [Germany]
Eurocos Cosmetic Warenvertrieb GmbH [Austria]
Eurocos Ltd [U.K.]
EURO-Juice G.m.b.H. Import und Vertrieb [Germany]
European Beauty Products (U.K.) Limited [U.K.]
Ferraris BT [Hungary]
Foreign Company "Procter & Gamble" [Belarus]
Fountain Square Music Publishing Co., Inc. [Ohio]
Frank BT [Hungary]
Gala Cosmetics International Limited [U.K.]
Gala of London Limited [U.K.]
Giorgio Beverly Hills, Inc. [Delaware]
Girl Cosmetics Limited [U.K.]
Global Business Services de Costa Rica Limitada [Costa Rica]
Herve Leger Parfums GmbH [Germany]
Humatro Corporation [Delaware]
Hyginett KFT [Hungary]
Iams (Deutschland) Vertriebs GmbH [Germany]
Iams Argentina S.A. [Argentina]
Iams Australia/New Zealand Pty. Ltd. [Australia]
Iams Canada Inc. [Canada]
Iams Chile Limitada [Chile]
Iams Companion Animal Research Institute, Inc. [Ohio]
Iams do Brasil Comercial, Exportadora e Importadora Ltda. [Brazil]
Iams Europe B.V. [Netherlands]
Iams Global, Inc. [Ohio]
Iams Japan K.K. [Japan]

[ ] 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
                         ------------------------------

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. [S. Africa]
Iams Servicios, S. de R.L. de C.V. [Mexico]
Iams U.K. Limited [U.K.]
Industrial Catenation Services (Pty.) Ltd. [S. Africa]
Industrias Modernas, S.A. [Guatemala]
Inmobiliaria Procter & Gamble de Venezuela, S.C.S. [Venezuela]
Inmobiliaria Procter & Gamble de Venezuela, S.R.L. Venezuela]
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]
Juvian Fabric Care Corporation [Ohio]
Kangra Valley Enterprises Ltd. [Delaware]
Komal Manufacturing Chemists Ltd. [India]
Liberty Street Music Publishing Company, Inc. [Ohio]
Loreto y Pena Pobre, S.A. de C.V. [Mexico]
Malabar (HK) Corporation Limited [Hong Kong]
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.]
Midway Holdings Ltd. [Cayman Islands]
Millstone Coffee, Inc. [Washington]
Modern Industries Company - Dammam [Saudi Arabia]
Modern Industries Company - Jeddah [Saudi Arabia]
Modern Products Company - Jeddah [Saudi Arabia]
Moroccan Modern Industries [Morocco]
Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal]
Novomoskovskbytkhim [Russia]
Noxell (Barbados) Limited [Barbados]
Noxell (Thailand) Limited [Thailand]
Noxell Corporation [Maryland]
Olay Company, Inc. [Delaware]
Olga BT [Hungary]
OOO Procter & Gamble Services Company [Russia]
P&G-Clairol, Inc. [Delaware]
P&G C&CA, Inc. [Ohio]
P&G Consultoria E Servicos Ltda. [Brazil]
P&G do Brasil Comercial 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]

[ ] 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
                         ------------------------------

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 GmbH [Germany]
P&G Prestige Beaute S.A.R.L. [Switzerland]
P&G Servicios S.A. [Argentina]
P.T. Procter & Gamble Indonesia TbK [Indonesia]
P.T. Procter & Gamble Home Products Indonesia [Indonesia]
Papierhygiene GmbH [Germany]
PFX Pet Supply, Inc. [Ohio]
PGV Chile S.A. [Chile]
PPProducts SARL [Switzerland]
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 (Vietnam) Ltd. [Vietnam]
Procter & Gamble (Yemen) Ltd [Yemen]
Procter & Gamble A/S [Norway]
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 Central & Eastern Europe GmbH [Germany]
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 Distribution [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.J.L. Sarajevo [Bosnia]
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 Limited [U.K.]
Procter & Gamble Distributing New Zealand [New Zealand]
Procter & Gamble Distribution Company (Europe) BVBA [Belgium]
Procter & Gamble do Brasil S/A [Brazil]
Procter & Gamble do Brazil, Inc. [Delaware]
Procter & Gamble do Nordeste S/A [Brazil]
Procter & Gamble Eastern Europe, Inc. [Ohio]
Procter & Gamble Ecuador Compania Anonima [Ecuador]
Procter & Gamble Egypt [Egypt]
Procter & Gamble Energy Company LLC [Ohio]
Procter & Gamble Espana S.A. [Spain]
Procter & Gamble Eurocor N.V. [Belgium]
Procter & Gamble Europe N.V. [Belgium]
Procter & Gamble Europe SA [Switzerland]
Procter & Gamble European Services SARL [Switzerland]
Procter & Gamble European Supply Company BVBA [Belgium]
Procter & Gamble European Technical Center BVBA [Belgium]
Procter & Gamble Export Operations SARL [Switzerland]
Procter & Gamble Far East, Inc. [Ohio]
Procter & Gamble Finance (Canada) Limited Partnership [Canada]
Procter & Gamble Financial Services [Ireland]
Procter & Gamble Finland OY [Finland]
Procter & Gamble Food Products SARL [Switzerland]
Procter & Gamble France S.N.C. [France]
Procter & Gamble FSC (Barbados) Inc. [Barbados]
Procter & Gamble Germany Management Gmbh [Germany]
Procter & Gamble Ghana, Ltd. [Ghana]
Procter & Gamble GmbH [Germany]
Procter & Gamble Gulf FZE [United Arab Emirates]
Procter & Gamble Hair Care, LLC [Delaware]
Procter & Gamble Health and Beauty Care-Europe Limited [U.K.]
Procter & Gamble Hellas A.E. [Greece]
Procter & Gamble Higiene e Cosmeticos Limitada [Brazil]
Procter & Gamble Holding (Thailand) Limited [Thailand]
Procter & Gamble Holding Denmark ApS [Denmark]
Procter & Gamble Holding GmbH [Germany]
Procter & Gamble Holding GmbH & Co. Operations oHG [Germany]
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 Wholesale Trading Partnership (KKT) [Hungary]
Procter & Gamble Hygien OY [Finland]

[ ] 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 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 Nicaragua, S.A. [Nicaragua]
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 SA [Switzerland]
Procter & Gamble Investment Subsidiary Inc. [Canada]
Procter & Gamble Investments Limited [Ireland]
Procter & Gamble Investments UK [U.K.]
Procter & Gamble Italia, S.p.A. [Italy]
Procter & Gamble Italy s.r.l. [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 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]
Procter & Gamble Manufacturing Romania SRL [Romania]
Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia]
Procter & Gamble Marketing and Services D.O. [Yugoslavia]
Procter & Gamble Marketing Latvia Ltd. [Latvia]
Procter & Gamble Marketing Ltd. Skopje [Macedonia]
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 Mexico Holdings, B.V. [Netherlands]

[ ] 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 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 ograniczona odpowiedzialnoscia
[Poland]
Procter & Gamble Orleans S.A.S. [France]
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 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 Sp. zo.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]
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.]

[ ] 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 Technology (Beijing) Co., Ltd. [PRC]
Procter & Gamble Tenedora, S.A. [Venezuela]
Procter & Gamble Trading (Thailand) Limited [Thailand]
Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey]
Procter & Gamble U.K. [U.K.] (Partnership)
Procter & Gamble Ukraine [Ukraine]
Procter & Gamble, Spol. s.r.o. (Ltd.) [Slovak Republic]
Procter & Gamble-Hutchison Ltd. [Hong Kong]
Procter & Gamble-Rakona, s.r.o. [Czech Republic]
Productos Sanitarios Sociedad Colectiva [Argentina]
Progam Realty & Development Corporation [Philippines]
Progasud S.r.l. [Italy]
Promotora de Bienes y Valores, S. de R.L. de C.V. [Mexico]
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]
Rohm Pharma GmbH Wien [Austria]
Rosemount Corporation [Delaware]
R-V Chemicals Holdings Ltd. [Ireland]
S.C. Detergenti S.A. [Romania]
Shulton (Great Britain) Ltd. [U.K.]
Shulton S.A. [Guatemala]
Shulton, Inc. [New Jersey]
Societe Immobiliere Les Colombettes, S.A. [Switzerland]
SpinBrush Company [Ohio]
SsangYong Paper Co. Ltd. [Korea]
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 [S. 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]

[ ] 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
                         ------------------------------

The Procter & Gamble iVentures Company [Ohio]
The Procter & Gamble Manufacturing Company [Ohio]
The Procter & Gamble Ohio Brands Company [Ohio]
The Procter & Gamble Paper Products Company [Ohio]
The Procter & Gamble U.S. Business Services Company [Ohio]
Thomas Hedley & Co. Limited [U.K.]
TRAPOFA Leonhard-Speditions GmbH I.L. [Germany]
US/KK Investments, Inc. [Ohio]
Verwaltlungsgesellschaft Iams Pet Food mbH [Germany]
Vick International Corporation [Delaware]
Vick Nigeria Limited [Nigeria]
Vidal Sassoon (Shanghai) Academy [PRC]
Vidal Sassoon Co.[Ohio]
Wella AG [Germany] and its subsidiaries

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

EX-23

                                  EXHIBIT (23)



                          Independent Auditors' Consent


                             DELOITTE & TOUCHE LLP

                                                      250 East Fifth Street
                                                      Post Office Box 5340
                                                      Cincinnati, OH  45202
                                                      Telephone:  513-784-7100

INDEPENDENT AUDITORS' CONSENT
- -----------------------------

We consent to the incorporation by reference in the following documents of our
report dated July 31, 2003 incorporated by reference in this Annual Report on
Form 10-K of The Procter & Gamble Company for the year ended June 30, 2003.

     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.   Amendment No. 1, 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.   Amendment No. 2, 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. 333-84232 on Form S-3 for The Procter &
          Gamble Company Debt Securities and Warrants; and

     23.  Registration Statement No. 333-100561 on Form S-8 for The Procter &
          Gamble (U.K.) 1-4-1 Plan.


DELOITTE & TOUCHE LLP
- ---------------------
Deloitte & Touche LLP
September 9, 2003

EX-31

                                  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 9, 2003
- ---------------------------
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 9, 2003
- ------------------------
Date

EX-32

                                  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, 2003 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 9, 2003
- -----------------------------
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, 2003 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 9, 2003
- ---------------------------
Date

EX-99.2

                                 EXHIBIT (99-2)




          Directors and Officers (First) Liability Binder of Insurance


                                                                Fax Transmission
                                                                          BINDER


[ACE BERMUDA LOGO]            Corporate Officers &           P.O. Box HM 1015
                              Directors Assurance Ltd.       Hamilton HM DX
                              ACE Global Headquarters        Bermuda
                              17 Woodbourne Avenue
         ace bermuda          Hamilton HM 08                 441 295-5200 main
                              Bermuda                        www.acelimited.com

To:                                       From:
Jerry Rivers/Pat Dill                     Patrick Tannock
- ---------------------------------         --------------------------------------
Company:                                  Fax:
H&H Park International                    441-292-2514
- ---------------------------------         --------------------------------------
Department:                               Tel:
                                          441-299-9239
- ---------------------------------         --------------------------------------
Fax:                                      Date:
295 4622                                  July 1, 2003
Tel:                                      E-mail:
Re:                                       Pages including cover:
Procter & Gamble                          1


CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. (CODA) IS PLEASED TO CONFIRM
PROVISIONALLY BINDING THE FOLLOWING:

POLICY PERIOD:        June 30th, 2003 to June 30th, 2004
LIMIT OF LIABILITY:   $25 million Primary
PREMIUM:              $985,000


SPECIAL CONDITIONS:

1.   Binding is subject to receipt of the appropriate premium on or before
     Friday, July 4th, 2003. In the event the premium is not received by this
     date, this binder is null and void ab initio.
2.   The cover provided will be primary.
3.   Cover will continue on policy form CODA Premier 01 ED 10/00.
4.   Endorsements to be included in addition to as expiring:
     -    Discovery clause amended to unilateral 12 months @ 150% of annual
          Premium.
5.   Please note that for regulatory reasons all payments relating U.S. based
     insureds must be transacted through a resident Bermuda broker.

Best Regards,

/s/ PATRICK TANNOCK
- --------------------------------
Patrick Tannock

EX-99.3

                                 EXHIBIT (99-3)




          Directors and Officers (Second) Liability Binder of Insurance


                                FACSIMILE MESSAGE

To:      Paul Scope                                 Fax No: 295-4622

Company: Park (Bermuda) Limited                     Location: Hamilton

Date:    July 2, 2003                               Page:    1

From:    Sherron Williams                           Telephone No: (441) 292-8515
                                                    Facsimile No: (441) 292-1566


3 Health Care / Consumer
                                              [XL INSURANCE (BERMUDA) LTD. LOGO]
XL Insurance (Bermuda) Ltd.
XL House
One Bermudiana Road
P.O. Box HM 2245
Hamilton HM JX
Bermuda

Coverage Binder for:                        The Procter & Gamble Company

Type:                                       Directors and Officers Liability

Our Reference:                              15-3

Policy No:                                  XLD+O-00364

Policy Period:                              June 30, 2003 to June 30, 2004

Brokerage:                                  12.00%
New Aggregate:    Yes


                                                                Gross Written
    Limit                      Attachment                       Premium
- --------------------------------------------------------------------------------
    USD 25,000,000 D+O         USD 25,000,000 D+O               USD 788,000


Coverage Binder for:         The Procter & Gamble Company                Page 2

SPECIAL CONDITIONS:

     A)   X.L. coverage to follow form of CODA as per their 6/26/03.

     B)   Issue standard X.L. 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)   Incorporation of Application Endorsement.
          4)   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.

          7)   XL will not follow form of CODA Section 8(a)(i), (b) and (c) and
               section 18(b).
          8)   XL will amend section (a)(i) of our expiring endorsement 2 as per
               item 3(b) of my 6/23/03 email. The remainder of the endorsement
               will continue as is.
          9)   Directors and Officers endorsement as per expiring endorsement
               #8.
          10)  XL will carry forward expiring endorsement #6.

     C)   Underlying Policies:

            CODA $25 MM

     D)   Within 10 days of binding we require satisfactory receipt, review and
          acceptance of a copy of the signed and dated CODA renewal application
          and a satisfactorily completed assignment letter, assigning the CODA
          renewal application to XL.

     E)   Subject to premium payment within 10 days of binding.

EX-99.4

                                 EXHIBIT (99-4)




          Directors and Officers (Third) Liability Binder of Insurance



                                                                Fax Transmission
                                                                          BINDER

[ACE BERMUDA LOGO]            Ace Bermuda                     P.O. Box 1015
                              Insurance Ltd.                  Hamilton HM DX
                              ACE Global Headquarters         Bermuda
                              17 Woodbourne Avenue
         ace bermuda          Hamilton HM 08                  441 295-5200 main
                              Bermuda                         www.acelimited.com

To:                                       From:
Paul Scope                                Patrick Tannock
- ---------------------------------         --------------------------------------
Company:                                  Fax:
H&H Park International                    441-292-2514
- ---------------------------------         --------------------------------------
Department:                               Tel:
                                          441-299-9239
- ---------------------------------         --------------------------------------
Fax:                                      Date:
295 4622                                  July 1, 2003

Re:                                       Pages including cover:
Procter & Gamble                          2


ACE Bermuda Insurance Ltd. is pleased to provide a provisional D&O binder as
follows:

Policy Period:            June 30th, 2003 to June 30th, 2004
Limit of Liability:       $25M D&O / C.R.
Attachment:               $50M
Aggregate:                $25M

Premium:                  1,100,000

UNDERLYING STRUCTURE:

NAME:             LIMITS:
                  D&O          C.R.
CODA              $25M         0/0/$50M e.e.
XL                $25M

     SPECIAL CONDITIONS:

1.   Followed Policy is CODA
2.   Discovery Period & Pct: as per followed policy.
3.   Cancellation Period: as per followed policy.
4.   Coverage is as follows:
     -    D&O/C.R. 100% Allocation
5.   Binding is subject to receipt, review and acceptance of the following:
     -    Copy of underlying binders
     -    A satisfactory completed Assignment Letter, assigning CODA Renewal
          Application to ACE Bermuda

[ACE BERMUDA LOGO]

         ace Bermuda


6.   Binder is subject to no layer above our participation at a premium which
     attracts a higher rate per million.
7.   Cover will be issued on Policy Form D&O 03/00.
8.   Unless otherwise agreed to prior to the premium due date, ACE requires
     payment of 88% of the above quoted premiums, no later than July 11, 2003.
9.   Endorsements to be included:
     a.   Unilateral Discovery Period, 12 months at 150%
     b.   Cancellation Period: As per CODA
     c.   Prior/Pending Litigation Exclusion effective: 6/30/01 for side B & C
          cover
     d.   Incorporation of Application endorsement
     e.   Incorporation of Warranty endorsement as per the expiring XL
          endorsement No. 10
     f.   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.
     g.   ACE will amend section (a)(i) of the XL expiring endorsement No. 2 as
          per the specimen wording attached.
     h.   Broad form pollution and broad form BI/PD exclusions as per expiring
          XL endorsements No. 3 & 4
     i.   New SIR wording, as per Item 3(a) of the attached specimen wording
     j.   Directors and Officers Coverage Endorsement as per the XL expiring
          endorsement No. 8
     k.   Amendment of section (a)(i) of the Policy Termination Endorsement

10.  Please note that for regulatory reasons all payments relating to U.S. based
     insureds must be transacted through a resident Bermuda broker.

We reserve the right to withdraw or modify the foregoing quotation and/or
agreement to renew coverage if prior to the effective date of the coverage
renewal any information or answers contained in your application or other
factors material to the risk to be insured change. This right of withdrawal or
modification shall not be affected by the payment of the premium, which shall be
refunded (without interest) to the extent coverage is not renewed.

Best regards,

/s/ PATRICK TANNOCK
- -------------------------
Patrick Tannock
Ace Bermuda Insurance Ltd.



Page2/2

EX-99.5

                                 EXHIBIT (99-5)




          Directors and Officers (Fourth) Liability Binder of Insurance



[AWA LOGO]  ALLIED WORLD ASSURANCE COMPANY, LTD
The Bermuda Commercial Bank Building - 43 Victoria Street - Hamilton HM 12,
Bermuda - TEL 441-278-5400 - FAX 441-296-3428

                               BINDER CONFIRMATION

TO:                                             FROM:
Jerry Rivers                                    James Perry

COMPANY:                                        DATE:
Park (Bermuda) Ltd.                             7/9/2003

ADDRESS:                                        NO. OF PAGES: 4
         Bermuda

Insured Name:                  THE PROCTER & GAMBLE COMPANY
Insured Address:               One Procter & Gamble Plaza, Cincinnati, OH  45202

It is hereby understood and agreed that coverage is bound as follows:

Insurance Company:                Allied World Assurance Company Ltd.

Issuing Carrier:                  Allied World Assurance Company Ltd.

Underwriter:                      James Perry

Type of Insurance:                Directors and Officers (1/03) Excess Liability

Policy Form:                      Follow Form

AWAC Policy Form:                 D and O (1/03)

Policy Trigger:                   Claims Made

Policy Number:                    C000539/002

Policy Period:                    6/30/2003 to 6/30/2004

Currency:                         United States Dollars ($)


                                                                               2


Covered Layer Limits:               US$ 25,000,000            Per Claim
                                    US$ 25,000,000            Annual Aggregate

                                    Excess of

                                    US$ 75,000,000             Per Claim
                                    US$ 75,000,000             Annual Aggregate


Pending or Prior
Litigation Date:                    6/30/2002

AWAC Participation of
Covered Layer Limits:               100.00%

AWAC Limits:                        US$ 25,000,000

AWAC Premium:                       US$ 970,000

Commission:                         12.00%

Binder Expiry Date:                 30 days after date listed on page 1.

Applicable Endorsements:


Follow form:                        a) Company: Ace Bermuda (2nd excess)

                                    b) Policy No.: TBD

                                    c) Policy Period: 6/30/2003 to 6/30/2004

                                    d) Policy Limits:
                                    US$ 25,000,000        Per Claim
                                    US$ 25,000,000        Annual Aggregate

                                    e) Premium: US$  1,100,000

                                    f) Policy Form: D&O 5/96

                                    g) Endorsements: Follow the primary binder
                                       on endorsements

                                    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 be 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 cancelled 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 the 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. This cost of discovery, as a percentage of the annual
     premium, shall in no event be less than the highest percentage of any
     underlying policy.

EX-99.6

                                 EXHIBIT (99-6)




          Directors and Officers (Fifth) Liability Binder of Insurance


                         [ARCH INSURANCE (BERMUDA) LOGO]

                            ARCH INSURANCE (BERMUDA)
                      (A Division of Arch Reinsurance Ltd.)
                            VICTORIA HALL, 4TH FLOOR
                               11 VICTORIA STREET
                                 P.O. BOX HM 129
                                 HAMILTON HM AX
                            TELEPHONE: (441) 278-9295

TO:                                    FROM:
         Paul Scope                                Matt Smith
DIRECT PHONE NUMBER:                   DIRECT PHONE NUMBER:
         294-7963                                  278-9268
COMPANY:                               DATE:
         Park (Bermuda) Limited                    June 30, 2003
FAX NUMBER:                            TOTAL NO. OF PAGES INCLUDING COVER:
         295-4622                                  2
SUBJECT:
         Procter & Gamble Company - BINDER

Arch Insurance (Bermuda) is pleased to bind as follows:

Insured:                            Procter & Gamble Company

Policy Form                         Arch Reinsurance Follow Form

Coverage:                           Excess D&O

Policy Period:                      June 30, 2003 to June 30, 2004

Policy Limits:                      $25,000,000 per claim and in the aggregate

Policy Attachment:                  $100,000,000 per claim and in the aggregate

Annual Premium:                     $875,000

Commission                          12%

Policy Number:                      B4-DOX-01824-01

Underlying Program:                 INSURER                   LAYER
                                    -------                   -----
                                    CODA                      $25M
                                    XL                        $25M x/s $25M
                                    ACE                       $25M x/s $50M
                                    AWAC                      $25M x/s 75M

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 XL.
     2.   Pending and Prior Litigation Exclusion dated AS PER EXPIRING CAIL
          LAYER (please provide details).
     3.   Arch will provide cover no wider than the narrowest underlying policy.
     4.   Discovery: As per followed policy.
     5.   New York Law and London Arbitration.

Subjectivities:
This binder is subject to the receipt, review and acceptance of the following by
the dates specified or coverage is cancelled ab initio:

     1.   Copies of underlying quotations (other than those already received)
          and binders, within 5 days of binding.
     2.   Any documents or information requested by, or provided to, any
          underlying carriers, within 5 days of binding.
     3.   Receipt by Arch Insurance (Bermuda) of the net premium will be
          required within 5 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 premiums and are the
responsibility of the Insured to pay.

Yours sincerely,

/s/ MATT SMITH
- ---------------------------
Matt Smith

EX-99.7

                                 EXHIBIT (99-7)




          Directors and Officers (Sixth) Liability Binder of Insurance


[STARR EXCESS INTERNATIONAL LOGO]

                    EXCESS DIRECTORS & OFFICERS INSURANCE AND
                        CORPORATE REIMBURSEMENT INSURANCE

                             RENEWAL BUSINESS BINDER

NAMED CORPORATION             :       PROCTER & GAMBLE

POLICY NUMBER                 :        6460657 (RENEWAL OF POLICY NO. 6458089)

POLICY PERIOD                 :        JUNE 30, 2003 TO JUNE 30, 2004

LIMIT OF LIABILITY            :        US$25,000,000

ATTACHMENT                    :        US$125,000,000

PREMIUM                       :        US$785,000

CURRENCY                      :        U.S. DOLLAR

COMMISSION                    :        12%

SUBJECT TO:

1.   Copy of CODA renewal application, with letter assigning to Starr;
2.   Copies of all underlying policies, as soon as possible;
3.   Copies of any information requested by or provided to any underlying
     insurer.

ADDITIONAL TERMS:
1.   Unilateral Discovery Clause - 150% of annual premium for 12 months;
2.   Prior & Pending Litigation exclusion effective June 30, 2001;
3.   Cancellation Clause - same number of days as CODA;
4.   This binder is subject to confirmation that any higher layer placed does
     not attract a higher premium per million than Starr's lower layer;
5.   Non-follow form of State amendatory, panel counsel, choice of law, service
     of suit or arbitration endorsements, if applicable;
6.   Non-follow form of underlying sub-limits, with recognition of erosion;
7.   Starr will not provide coverage broader than the most restrictive
     underlying policy.

FOLLOWED POLICY:
                           CODA    $25,000,000
                           XL      $25,000,000
                           Ace     $25,000,000
                           AWAC    $25,000,000
                           Arch    $25,000,000

Premium to be received no later than July 14, 2003.

The captioned policy will be issued upon receipt of the primary and all
underlying policies.

ACCEPTED BY:      /s/ ADAM KLEINMAN         DATE  : June 30, 2003
                  Adam Kleinman
                  Vice President

EX-99.8

                                 EXHIBIT (99-8)




         Directors and Officers (Seventh) Liability Binder of Insurance







[AXIS SPECIALTY LIMITED LOGO]

                             Axis Specialty Limited
                               106 Pitts Bay Road
                             Pembroke, HM 08 Bermuda
                                 (441) 206-2600


21-Jul-03

Jerry Rivers
H&H Park
44 Church Street
Hamilton, Bermuda HMHX

Re:      Procter & Gamble
         Excess Binder

Dear Jerry:

Thank you for thinking of Axis Financial Insurance Solutions. We are pleased to
offer the following Conditional Binder for the above captioned account as per
the quotation dated 16-Jul-03:

Insurer:                                    Axis Specialty Limited Bermuda

Parent Company and Address:                 Procter & Gamble
                                            1 Procter & Gamble Plaza
                                            Cincinnati, Ohio

Binder Number:                              PARK000012
Policy Number:                              122250103QA-QDO3US112225
Policy Form:                        Excess Form Number AXIS BM03

Line of Business:                   Directors Officers Liability

Policy Period:
From 12:01 AM (Local time at the address stated in Item 1) on      30-Jun-03
To 12:01 AM (Local time at the address stated in Item 1) on        30-Jun-04

Limits / Premium:
- ----------------

Limit of Liability*:     Policy Period Premium:             Total Policy
                                                            Period Premium

$25,000,000              $692,500                           $692,500
*Equals Maximum aggregate Limit of Liability for all Claims








Underlying Insurance:
1.       Primary Insurance:
         Insurer           Policy Number    Limits            Policy Period
         ---------         -------------    ---------         -------------
         CODA              TBD              $25,000,000       12 months

2.       Other Underlying Policies:
         Insurer           Policy Number    Limits            Policy Period
         ---------         -------------    ------            -------------
         XL                TBD              $25,000,000       12 months
         ACE               TBD              $25,000,000       12 months
         AWAC              TBD              $25,000,000       12 months
         ARCH              TBD              $25,000,000       12 months
         STARR             TBD              $25,000,000       12 months

Pending & Prior Claim Date:         N/A


Endorsements:
[ ]
[ ]
[ ]
[ ]

Commission          12%

Receipt, review and acceptance in writing by Axis Specialty Limited underwriters
of the following additional information must occur no later than: N/A



If any of the above requested items are not received, 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 service to waive the above requirements.

Further, a condition precedent to coverage afforded by this Conditional Binder
is that no material change in 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 last day of the month in
which coverage became effective.

This Conditional Binder is valid thru ninety (90) days from the date of this
document.







Please consider this your invoice for accounting purposes. Remit payment to:

Wire Transfer Information:
- -------------------------

"SWIFT MT 100. Customer Transfer Advice"
This is an INTERNATIONAL wire transfer

Correspondent Bank:        Citibank N.A.
                                    111 Wall Street
                                    New York, NY

                                    FED ABA 021000089
                                    CHIPS ABA: 0008
                                    S.W.I.F.T. Code: CITIUS33

(All three codes identify Citibank N.Y. The choice of code is dependent on the
payment system used by the remitting bank)

Beneficiary Bank:          The Bank of Bermuda Limited
                           Hamilton Bermuda
                           CHIPS UID: 005584
                           S.W.I.F.T. Code BBDA BMHM

(Both codes above identify The Bank of Bermuda, Hamilton. Again, the choice of
code is dependent on the payment system used).

Beneficiary A/C Number:    807381

Beneficiary A/C Name:  AXIS Specialty Limited - Premium A/C

AXIS Payment Terms - As a reminder, premium payment to AXIS Specialty Limited
are due 30 days after the last day of the month in which coverage becomes
effective. For example, if a policy has an effective date of May 4, the premiums
would be due by June 30. A policy with an effective date of June 25 would have a
premium due date of July 30.

Thank you for all of your hard work and support. It is greatly appreciated.

Best Regards,


/s/ RICHARD BULLEN
Richard Bullen
Underwriter
AXIS Specialty Limited   21/07/03

EX-99.9

                                 EXHIBIT (99-9)




          Directors and Officers (Eighth) Liability Binder of Insurance







                                FACSIMILE MESSAGE

To:      Jerry Rivers                             Fax No: 295-4622

Company: Park (Bermuda) Limited                   Location: Hamilton

Date:    July 22, 2003                            Page:    1

From:    Sherron Williams                         Telephone No: (441) 292-8515
                                                  Facsimile No: (441) 292-1566


3 Health Care / Consumer
                                      [XL INSURANCE (BERMUDA) LTD. LOGO]
XL Insurance (Bermuda) Ltd.
XL House
One Bermudiana Road
P.O. Box HM 2245
Hamilton HM JX
Bermuda

Coverage Binder for:                  The Procter & Gamble Company

Type:                                 Directors and Officers Liability including
                                      Company Reimbursement Liability

Our Reference:                        15-4

Policy No:                            XLD+O-00364

Policy Period:                        June 30, 2003 to June 30, 2004

Brokerage:                            12.00%
New Aggregate:    Yes


                                                             Gross Written
    Limit                      Attachment                    Premium
- --------------------------------------------------------------------------------
    USD 15,000,000 D+O/CR      USD 175,000,000 D+O/CR        USD 374,500







COVERAGE BINDER FOR:         THE PROCTER & GAMBLE COMPANY                PAGE: 2

SPECIAL CONDITIONS
     A)   X.L. coverage to follow form of: ACE, as per their 7/1/03 binder.

     B)   Issue standard X.L. Policy: D+O-005, plus the following endorsements:

          (1)  Unilateral Discover Period: 12 months at 150 percent annual
               premium.
          (2)  Cancellation period: as per CODA
          (3)  Policy Interpretation Endorsement
          (4)  Prior/Pending Litigation Exclusion effective: 6/30/02. XL is
               willing to amend this exclusion to solely apply to sides B & C of
               the policy with an effective date of 6/30/01, upon confirmation
               that all other markets have agreed to do so.
          (5)  Incorporation of Application Endorsement
          (6)  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.

     C)   Underlying Policies:

          CODA (side A):            $25MM
          XL (side A):              $25MM xs $25MM
          ACE (side A/B/C):         $25MM xs $50MM
          AWAC (side A/B/C):        $25MM xs $75MM
          ARCH (side A/B/C):        $25MM xs $100MM
          Starr (side A/B/C):       $25MM xs $125MM
          Axis (side A/B/C):        $25MM xs $150MM

     D)   Subject to premium payment within 10 days of binding.






COVERAGE BINDER FOR:         THE PROCTER & GAMBLE COMPANY                PAGE: 3

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/ SHERRON WILLIAMS
- ------------------------------------
Sherron Williams
XL Insurance (Bermuda) Ltd.

EX-99.10

                                 EXHIBIT (99-10)



          Directors and Officers (Ninth) Liability Binder of Insurance







[MAX RE LOGO]
                                                   Jonathan Evans
                                                   Professional Liability
                                                   T 441.294.2263 F 441.298.8811
                                                   jonathane@maxre.bm

July 7, 2003



Re: The Procter & Gamble Company

Max Re Ltd is pleased to bind the following for the above referenced client.

Coverage Information

Type:             Binder

Client Information

Name:                       The Procter & Gamble Company

Address:                    One Procter & Gamble Plaza
                            Cincinnati, OH  45202

Policy Information

Policy Form:                Max Re Ltd Professional Liability Follow Form Excess

Policy Number:              1322-80-UMB-2003

Policy Period:              June 30th, 2003 - June 30th, 2004

Limit of Liability:         $10,000,000  In the aggregate for the policy period.

Policy Attachment:          $190,000,000 excess of the following schedule of
                            underlying Insurance:

                            CODA               $25M   Primary
                            XL               $25.0M   $25.0M
                            ACE              $25.0M   $50.0M
                            AWAC             $25.0M   $75.0M
                            Arch             $25.0M   $100.0M
                            Starr            $25.0M   $125.0M
                            TBA              $25.0M   $150.0M

Insured's Retention:        $50,000,000 each and every claim

Followed Policy:  CODA (with restrictions)







PREMIUM INFORMATION

Premium:              $244,000

Commission:           12%

Payment Terms:        Premium payment is due in full within 10 days of binding.

Payment Instructions: Federal Reserve Bank of Boston
                      ABA: 011-001-234/BOS SAFE DEP
                      DDA# 162299
                      For: Insurance Operating Account (Max Re Ltd)
                      Account Number: MRL F 0070232

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 net funds of $214,750 on or before July 14, 2003. In the event
     net funds are not received by this date, this binder is void ab initio.

ENDORSEMENTS:

1.   Endorsement backdated prior and pending dates.

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 filling responsibilities of
     any kind relating to such any taxes or fees.
2.   All amounts are in United States Dollars unless otherwise indicated.
3.   The proposal is conditioned upon no material change between the date of
     this letter and the inception date of the proposed policy, including any
     claims or notices of circumstances to any prior insurer. In the event of
     such a change of risk, Max Re has the sole option to modify or withdraw
     this proposal at its discretion.
4.   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 inito by the insurer.
5.   All changes, modifications and extensions of this proposal shall be made
     only in writing by the underwriter.



Page 2 of 3                                 MAX RE MANAGERS LTD. 2 FRONT STREET,
                                            P.O. BOX HM 2585
                                            T 441.296.6800 F 441.296.8811
                                            E info@maxre.bm www.maxre.bm







Thank you for considering Max Re Ltd for this placement. Please contact me if
you have any questions.

Yours truly,


/s/ JONATHAN EVANS
Jonathan Evans
Professional Liability

T 441 294 2263
F 441 296 8811
E jonathane@maxre.bm














Page 3 of 3                                 MAX RE MANAGERS LTD. 2 FRONT STREET,
                                            P.O. BOX HM 2585
                                            T 441.296.6800 F 441.296.8811
                                            E info@maxre.bm www.maxre.bm