10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

þ 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, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___to ___

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, Paris

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 þ No o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the voting stock held by non-affiliates amounted to $139 billion on December 31, 2004.

There were 2,461,253,748 shares of Common Stock outstanding as of July 31, 2005.

Documents Incorporated By Reference

Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2005 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 2005 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein.

2

TABLE OF CONTENTS

PART I
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 Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	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 Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B.Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accounting Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
Exhibit 10.4
Exhibit 10.11
Exhibit 10.12
Exhibit 10.13
Exhibit 11
Exhibit 12
Exhibit 13
Exhibit 21
Exhibit 23
Exhibit 31
Exhibit 32
Exhibit 99.1

PART I

Item 1. Business.

     Additional information required by this item is incorporated herein by reference to Management’s Discussion and Analysis, which appears on pages 25-40; Note 1, Summary of Significant Accounting Policies, which appears on pages 46-48; Note 2, Acquisitions, which appears on pages 48-50; and Note 11, Segment Information, which appears on pages 60-61 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

     The Procter & Gamble Company is focused on providing branded products of superior quality and value to improve the lives of the world’s consumers. The Company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. Today, we market over 300 branded products in more than 160 countries. Unless the context indicates otherwise, the terms the “Company,” “P&G,” “we,” “our” or “us” as used herein refers to The Procter & Gamble Company (the registrant) and its subsidiaries.

     The markets in which our products are sold are highly competitive. Our products compete against similar products of many large and small companies, including well-known global competitors. We market our products with advertising, promotions and other vehicles to build awareness of our brands in conjunction with an extensive sales force. We believe this combination provides the most efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important competitive factors.

     Throughout this Form 10-K, we incorporate by reference information from other documents filed with the Securities and Exchange Commission (SEC).

     The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are filed electronically with the SEC. The SEC maintains an internet site that contains these reports at: http://www.sec.gov. You can also access these reports through links from our website at: www.pg.com/investors/sectionmain.jhtml.

     Copies of these reports are also available, without charge, by contacting The Procter & Gamble Company, Shareholder Services Department, P.O. Box 5572, Cincinnati, Ohio 45201-5572.

Financial Information About Segments

     The Company is organized into three Global Business Units: P&G Beauty; P&G Family Health; and P&G Household Care. We have five reportable segments under U.S. GAAP: P&G Beauty; Health Care; Baby Care and Family Care; Fabric Care and Home Care; and Snacks and Coffee. None of these businesses is highly seasonal. Many of the factors necessary for an understanding of these businesses are similar. Operating margins of the individual businesses vary slightly due to nature of the materials and processes used to manufacture the products, the capital intensity of the businesses and differences in selling, general and administrative expenses as a percentage of net sales. Net sales growth by business is also expected to vary slightly due to the underlying growth of the markets of each business and products. For example, we expect our P&G Beauty business to provide a disproportionate percentage of overall net sales growth, as the market for these products is expected to grow at a higher rate than the remaining businesses.

3

     Additional information about our businesses, including a discussion of competitive conditions, can be found in Management’s Discussion and Analysis, pages 27-28, and Note 11, Segment Information, which appears on pages 60-61 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

     Effective July 1, 2004, we realigned some of our business units and associated management responsibilities. Concurrent with this change, we made adjustments to the measures used to evaluate the performance of senior management. The most significant of these adjustments was the amortization expense of identifiable intangible assets with determinable lives, which is now included in business results rather than held in Corporate. While these changes had no impact on total Company results, historical business results for all periods presented were conformed for these changes.

Narrative Description of Business

     Business Model. Our business model relies on the continued growth and success of existing brands and products, as well as the creation of new products. The markets and industry segments in which we offer our products are highly competitive. Our products are sold in over 160 countries around the world primarily through mass merchandisers, grocery stores, membership club stores and drug stores. We have also expanded our presence in “high-frequency stores,” the neighborhood stores which serve many consumers in developing markets. We work collaboratively with our customers to improve the in-store presence of our products and win the “first moment of truth” — when a consumer is shopping in the store. We must also win the “second moment of truth” — when a consumer uses the product, evaluates how well it met his or her expectations and whether it was a good value. We believe we must continue to provide new, innovative products and branding to the consumer in order to grow our business. 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, we believe these activities demonstrate our commitment to future growth.

     Key Product Categories. We currently have three product categories that each account for 10% or more of consolidated net sales. The laundry category constitutes approximately 17% of net sales for fiscal year 2005, compared to 18% of net sales for fiscal year 2004 and 19% in 2003. The diaper category represents approximately 11% of net sales in 2005, compared to 11% in 2004 and 12% in 2003. The retail hair care category accounts for approximately 10% of fiscal year 2005 net sales compared to 11% of fiscal year 2004 net sales and 9% in 2003.

     Key Customers. Our customers include mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores. Sales to Wal-Mart Stores, Inc. and its affiliates represent approximately 16% of our total revenue, compared to 17% in 2004 and 18% in 2003. No other customer represents more than 10% of our net sales. Our top ten customers account for approximately 32% of total unit volume, which is comparable with 2004 and 2003. The nature of our business results in no material backlog orders or contracts with the government. We believe our practices related to working capital items for customers and suppliers are consistent with the industry segments in which we compete.

4

     Sources and Availability of Materials. Almost all of the raw and packaging materials used by the Company are purchased from others, some of whom are single-source suppliers. We produce raw materials, primarily chemicals, for further use in the manufacturing process. In addition, fuel and natural gas are important commodities used in our plants and in the trucks used to deliver our products to customers. The prices we pay for materials and other commodities are subject to fluctuation. For example, the price of oil was up approximately 45% in 2005 compared to the prior year. The cost of many of the resins used in our raw and packaging materials increased about 20%. We also had increases in pulp and chemical costs. When prices for these items change, we may or may not pass on the change to our customers, depending on the magnitude and expected duration of the change. In 2005, we increased prices in some categories, including Family Care, Pet Health and Nutrition, Coffee and certain Fabric Care markets to recover increases in commodity costs. The Company purchases a substantial variety of raw and packaging materials, no one of which is material to our business taken as a whole.

     Trademarks and Patents. We own or have licenses under patents and registered trademarks which are used in connection with our activity in all businesses. Some of these patents or licenses cover significant product formulation and processes used to manufacture our products. The trademarks of all major products in each business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks, patents and licenses.

     Expenditures for Environmental Compliance. Expenditures for compliance with federal, state and local environmental laws and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year 2006.

     Employees. The Company has approximately 110,000 employees.

Financial Information About Foreign and Domestic Operations

     Net sales in the United States account for approximately 45% of total net sales. No other individual country had net sales exceeding 10% of total net sales. Operations outside the United States are generally characterized by the same conditions discussed in the description of the business above and may also be affected by additional factors including changing currency values, different rates of inflation, economic growth and political and economic uncertainties and disruptions. Our sales by geography for the fiscal years ended June 30 were as follows:

	2005			2004			2003
North America		48	%		50	%		54	%
Western Europe		24	%		24	%		21	%
Northeast Asia		5	%		5	%		5	%
Developing Markets		23	%		21	%		20	%

     Developing markets include Latin America, Central & Eastern Europe/Middle East and Africa, Greater China, and ASEAN/Australasia/India.

5

     Net sales and assets in the United States and internationally were as follows (in millions):

	Net Sales (for the year ended June 30)						Assets (as of June 30)
	2005		2004		2003		2005		2004		2003
United States	$	25,342	$	23,688	$	21,853	$	25,399	$	23,687	$	23,424
International		31,399		27,719		21,524		36,128		33,361		20,282

Development of the Business

     The discussion below provides insight to the general development of our business, including the material acquisitions and disposition of assets over the past five years.

     Gillette Acquistion. On January 27, 2005, we entered into an agreement to acquire The Gillette Company. The agreement, which has been approved by the boards of directors and the shareholders of both companies, provides for a stock-for-stock exchange in which 0.975 shares of The Procter & Gamble Company common stock will be issued and exchanged, on a tax-free basis, for each share of The Gillette Company. Under the purchase method of accounting, the total consideration would be approximately $54 billion, determined using the average Company stock prices beginning two days before and ending two days after January 28, 2005, the date the acquisition was announced.

     The Gillette Company is the world leader in the male grooming category that includes blades, razors and shaving preparations, and in selected female grooming products. Gillette also holds the number one position worldwide in alkaline batteries and toothbrushes. Total sales for Gillette during its most recent year ended December 31, 2004 were $10.5 billion.

     The acquisition is subject to approval by US and non-U.S. regulatory authorities. We believe that the transaction will close in Fall 2005.

     Juice divestiture. In August 2004 the Company completed the divestiture of its Juice business.

     Wella Acquisition. In March 2003, the Company entered into an agreement to acquire a controlling interest in Wella from the majority shareholders. In September 2003, we completed this purchase of the shares of Wella for EUR 3.16 billion (approximately $3.42 billion based on exchange rates on that date). Additionally, in September 2003, we purchased shares secured through a tender offer to remaining shareholders for EUR 1.49 billion (approximately $1.67 billion based on exchange rates on that date). As a result of these purchases, the Company acquired approximately 81% of the outstanding Wella shares (99% of the voting class shares and 45% of the preference shares).

     In June 2004, the Company and Wella entered into a Domination and Profit Transfer Agreement (the Domination Agreement). Under the Domination Agreement, we are entitled to exercise full operating control and receive 100% of the future earnings of Wella. As consideration for the Domination Agreement, we will pay the remaining shareholders of Wella a guaranteed annual dividend payment. Alternatively, the remaining Wella shareholders may elect to tender their shares to the Company for an agreed price. The fair value of the total guaranteed annual dividend payments was $1.11 billion, which is the approximate cost if all remaining shares were tendered.

6

     The acquisition of Wella was financed by a mixture of available cash balances and debt. Wella is a leading beauty care company selling its products in more than 150 countries, focused on professional hair care, retail hair care and cosmetics and fragrances.

     Hutchison Acquisition. In June 2004, we purchased the remaining 20% stake of our China venture from our partner, Hutchison Whampoa China Ltd. (Hutchison), giving us full ownership of our operations in China. The net purchase price was $1.85 billion, which is the purchase price of $2.00 billion net of minority interest and certain obligations that were eliminated as a result of the transaction. The acquisition was funded by debt.

     Jif/Crisco Spin-Off. During May 2002, we 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.

     Clairol Acquisition. In November 2001, we completed the acquisition of the Clairol business from The Bristol-Myers Squibb Company.

     Restructuring Program. In 1999, we announced our intention to transition from our previous geographic-based structure to a product-based global business unit structure. Concurrent with that change, we initiated a multi-year Organization 2005 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. This restructuring program was substantially complete by the end of 2003. From the program’s inception through the end of 2003, we incurred charges of $4.85 billion before tax ($3.79 billion after tax) for employee separation costs, asset write-downs, accelerated depreciation and other costs directly related to the restructuring effort.

Item 2. Properties.

     In the United States, we own and operate 33 manufacturing facilities located in 21 different states. In addition, we own and operate 91 manufacturing facilities in 42 other countries. Many of the domestic and international facilities produce products for multiple businesses. P&G Beauty products are manufactured at 53 of these locations; Fabric Care and Home Care products at 42; Baby Care and Family Care products at 32; Health Care products at 27; and Snacks and Coffee products at 6. 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.

     We are 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, 2005, representing probable future costs that can be reasonably estimated, was $7 million.

     We are also involved in certain other environmental proceedings. No such proceeding is expected to result in material monetary or other sanctions being imposed by any governmental entity, or in other material liabilities.

7

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

     At a special meeting of shareholders held on July 12, 2005, the following actions were taken:

     A proposal by the Board of Directors to adopt the agreement and plan of merger, dated as of January 27, 2005, among The Procter & Gamble Company, Aquarium Acquisition Corp., a wholly-owned subsidiary of Procter & Gamble, and The Gillette Company, and approve the issuance of Procter & Gamble Common Stock in the merger. The shareholders cast 1,885,874,704 (71.68% of the issued and outstanding shares, which is the equivalent of 96.36% of votes cast) votes in favor of this proposal and 47,304,669 votes against. There were 23,884,959 abstentions.

     A proposal by the Board of Directors to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the issuance of Procter & Gamble Common Stock in the merger. The shareholders cast 1,530,618,440 votes in favor of this proposal and 340,870,568 votes against. There were 85,575,324 abstentions.

     Although these actions occurred following the fourth quarter, the Company is voluntarily including this information here because the vote was of significant interest to shareholders.

8

Executive Officers of the Registrant

     The names, ages and positions held by the executive officers of the Company on August 29, 2005 are:

				Elected to
Name	Position	Age		Officer Position
Alan G. Lafley	Chairman of the Board,		58		1992
	President and Chief Executive
	Director since June 8, 2000
Bruce L. Byrnes	Vice Chairman of the Board —		57		1991
	P&G Household Care
	Director since April 8, 2002
R. Kerry Clark	Vice Chairman of the Board —		53		1995
	P&G Family Health
	Director since April 8, 2002
Susan E. Arnold	Vice Chairman — P&G Beauty		51		2004
Robert A. McDonald	Vice Chairman — Global Operations		52		1999
Richard L. Antoine	Global Human Resources Officer		59		1998
G. Gilbert Cloyd	Chief Technology Officer		59		2000
Clayton C. Daley, Jr.	Chief Financial Officer		53		1998
R. Keith Harrison, Jr.	Global Product Supply Officer		57		2001
James J. Johnson	Chief Legal Officer		58		1991
Mariano Martin	Global Customer Business		52		2003
	Development Officer
Charlotte R. Otto	Global External Relations Officer		52		1996
Filippo Passerini	Chief Information Officer and		48		2003
	Global Services Officer
James R. Stengel	Global Marketing Officer		50		2001
Valarie L. Sheppard	Vice President and Comptroller		41		2005

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

9

PART II

5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

ISSUER PURCHASES OF EQUITY SECURITIES

							Approximate dollar
					Total Number of		value of shares that
					Shares Purchased as		may yet be purchased
					Part of Publicly		under our share
	Total Number of		Average Price		Announced Plans or		repurchase program
Period	Shares Purchased (1)		Paid per Share (2)		Programs (3)		($ in Billions) (3)
4/1/05 - 4/30/05		12,280,476		$ 54.15		12,280,000		19.8
5/1/05 - 5/31/05		11,822,509		$ 55.11		11,812,000		19.1
6/1/05 - 6/30/05		2,282,106		$ 55.66		2,281,000		19.0

(1)	All share repurchases were made in open-market transactions. The number of shares purchased other than through a publicly announced repurchase plan were 12,091 for the quarter. This table excludes shares withheld from employees to satisfy minimum tax withholding requirements on option exercises and other equity-based transactions. The Company administers employee cashless exercises through an independent, third party broker and does not repurchase stock in connection with cashless exercises.
(2)	Average price paid per share is calculated on a settlement basis and excludes commission.
(3)	On January 28, 2005 the Company announced a share buyback plan in connection with its planned acquisition of The Gillette Company. Pursuant to the plan, the Board of Directors authorized the Company and its subsidiaries to acquire in open market and/or private transactions up to $22 billion of shares of Company common stock to be financed by issuing a combination of long-term and short-term debt. On a discretionary basis and dependent upon market conditions and regulatory approvals, the Company and/or its subsidiaries may also, as part of this share repurchase program, purchase shares of The Gillette Company prior to the close to facilitate completion of the transaction. The share repurchases are expected to be largely completed by June 30, 2006.

     Additional information required by this item is incorporated by reference to Shareholder Information, which appears on page 65 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005, 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 46-48; Note 11, Segment Information, which appears on pages 60-61; and Financial Summary, which appears on pages 66-67 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

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 Management’s Discussion and Analysis, which appears on pages 25-40; Note 1, Summary of Significant Accounting Policies, which appears on pages 46-48; Note 2, Acquisitions, which appears on pages 48-50; Note 10, Commitments and Contingencies, which appears on pages 59-60; and Note 11, Segment Information, which appears on pages 60-61 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

10

     The Company has made certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 2005 and in other contexts relating to volume and net sales growth, increases in market shares, financial goals and cost reduction, among others.

     These forward-looking statements are based on assumptions and estimates regarding competitive activity, pricing, product introductions, economic conditions, customer and consumer trends, technological innovation, currency movements, governmental action and the development of certain markets available at the time the statements are made. Among the key factors that could impact results and must be managed by the Company are:

(1)	the ability to achieve business plans, including with respect to lower income consumers and growing existing sales and volume profitably despite high levels of competitive activity, especially with respect to the product categories and geographical markets (including developing markets) in which the Company has chosen to focus;
(2)	the ability to successfully execute, manage and integrate key acquisitions and mergers, including (i) the Domination and Profit Transfer Agreement with Wella, and (ii) the Company’s agreement to merge with The Gillette Company, including obtaining the related required regulatory approvals;
(3)	the ability to manage and maintain key customer relationships;
(4)	the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources);
(5)	the ability to successfully manage regulatory, tax and legal matters (including product liability, patent, and other intellectual property matters), and to resolve pending matters within current estimates;
(6)	the ability to successfully implement, achieve and sustain cost improvement plans in manufacturing and overhead areas, including the Company’s outsourcing projects;
(7)	the ability to successfully manage currency (including currency issues in volatile countries), debt (including debt related to the Company’s announced plan to repurchase shares of the Company’s stock), interest rate and certain commodity cost exposures;
(8)	the ability to manage the continued global political and/or economic uncertainty and disruptions, especially in the Company’s significant geographical markets, as well as any political and/or economic uncertainty and disruptions due to terrorist activities;
(9)	the ability to successfully manage competitive factors, including prices, promotional incentives and trade terms for products;
(10)	the ability to obtain patents and respond to technological advances attained by competitors and patents granted to competitors;
(11)	the ability to successfully manage increases in the prices of raw materials used to make the Company’s products;
(12)	the ability to stay close to consumers in an era of increased media fragmentation; and
(13)	the ability to stay on the leading edge of innovation.

     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 our actual results might differ materially from the forward-looking statements made herein.

11

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

     The information required by this item is incorporated by reference to the section entitled Other Information, which appears on page 39, and Note 6, Risk Management Activities, which appears on pages 51-52 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

Item 8. Financial Statements and Supplementary Data.

     The financial statements and supplementary data are incorporated by reference to pages 41-67 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

Item 9. Changes in and Disagreements with Accountants 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 control and disclosure control systems as of the end of the period covered by this report.

     Messrs. Lafley and Daley have concluded that the Company’s disclosure control systems are functioning effectively to provide reasonable assurance that the Company can meet its disclosure obligations. The Company’s disclosure control system is based upon a global chain of financial, staff and general business reporting lines that converge in the worldwide headquarters of the Company in Cincinnati, Ohio. The reporting process is designed to ensure that information required to be disclosed by the Company in the reports that it files or submits with the Commission is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Consistent with the SEC’s 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.

     Management’s annual report on internal control over financial reporting and the report of the independent registered public accounting firm are incorporated by reference to page 23 of the Annual Report to Shareholders for the fiscal year ended June 30, 2005.

Item 9B. Other Information

     Not applicable.

12

PART III

Item 10. Directors and Executive Officers of the Registrant.

     John F. Smith, Jr. is the Chairman of the Audit Committee. The Board of Directors has determined that Mr. Smith is both independent and an audit committee financial expert, as defined by SEC guidelines.

     The information required by this item is incorporated by reference to pages 4-10, up to but not including the section entitled Board and Committee Attendance; to the section entitled Code of Ethics, which appears on page 10; and to the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, which appears on pages 29-30 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2005, pursuant to Regulation 14A which involved the election of directors. Pursuant to Instruction 3 of 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 10-26 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2005, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Board and Committee Attendance.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

     The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s equity compensation plans as of June 30, 2005. The table includes the following plans: The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1992 Stock Plan (Belgian Version); The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan; The Procter & Gamble Future Shares Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; and The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan.

					Number of securities
					remaining available for
	Number of securities to be		Weighted-average exercise		future issuance under
	issued upon exercise of		price of outstanding		equity compensation plans
	outstanding options,		options, warrants and		(excluding securities
Plan Category	warrants and rights		rights		reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders (1)		269,373,276	$	41.12		131,108,843
Equity compensation plans not approved by security holders(2)		18,941,066	$	41.30		5,415,900
Total		288,314,342	$	41.07		136,524,743

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

13

The Procter & Gamble 1992 Stock Plan (Belgian Version)

     Effective February 14, 1997, the Company’s Board of Directors approved The Procter & Gamble 1992 Stock Plan (Belgian Version). Although the plan has not been submitted to shareholders for approval, the plan is nearly identical to The Procter & Gamble 1992 Stock Plan, approved by the Company’s shareholders on October 13, 1992, except for a few minor changes designed to comply with the Belgian tax laws. Although no further grants can be made under the plan, unexercised stock options previously granted under this plan remain outstanding.

     The plan is a stock incentive plan designed to attract, retain and motivate key Belgian employees. Under the plan, eligible participants may be granted or offered the right to purchase stock options, may be granted stock appreciation rights and/or may be granted shares of the Company’s common stock. Except in the case of death of the recipient, all stock options and stock appreciation rights must vest in no less than one year from the date of grant and must expire no later than fifteen years from the date of grant. The exercise price for all stock options granted under the plan is the average price of the Company’s stock on the date of grant. If a recipient of a grant leaves the Company while holding an unexercised option or right, any unexercisable portions immediately become void, except in the case of death, and any exercisable portions become void within one month of departure, except in the case of death or retirement. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine.

The Procter & Gamble Future Shares Plan

     On October 14, 1997, the Company’s Board of Directors approved The Procter & Gamble Future Shares Plan pursuant to which options to purchase shares of the Company’s common stock may be granted to employees worldwide. The purpose of this plan is to advance the interests of the Company by giving substantially all employees a stake in the Company’s future growth and success and to strengthen the alignment of interests between employees and the Company’s shareholders through increased ownership of shares of the Company’s stock. The plan has not been submitted to shareholders for approval.

     Subject to adjustment for changes in the Company’s capitalization, the number of shares to be granted under the plan is not to exceed 17 million shares. Under the plan’s regulations, recipients are granted options to acquire 100 shares of the Company’s common stock at an exercise price equal to the average price of the Company’s common stock on the date of the grant. These options vest five years after the date of grant and expire ten years following the date of grant. If a recipient leaves the employ of the Company prior to the vesting date for a reason other than disability, retirement or special separation (as defined in the plan), then the award is forfeited.

     At the time of the first grant following approval of the plan, each employee of the Company not eligible for an award under the 1992 Stock Plan was granted options for 100 shares. Since the date of the first grant, each new employee of the Company has also received options for 100 shares. Following the grant of options on June 30, 2003, the Company suspended this part of the plan and intends to make no further grants under this part of the plan.

     In addition to the grants above, annual grants of options for 100 shares are granted to approximately 2,000 employees who are not eligible for participation in the 2001 Stock and Incentive Compensation Plan in recognition of outstanding performance.

14

     Additional information required by this item is incorporated by reference to pages 27-29 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2005, 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 30 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2005, pursuant to Regulation 14A which involved the election of directors.

Item 14. Principal Accounting Fees and Services.

     The information required by this item is incorporated by reference to pages 30-32 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2005, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Report of the Audit Committee up to but not including the section entitled Proposal to Ratify Appointment of the Independent Registered Public Accounting Firm.

15

PART IV

Item 15. Exhibits and Financial Statement Schedules.

1.	Financial Statements:
	The following Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries, management’s report and the reports of the independent registered public accounting firm are incorporated by reference in Part II, Item 8.

– Management’s Report on Internal Control over Financial Reporting

– Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

– Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

– Consolidated Statements of Earnings — for years ended June 30, 2005, 2004 and 2003

– Consolidated Balance Sheets — as of June 30, 2005 and 2004

– Consolidated Statements of Shareholders’ Equity — for years ended June 30, 2005, 2004 and 2003

– Consolidated Statements of Cash Flows — for years ended June 30, 2005, 2004 and 2003

– 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	(2-1)	—	Agreement and Plan of Merger dated as of January 27, 2005 among The Procter & Gamble Company, Aquarium Acquisition Corp. and The Gillette Company (Incorporated by reference to Exhibit (2-1) of the Company’s Form 8-K filed on January 28, 2005).
Exhibit	(3-1)	—	Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company’s Form 10-Q for the quarter ended September 30, 2004).
	(3-2)	—	Regulations (Incorporated by reference to Exhibit (3-2) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
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 on March 8, 2005) which was adopted by shareholders at the annual meeting on October 9,

16

	2001 (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-Q for the quarter ended March 31, 2005), and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-K for the year ended June 30, 2004).*
(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 (Incorporated by reference to Exhibit (10-2) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-3) —	The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-4) —	Additional Remuneration Plan (as amended July 11, 2000) which was adopted by the Board of Directors on April 12, 1949, and related correspondence and terms and conditions.*
(10-5) —	The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-5) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(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 (Incorporated by reference to Exhibit (10-6) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(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 (Incorporated by reference to Exhibit (10-7) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-8) —	The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended March 31, 2005).*
(10-9) —	The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan (as adjusted for the stock split effective May 21, 2004)

17

			which was adopted by the shareholders at the annual meeting on October 14, 2003 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended March 31, 2005, and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-9) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2004).*
	(10-10)	—	The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-10) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2004).*
	(10-11)	—	Summary of the Company’s Short Term Achievement Reward Program and Business Growth Program, and related correspondence and terms and conditions. *
	(10-12)	—	Summary of personal benefits available to certain officers and non-employee directors.*
	(10-13)	—	$24,000,000,000 Revolving Credit Agreement among Procter & Gamble International S.a.r.l and a syndicate of banks led by Citigroup
Exhibit	(11)	—	Computation of earnings per share.
Exhibit	(12)	—	Computation of ratio of earnings to fixed charges.
Exhibit	(13)	—	Annual Report to Shareholders (pages 1-67).
Exhibit	(21)	—	Subsidiaries of the registrant.
Exhibit	(23)	—	Consent of Independent Registered Public Accounting Firm.
Exhibit	(31)	—	Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit	(32)	—	Section 1350 Certifications.
Exhibit	(99-1)	—	Summary of Directors and Officers Insurance Program.

* Compensatory plan or arrangement

18

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
	August 29, 2005

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)	August 29, 2005
CLAYTON C. DALEY, JR.     (Clayton C. Daley, Jr.)	Chief Financial Officer (Principal Financial Officer)	August 29, 2005
VALARIE L. SHEPPARD     (Valarie L. Sheppard)	Vice President and Comptroller (Principal Accounting Officer)	August 29, 2005
NORMAN R. AUGUSTINE     (Norman R. Augustine)	Director	August 29, 2005
BRUCE L. BYRNES     (Bruce L. Byrnes)	Director	August 29, 2005
R. KERRY CLARK     (R. Kerry Clark)	Director	August 29, 2005
SCOTT D. COOK     (Scott D. Cook)	Director	August 29, 2005
JOSEPH T. GORMAN     (Joseph T. Gorman)	Director	August 29, 2005

19

Signature	Title	Date
CHARLES R. LEE     (Charles R. Lee)	Director	August 29, 2005
LYNN M. MARTIN     (Lynn M. Martin)	Director	August 29, 2005
W. JAMES MCNERNEY, JR.     (W. James McNerney, Jr.)	Director	August 29, 2005
JOHNATHAN A. RODGERS     (Johnathan A. Rodgers)	Director	August 29, 2005
JOHN F. SMITH, JR.     (John F. Smith, Jr.)	Director	August 29, 2005
RALPH SNYDERMAN, M.D.     (Ralph Snyderman, M.D.)	Director	August 29, 2005
ROBERT D. STOREY     (Robert D. Storey)	Director	August 29, 2005
MARGARET C. WHITMAN     (Margaret C. Whitman)	Director	August 29, 2005
ERNESTO ZEDILLO     (Ernesto Zedillo)	Director	August 29, 2005

20

EXHIBIT INDEX

Exhibit	(2-1)	—	Agreement and Plan of Merger dated as of January 27, 2005 among The Procter & Gamble Company, Aquarium Acquisition Corp. and The Gillette Company (Incorporated by reference to Exhibit (2-1) of the Company’s Form 8-K filed on January 28, 2005).
Exhibit	(3-1)	—	Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company’s Form 10-Q for the quarter ended September 30, 2004).
	(3-2)	—	Regulations (Incorporated by reference to Exhibit (3-2) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
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 on March 8, 2005) which was adopted by shareholders at the annual meeting on October 9, 2001 (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-Q for the quarter ended March 31, 2005), and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-K for the year ended June 30, 2004).
	(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 (Incorporated by reference to Exhibit (10-2) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
	(10-3)	—	The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
	(10-4)	—	Additional Remuneration Plan (as amended July 11, 2000) which was adopted by the Board of Directors on April 12, 1949, and related correspondence and terms and conditions.
	(10-5)	—	The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-5)

			of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
	(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 (Incorporated by reference to Exhibit (10-6) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
	(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 (Incorporated by reference to Exhibit (10-7) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
	(10-8)	—	The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended March 31, 2005).
	(10-9)	—	The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the shareholders at the annual meeting on October 14, 2003 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended March 31, 2005, and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-9) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2004).
	(10-10)	—	The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-10) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2004).
	(10-11)	—	Summary of the Company’s Short Term Achievement Reward Program and Business Growth Program, and related correspondence and terms and conditions.
	(10-12)	—	Summary of personal benefits available to certain officers and non-employee directors.
	(10-13)	—	$24,000,000,000 Revolving Credit Agreement among Procter & Gamble International S.a.r.l and a syndicate of banks led by Citigroup.
Exhibit	(11)	—	Computation of earnings per share.

Exhibit	(12)	—	Computation of ratio of earnings to fixed charges.
Exhibit	(13)	—	Annual Report to Shareholders (pages 1-67).
Exhibit	(21)	—	Subsidiaries of the registrant.
Exhibit	(23)	—	Consent of Independent Registered Public Accounting Firm.
Exhibit	(31)	—	Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit	(32)	—	Section 1350 Certifications.
Exhibit	(99-1)	—	Summary of Directors and Officers Insurance Program.

EX-10.4

                                 Exhibit (10.4)

                                                               December 14, 2004

                          ADDITIONAL REMUNERATION PLAN

                          THE PROCTER & GAMBLE COMPANY

     RESOLVED, That the following plan for additional remuneration of the
Chairman of the Board and such other officers and employees of The Procter &
Gamble Company and subsidiary companies who, in the opinion of the Chief
Executive, are largely responsible for the success and development of the
business, be and the same is hereby adopted providing for additions to their
compensation in relation to the consolidated profit of the Company for the
fiscal year and the contribution by those persons to the operation of the
Company. Such additional remuneration may be paid in recognition of the
contribution of such persons during that year, and/or their contribution to
earnings growth over the current and prior years. Credits to a fund established
for this purpose are to be based upon a percentage of the annual consolidated
profit of the companies.

1.   Each fiscal year there shall be set aside in an additional remuneration
     fund an amount equal to five percent of the consolidated profit before
     providing for foreign and United States Federal Income Taxes, based on
     income of The Procter & Gamble Company and its subsidiary companies
     included in its Consolidated Statement of Profit and Loss for such fiscal
     year, conditional upon there being left for consolidated net profit an
     amount at least equal to the sum of the dividends on the outstanding
     Preferred Stock of The Procter & Gamble Company, plus the sum of the
     dividends on the outstanding Common Stock of The Procter & Gamble Company
     for said fiscal year, prior deductions having been provided for of the full
     amount of the contributions to the Profit Sharing Trust and Employee Stock
     Ownership Plan; provided, however, that if at the end of any fiscal year
     the full amount equal to said five percent cannot be set aside on account
     of the condition above stated, then the amount to be set aside shall be
     reduced to the extent necessary to meet said condition. Unawarded balances
     in any year shall remain in said fund and be available in later years;
     provided, however, that this Board reserves the right to withdraw from said
     fund any unawarded balances or part thereof remaining after the award at
     the end of any fiscal year.

2.   For each fiscal year the Compensation Committee of the Board of Directors
     shall determine the method of payment and the amount of the additional
     remuneration to be awarded from said fund to each principal officer elected
     by the Board of Directors. The Chief Executive shall determine which other
     persons are to receive additional remuneration out of said fund and the
     method of payment and the amount to be awarded to each.

3.   Awards may be made by the Chief Executive to any employee, including
     principal officers elected by the Board of Directors except the Chairman of
     the Board, upon the termination of their employment or the granting of a
     leave of absence. The Chief Executive may delegate to an appropriate Vice
     President the authority to make such awards to persons who are not
     principal officers.

4.   The consolidated profit and the consolidated net profit of The Procter &
     Gamble Company and the subsidiary companies consolidated for each year
     shall be determined in accordance with generally accepted principles of
     accounting and approved by the independent certified public accountants
     selected by this Board, and no person who may, at any time, be selected to
     share in the fund provided for in paragraph 1 above shall have any right to
     question the consolidated profit or the consolidated net profit so
     determined.

5.   While the amount received by any one individual for any year under this
     resolution shall be considered as earned remuneration in addition to salary
     paid, it shall be understood that this plan does not give to any officer or
     employee any contract rights, express or implied, against any Company for
     any award from the Fund or for compensation in addition to the salary paid
     to him, or any right to question the action of the Board of Directors, the
     Compensation Committee or the Chief Executive.

6.   Notwithstanding the foregoing, if there is a Change in Control (as
     hereinafter defined) in any fiscal year, an additional remuneration fund
     shall be set aside and additional remuneration awards shall be made for the



     period from the beginning of the fiscal year in which a Change in Control
     occurred up to and including the date of such Change in Control ("CIC
     Period") pursuant to this Plan, substituting "CIC Period" for "fiscal
     year." If financial statements specified in paragraphs 1 and r are not
     available for the CIC Period, the Compensation Committee shall determine
     the amount of additional remuneration awarded from the fund in good faith.

     "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 6(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,
                    consolidation or reorganization, 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;

          (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.

7.   This Board reserves the right to terminate this plan at any time during any
     fiscal year and any unawarded balance remaining in the fund shall be
     withdrawn.

Original Plan - Adopted April 12, 1949
Amended - September 12, 1950 (Eff. 7/1/50)
Paragraphs 1, 2, and 7 amended - June 14, 1960 (Eff. 7/1/59)
Paragraphs 2 and 4 amended - June 13, 1961 (Eff. 7/1/60)
Entire Plan amended - June 10, 1975 (Eff. 7/1/75)
Paragraphs 1, 2 and 5 amended - March 13, 1979 (Eff. 10/10/78)
Paragraphs 1 and 8 amended - May 13, 1980 (Eff. 5/13/80)
Resolution and Paragraphs 1, 2 and 8 amended - April 14, 1981 (Eff. 4/14/81)
Resolution and Paragraphs 2, 3 and 8 amended - July 12, 1983 (Eff. 7/12/83)
Paragraphs 1 and 8 amended - June 11, 1985 (Eff. 6/11/85)
Resolution and Paragraphs 2, 3 and 8 amended - June 10, 1986 (Eff. 6/10/86)
Paragraphs 1 and 8 amended - June 14, 1988 (Eff. 6/14/88)
Paragraphs 1, 2 and 8 amended - June 12, 1990 (Eff. 6/12/90)
Paragraphs 3, 6 amended and Paragraph 8 deleted July 11, 2000 (eff. 7/11/00)
Paragraph 3 amended December 14, 2004 (eff. 12/14/04)



                   VOLUNTARY SEPARATION AGREEMENT AND RELEASE

PURPOSE

     This document contains my agreement with my employer, THE PROCTER & GAMBLE
COMPANY, ("P&G"), resulting from my decision to voluntarily end my employment on
_______________ ("Last Day of Employment"). This is a legally binding document
in which P&G commits itself to pay me a cash separation allowance and provide
other benefits described in Parts I and III, below. In exchange, I am agreeing
to release P&G from legal liability. P&G and I agree that any disputes we may
have now or in the future that are not released by this Voluntary Separation
Agreement and Release ("Agreement") will be resolved through binding
arbitration, as discussed in Part III, below.

     I understand that any reference to P&G in this Agreement also includes
parents, subsidiaries or affiliated entities and the directors, managers,
agents, employees, successors and assigns of any of them.

PART I. P&G AGREES THAT:

     P&G will provide me with a cash allowance (the "Separation Allowance") of
[AN AMOUNT EQUAL TO NO GREATER THAN 1 TIMES ANNUAL BASE SALARY, PLUS AN AMOUNT
EQUAL TO BETWEEN 0% AND 100% OF ANY DEFERRED COMPENSATION FORFEITED], to be paid
as a lump sum (less legally required deductions) as soon as practical after my
Last Day of Employment. P&G will also provide me with the following benefits, in
addition to any benefits to which I am otherwise already entitled:

     -    My medical, dental, prescription drug, Employee Assistance Program and
          Basic Group Life Insurance coverages will be extended on their current
          terms, as such terms may change from time to time, until the earlier
          of (i) ______________, or (ii) the date on which I become eligible to
          participate in another employer's plans; and

     -    Outplacement services from ______________ for __ months after date of
          first significant services, which I must begin using within forty-five
          (45) days after my separation date.

     -    Reimbursement of up to $5,000 for approved retraining programs; and

     -    A lump sum payment approximately equivalent to the non-vested credits
          in my Profit Sharing account [or other similar account] if I am not
          vested in the Profit Sharing Plan as of my separation date. (If I am
          vested, the distribution of my account will be handled according to
          the terms of the Profit Sharing Plan.)

     If prior to Last Day of Employment, I have been granted an Award(s) under
The Procter & Gamble Future Shares Plan of October 14, 1997, as amended May 12,
1998 (the "Plan"), and I satisfy my obligations under Part II (A) of this
Agreement, then P&G's execution and certification of this Agreement will certify
my separation from employment as a Special Separation as defined in Article 2.19
of the Plan. If I am under age 55 on my last day of employment, this
certification means that I will receive a cash payment equal to the Spread
Value(1) (less legally required deductions) of my Future Shares, as provided in
Article 6.1(e)(ii) of the Plan, on or shortly after my Last Date of Employment.
If I am age 55 or over on my last day of employment, such certification means
that I will retain the right to exercise such Award(s) as provided in Article
6.1(e) of the Plan.

     In addition, if I am a full-time employee and if on my last day of
employment my age plus my Profit Sharing years of service are equal to or
greater than 70, P&G will provide me with retiree medical, dental and life
insurance coverages (according to the terms of the plans in effect after my
extended employee coverages end as such terms may change from time to time) plus
other benefits given to regular retirees including holiday gift boxes, P&G

- ----------
(1)  "Spread Value" is defined in Article 2.20 of the Plan as "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."
     "Fair Market Value" is defined in Article 2.10 of the Plan as "... 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..., and if there were no
     trades on such date, on the day on which a trade occurred next preceding
     such date...."



publications, invitations to Company events, a retiree I.D. pass, and
eligibility for participation in P&G's matching gift and scholarship programs.
If I am eligible for regular retirement, I will, in addition to the benefits set
forth in this Agreement, receive all benefits provided to regular retirees.

PART II. I AGREE THAT:

     (A) I will continue to perform my work and responsibilities as an employee
in a satisfactory manner up to and including my Last Date of Employment. If I do
not do so and engage in any misconduct during my employment, I understand and
agree that P&G will not be obligated to provide me with the payments and
benefits set forth in Part I above, and if I have received any such payments
and/or benefits, I agree to repay them to P&G upon its demand.

     (B) I agree not to use or share any confidential, proprietary or trade
secret information about any aspect of P&G's business with any non-P&G employee
or business entity at any time in the future. I also understand and agree that
while I may work for a direct competitor of P&G, without the written consent of
P&G I will not engage in any activity or provide any services for a period of
three years following Last Day of Employment in connection with the manufacture,
development, advertising, promotion or sale of any product which is the same as,
similar to, or competitive with any products of P&G (including existing products
as well as products which I know to be in development); (1) with respect to
which my work has been directly concerned at any time during the two years
preceding my last day of employment; or (2) with respect to which, as a
consequence of my job performance and duties, I have acquired knowledge of trade
secrets or other confidential information of P&G; nor will I work in any
position where the proprietary business or technical knowledge that I have
gained in my job here at P&G would be directly applicable to that position in
the competitor's business, nor will I accept a position for the next year (one
year) for any other company on the same dedicated customer team that I worked
with for P&G during the past two (2) years. I will discuss any questions I may
have about this obligation with the Chief Executive Officer of P&G before
accepting a position.

     (C) I release P&G from any claim of any kind I may have at any time arising
out of my employment with P&G, my decision to end my employment at P&G or any
employment references or lack thereof as discussed below in Part III, Paragraph
(B). I also agree not to bring or be a party to any legal action, charge or
claim of any kind against P&G regarding the same matters. Any re-employment
consideration will be consistent with the Company's Re-employment Policy. This
does not preclude me from filing a charge with the U.S. Equal Employment
Opportunity Commission (EEOC) or from participating in any investigation or
proceeding conducted by it, although it does waive my rights to bring a lawsuit
on my own behalf and to recover any damages or other remedy in a lawsuit brought
on my behalf by the EEOC regarding such matters. This is a General Release that
covers all claims under federal, state and local law, both statutory and common
law, including but not limited to all federal, state, and local employment
discrimination laws, claims, charges and legal actions under Title VII of the
Civil Rights Act and the Americans with Disabilities Act, claims and legal
actions under the Age Discrimination in Employment Act, and excludes only
workers compensation or unemployment compensation claims. This Agreement and
General Release does not waive any claims I may have which arise after the date
I have signed this Agreement.

PART III. P&G AND I AGREE THAT:

     (A) Because we recognize that resolving any future differences we may have
in the courts can take a long time and be expensive, P&G and I agree that our
only remedy for all disputes one of us may have with the other that are not
released by this Agreement and arise out of my employment, my decision to end my
employment, or any aspect of this Agreement will be to submit any such disputes
(except for the exception noted in the next paragraph) to final and binding
arbitration in accordance with the National Rules for the Resolution of
Employment Dispute of the American Arbitration Association then in effect. P&G
and I agree that the aggrieved party must send written notice of any claim to
the other party by certified mail, return receipt requested. Written notice to
P&G will be sent to its Secretary at One Procter & Gamble Plaza, Cincinnati, OH
45202, and to me at the most current address shown for me in P&G's records. The
arbitrator will apply the law of the state in which the claim arose, or federal
law, or both, as applicable to the claim(s) asserted. Upon application to P&G,
P&G will reimburse me for all fees and costs charged me by the American
Arbitration Association and its arbitrator to the extent they exceed the
applicable fees



for filing and serving a lawsuit and summons upon P&G that would have been
charged by a court of competent jurisdiction, and my claim been filed in court.

     There is one exception to this Paragraph (A). P&G may seek injunctive
relief in any court of competent jurisdiction if it has reason to believe that I
have violated or am about to violate the terms of Part II, Paragraph B above.

     (B) I understand that P&G's historical policy is to not provide employment
references to prospective employers. However, P&G is willing to waive that
policy in my case on the following basis: I authorize my managers, other P&G
employees or agents to provide employment references upon request. In return, I
release and will not bring, be a party to, or assist in any legal action,
charge, or claim of any kind against P&G based upon the employment reference (or
lack thereof). I understand that all disputes regarding employment references or
the lack thereof must be resolved through arbitration as described in Part III,
Paragraph A, above.

PART IV:

     (A) If any court, arbitrator or other legal tribunal should later find that
any aspect of this Agreement is invalid, that invalidity will not affect the
legality of any other aspect of this Agreement.

     (B) In deciding to sign this Agreement, I have not relied upon any
statements or promises by P&G other than those set forth in this document.

     (C) I have carefully read this entire Agreement and I understand its
meaning. I also understand that this Agreement is a legal document, and by
signing it I am giving up certain legal rights. I acknowledge that I have been
given 45 days to consider this Agreement and that I have been advised to consult
with an attorney about its terms. If I have executed this Agreement prior to the
expiration of the given 45 day period specified above, I acknowledge and agree
that I was afforded the opportunity to consider the Agreement for given 45 days
before executing it and that my execution of this Agreement prior to the
expiration of such given 45 day period was my free and voluntary act. I further
understand that I may revoke my acceptance of this Agreement within seven (7)
days after I sign it and that if I do not revoke my acceptance within that time,
this Agreement becomes effective and enforceable by both parties immediately
after the expiration of seven (7) days after I sign (the "effective date"). I
understand that any revocation must be in writing and must be received by my
immediate manager or that manager's designee no later than the close of business
on the seventh day after my execution of this Agreement. P&G has given me enough
time to consult with my family and other advisers and to consider whether I
should agree to the terms of this Agreement. Finally, I am voluntarily signing
this Agreement.

     (D) I understand and agree this Agreement is governed by the laws of the
State of Ohio.


- -------------------------------------   ----------------------------------------
                                                          Date

THE PROCTER & GAMBLE COMPANY


CERTIFIED & APPROVED BY:
                         ------------   ----------------------------------------
                                                          Date

EX-10.11

                                Exhibit (10.11)

                      SHORT TERM ACHIEVEMENT REWARD PROGRAM

The Short Term Achievement Reward ("STAR") Program is the Company's annual
incentive bonus program designed to support outstanding business results of The
Procter & Gamble Company (the "Company" or "P&G"). Awards are made within the
authority of the Additional Remuneration Plan and the 2001 Stock and Incentive
Compensation Plan.

I.   ELIGIBILITY

Eligibility is based on job level and the requirement of working at least four
weeks during the fiscal year. STAR participants who do not work a full time
schedule for the entire fiscal year may have awards pro-rated. Separating
employees must be active as of June 30 (the close of the fiscal year for which
the award is payable) to receive an award, unless due to retirement or special
circumstances agreed in advance.

II.  CALCULATION

The individual STAR Award Calculation is: (STAR Target) x (Business Unit
Performance Factor) x (Corporate Adjustment Factor) x (Gillette Factor)

- -    The STAR TARGET for each participant is calculated as: (Base Salary) x
     (STAR Target percent)

     Base Salary as of the end of June is used to calculate the STAR award. If a
     participant's level changes, the highest band level and salary during the
     fiscal year is used to determine the STAR Target.

     The STAR Target Percent is dependent on job level in the organization and
     will fall between 6% and 140%.



JOB BAND            STAR TARGET AS % OF BASE
- --------            ------------------------
        
   3       6% in 2005/06; 8% in 2006/07 and beyond
   4                          15%
   5                          25%
   6                          45%
   7                          70%
   8                          75%
   9                         140%


- -    The BUSINESS UNIT PERFORMANCE FACTOR is assigned to each STAR business unit
     as a measure of success for the fiscal year. The factors range from 53% to
     167% with the target at 100%. A STAR Committee, comprised of a small number
     of senior executives (who do not determine their own awards), conducts a
     retrospective assessment of the performance of each business unit according
     to one or more of the following measures and makes a recommendation to the
     Compensation & Leadership Development Committee: Operating Total
     Shareholder Return, Key Competitor Comparison, After Tax Profit, Operating
     Cash Flow, Value Share, Volume, Net Outside Sales, Value Contribution,
     Organization Head Self Assessment, and Cross Organization Assessment. There
     may also be other factors significantly affecting unit results.

- -    The CORPORATE ADJUSTMENT FACTOR measures the total Company success and
     ranges from 80% to 130%, with a 100% target. The same Corporate Adjustment
     Factor is applied to all STAR



     award calculations. It is determined by a matrix that measures P&G's market
     total shareholder return ("TSR") ranking relative to a competitive peer
     group and diluted earnings per share ("EPS") growth. Market TSR reflects
     the return shareholders could earn during the year - stock appreciation and
     dividends - from an investment in the Company's stock.

- -    The GILLETTE FACTOR is derived from a review and recommendation by the STAR
     Committee based on the results of the success of the Gillette integration.
     The factor ranges from 80% to 130% with 100% as the target. The same
     Gillette Factor will apply to all STAR award calculations. It will be
     determined by assessing performance during the fiscal year on various
     metrics including: sustaining the overall health of both the P&G and
     Gillette businesses during this period (based on market share and earnings
     progress); achieving sales, research and administrative budget and synergy
     objectives; meeting enrollment targets; and staying within integration cost
     and restructuring estimates. The Gillette Factor will be applied starting
     with the results of fiscal year 2005/06. STAR awards for fiscal year
     2004/05 will be based on only the Business Unit Performance Factor and the
     Corporate Adjustment Factor, as in prior years.

The STAR Committee makes recommendations to the Compensation & Leadership
Development Committee regarding the actual awards to be made. The final awards
are approved by the Compensation & Leadership Development Committee. STAR Awards
for members of the Star Committee are determined exclusively by the Compensation
& Leadership Development Committee without any recommendation from the STAR
Committee.

III. TIMING AND FORM

STAR awards are determined after the close of the fiscal year and are paid on or
about September 15. The award form choices and relevant considerations are
explained in payment preference materials generally in the form of Appendix 1.
Participants receive written notice of their award detailing the calculation,
generally in the form of Appendix 2. The grant letters are generally in the form
of Appendix 3.

Generally, STAR awards are paid in cash. However, before the end of the calendar
year preceding the award date, participants on record can choose their upcoming
award in forms other than cash, such as stock options, stock appreciation rights
or restricted stock units (for participants also in the Business Growth
Program), depending on local regulations. To pay a STAR award in stock options,
the Company compares current cash value to stock option value with a conversion
factor that is reviewed annually.



                             BUSINESS GROWTH PROGRAM

The Business Growth Program ("BGP") is a part of the Company's long-term
incentive plan and is designed to provide additional focus on key Company
measures for top executives with senior management responsibility for total
Company results. Awards are made within the authority of the Additional
Remuneration Plan and the 2001 Stock and Incentive Compensation Plan.

I.   ELIGIBILITY

The CEO, Vice-Chairs, Presidents, Global Function Heads, Senior Vice Presidents
and equivalents may participate, as recommended by management and approved by
the Compensation & Leadership Development Committee.

II.  CALCULATION

A BGP Award may be payable for the three-year performance period running July 1,
2005 through June 30, 2008. Interim awards may also be payable at the conclusion
of the first and second years of the program. The Compensation & Leadership
Development Committee reviews and approves awards relative to the base period of
fiscal year 2004/05. It assesses Company performance according to the
pre-established financial measures of diluted earnings per share ("EPS") growth
and operating total shareholder return ("OTSR").

Adjustments may be made for significant acquisitions and divestitures, major
equity investments, or other unusual items not reflected in the Company's
operating plan or base year results. In all cases, the Compensation & Leadership
Development Committee retains discretion to determine whether certain items
should be included or excluded from award calculations and to verify that awards
are appropriate and consistent with the long-term interests of shareholders. The
Committee may reduce awards if it determines that payouts do not correspond to
actual business results.

- -    THE THREE-YEAR AWARD is calculated as: (Payout Factor) X (Participant's
     Target Award).

     The Award Payout Factor ranging from 0% to 200% is assessed relative to a
     performance level of EPS growth and OTSR.

     A Participant's Target Award is based on a multiple of the executive's base
     salary at the time of entry into the program. For the Chairman of the Board
     and CEO, the target is two times base salary, times three (the number of
     years in the performance period). For all others, the target is one times
     base salary times the number of years participating in the program.

- -    INTERIM AWARDS are payable only if EPS growth and OTSR meets or exceeds
     target relative to the base period at the end of the first year and the
     first two years combined, respectively. Interim awards are calculated using
     the same factors as the three-year award. However, each interim award is
     only a partial progress payment, paid at 30% of the full three-year
     calculation. Any interim payments are subtracted from the full three-year
     award when calculating the final BGP payment.

III. TIMING AND FORM

BGP awards are delivered on or about September 15th for the fiscal year just
completed. Each year's award, if payable, will be delivered half in three-year
restricted stock units ("Required RSUs") and half in cash. Participants may
elect to receive restricted stock units in place of the cash portion ("Elected
RSUs"). For the CEO, all BGP payments will be made in restricted stock units,
half in



three-year restricted stock units and half in retirement restricted stock units.
The award form choices and relevant considerations are explained in payment
preference materials generally in the form of Appendix 1. Participants receive
written notice of their award detailing the calculation, generally in the form
of Appendix 4. The grant letters are generally in the form of Appendix 5.

Program participants have their long-term incentives split between BGP and
equity awards under the 2001 Stock and Incentive Compensation Plan. Their key
manager awards under the latter plan are reduced in value by one-third of their
three-year BGP target.



         APPENDIX 1: PAYMENT PREFERENCE MATERIALS FOR BGP / STAR AWARDS

[DATE]
[NAME]

Subject: Preferences for [YEAR] STAR and BGP Payments and Deferred Compensation
Choices

Your choices for the awards are:

September [YEAR] STAR Award (if not previously deferred into the Deferred
Compensation Program)

     -    Cash

     -    Stock Options

     -    Restricted Stock Units (for BGP participants only) - no forfeiture
          provision

September [YEAR] BGP Award (if applicable)

     -    Three-Year Restricted Stock Units (50% of award required in this form)

     -    Cash or Restricted Stock Units - no forfeiture provision (50% of award
          subject to this election)

Attached you will find an election form to be returned to [NAME].

Please keep the following in mind as you consider your choices:

     -    It is recommended that you consult legal/tax/financial advisors to
          determine the appropriate award form(s) for your personal situation.

     -    While your selection will be given consideration, it is not binding on
          the Company until approved by the Compensation & Leadership
          Development Committee of the Board of Directors.

IF YOU MISS THE [DATE] DEADLINE, YOU WILL RECEIVE THE DEFAULT (CASH).

[NAME]



              [YEAR] EXECUTIVE COMPENSATION AWARD FORM PREFERENCES

[YEAR] STAR AWARD PAYABLE [DATE] [YEAR] PREFERENCE SELECTION

                            
Cash                     ______%
Stock Options            ______%
Restricted Stock Units   ______%  _______________ (Select year
                                  you want shares delivered,
                                  e.g., [YEAR], or retirement)
                         ------
Total                       100%
                         ------



[YEAR] PAYMENT BGP AWARD PAYABLE [YEAR] PREFERENCE SELECTION
(Complete for remaining 50%)

                                                        
Three-Year Restricted Stock Units (if you          ____50%
leave the Company within 3 years of grant        (required)
for reasons other than retirement, you forfeit
these units)
Cash                                               ______%
Restricted Stock Units                             ______%    _______________ (Select year
                                                              you want shares delivered,
                                                              e.g., [YEAR], or retirement)
                                                   ------
Total                                                 100%
                                                   ------



     -    You must be an active employee as of the award date to receive any
          non-cash award

     -    All elections are irrevocable after [DATE].


- -------------------------------------   ----------------------------------------
              Signature                                   Date

Return form to [NAME]



                          APPENDIX 2: STAR AWARD LETTER

[DATE]
Fellow P&G Leaders:

I am pleased to announce the average STAR award for [YEAR] is [NUMBER]% of
target. STAR awards are a combination of you individual business unit awards,
the Company factor and the Gillette factor. Unit awards are decided by the STAR
Committee based on a retrospective assessment of each unit's performance. The
Company factor is calculated based on P&G's market TSR ranking in the peer group
and earnings per share. The Gillette factor is based on a review done by the
STAR Committee considering the results of the success of the Gillette
integration. [EXPLANATION OF COMPANY RESULTS and COMPARISON TO PREVIOUS YEAR]

Actual STAR awards as a percentage of target [HISTORICAL COMPARISON OF RESULTS
TO PREVIOUS YEAR(S)]

By remaining choiceful, focused, and disciplined, we can look forward to future
success. Well done! Thanks.

                                        [NAME]

PERSONAL & CONFIDENTIAL
INDIVIDUAL AWARD SUMMARY
[NAME]

Your STAR Award is [NUMBER] payable in [FORM]

 [NUMBER]   X   [NUMBER]%   X  [NUMBER]% X    [NUMBER]%    =   NUMBER

STAR Target x Business Unit x  Corporate x Gillette Factor = STAR Award
               Performance    Adjustment
                  Factor        Factor



STAR TARGET
- -----------
                                        
Based on      June 30 [YEAR] Base Salary:     [NUMBER]
              June 30 [YEAR] Band:            [NUMBER]
              STAR Target Percent for Band:   [NUMBER]
              Based x STAR Target Percent:    [NUMBER]
              Your STAR Target:               [NUMBER]


BUSINESS UNIT PERFORMANCE



 Business Unit     Weight    Performance Factor
 -------------     ------    ------------------
                       
[Business Unit]   [NUMBER]        [NUMBER]%


CORPORATE ADJUSTMENT FACTOR

                           
TSR One Year Ranking          [NUMBER]
Earnings Per Share            [NUMBER]
Corporate Adjustment Factor   [NUMBER] %



GILLETTE FACTOR               [NUMBER]%

Your STAR Award is [NUMBER] % of STAR Target



                     APPENDIX 3: COVER LETTER FOR STAR GRANT
                 IN STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

TO: SHORT TERM ACHIEVEMENT REWARD (STAR) RECIPIENTS OF P&G STOCK OPTIONS AND
    STOCK APPRECIATION RIGHTS*

The attached stock option grant letter refers to your STAR award. The grant was
determined by dividing the gross award amount to be paid in stock options (shown
on your award summary previously distributed) by the [DATE] average stock price
of $ [NUMBER]. The result was rounded up to the next full share, with those full
shares multiplied by [NUMBER]. No further action to accept this grant is
required.

You may retain these STAR stock options until their expiration date in [NUMBER]
years even if you leave the Company, as long as you are in good standing. This
is true for STAR stock options only as they represent payment for the award that
you have already earned. These options will vest in [NUMBER] years.

Stock options are granted under the terms and conditions of the 2001 Procter &
Gamble Stock and Incentive Compensation Plan.

If you have any questions about the award granted, please direct them to [NAME].
Questions related to the exercise process should be directed to [NAME].

                                        [NAME]

*    Recipients of stock appreciation rights should see their subsidiary Chief
     Financial Officer regarding the procedure for redeeming such rights.



                  GRANT LETTER FOR STAR AWARD IN STOCK OPTIONS
                          AND STOCK APPRECIATION RIGHTS

[DATE]
[NAME]
Subject: Non-Statutory Stock Option Series xx-STAR-xx

In recognition of your contributions to the success of the business, the Company
hereby grants you an option to purchase, in accordance with and subject to the
terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan, the
Regulations of the Compensation & Leadership Development Committee of the Board
of Directors and the Exercise Instructions in place from time to time, shares of
the Procter & Gamble Common Stock as follows:

                       
Grant Value:              [NUMBER]
Option Price per Share:   [NUMBER]
Number of Shares:         [NUMBER]
Date of Grant:            [DATE]
Expiration of Option:     [DATE]
Option Exercisable:       [NUMBER]% after [DATE]



This option is not transferable other than by will or the laws of descent and
distribution and is exercisable during your life only by you. The Compensation &
Leadership Development Committee has waived the provisions of Article G,
paragraph 4 in the event of separation from the Company.

Please note that when the issue or transfer of the Common Stock covered by this
option may, in the opinion of the Company, conflict or be inconsistent with any
applicable law or regulation of any governmental agency, the Company reserves
the right to refuse to issue or transfer said Common Stock and that any
outstanding stock options may be suspended or terminated if you engage in
actions that are significantly contrary to the best interests of the Company or
any of its subsidiaries.

                                        The Procter & Gamble Company
                                        [NAME]

[ ]  I hereby accept the above option to purchase shares of the Common Stock of
     the Company in accordance with and subject to the terms of The Procter &
     Gamble 2001 Stock and Incentive Compensation Plan, with which I am
     familiar, including the non-compete provision and other terms of Article F,
     and agree that this option and The Procter & Gamble 2001 Stock and
     Incentive Compensation Plan together constitute an agreement between the
     Company and me in accordance with the terms thereof and hereof, and I
     further agree that any legal action related to this option, including
     Article F, may be brought in any federal or state court located in Hamilton
     County, Ohio, USA, and I hereby accept the jurisdiction of these courts and
     consent to service of process from said courts solely for legal actions
     related to this option grant.

[ ]  I hereby reject the above option to purchase shares of the Common Stock of
     the Company.


- ---------------                         ----------------------------------------
Date                                    Signature



                       GRANT LETTER FOR STAR AWARD IN RSUS

[DATE]
[NAME]

SUBJECT: AWARD OF RESTRICTED STOCK UNITS (STAR)

This is to advise you that The Procter & Gamble Company, an Ohio corporation, is
awarding you with Restricted Stock Units, on the dates and in the amounts listed
below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation
Plan, and subject to the attached Statement of Terms and Conditions Form [CODE]

                                 
Grant Date:                          [DATE]
Original Settlement Date:            [DATE]
Number of Restricted Stock Units:    [NUMBER



Paragraph 3(a) of Statement of Terms and Conditions Form [CODE] is not waived.

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

                                        THE PROCTER & GAMBLE COMPANY
                                        [NAME]

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

[ ]  I hereby reject the Award of Restricted Stock Units set forth above.


- ---------------                         ----------------------------------------
Date                                    Signature



             APPENDIX 4: BGP AWARD LETTER (THREE-YEAR AWARD EXAMPLE)

[DATE]

TO: [NAME]

Your award is calculated by multiplying your three-year target times the payout
factor and subtracting any interim payments made to you in Year 1 and Year 2.

                       
Three-Year Target:        $[NUMBER]
Payout Factor:             [NUMBER]%
Total Award:              $[NUMBER]
Interim Payment Year 1:   $[NUMBER]
Interim Payment Year 2:   $[NUMBER]
Final BGP Payment:        $[NUMBER]



Your final BGP award is $[NUMBER]. You will receive 50% of your award in
three-year restricted stock units consistent with the program design. The other
50% will be delivered in the form shown below which you designated last Fall in
your preference election. Your award will be paid on September 15.

Payment Preference

            
3-Year RSUs:    [NUMBER]
Cash:          $[NUMBER]
RSUs:           [NUMBER]



Thank you for your leadership in achieving outstanding business and
organizational results during the past three years.

[NAME]



        APPENDIX 5: GRANT LETTER FOR BGP AWARD IN RESTRICTED STOCK UNITS

[DATE]
[NAME]

SUBJECT: AWARD OF RESTRICTED STOCK UNITS - BGP [THREE-YEAR / ELECTED]

This is to advise you that The Procter & Gamble Company, an Ohio corporation, is
awarding you with Restricted Stock Units, on the dates and in the amounts listed
below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation
Plan, and subject to the attached Statement of Terms and Conditions Form [CODE]

                                           
Grant Date:                                   [DATE]
Forfeiture Date [for Three-Year RSUs only]:   [DATE]
Original Settlement Date:                     [DATE]
Number of Restricted Stock Units:             [NUMBER



Paragraph 3(a) of Statement of Terms and Conditions Form [CODE] is not waived.

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

                                        THE PROCTER & GAMBLE COMPANY
                                        [NAME]

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

[ ]  I hereby reject the Award of Restricted Stock Units set forth above.


- ---------------                         ----------------------------------------
Date                                    Signature

EX-10.12

                                Exhibit (10.12)

ADDITIONAL PROGRAMS AVAILABLE TO CERTAIN OFFICERS AND NON-EMPLOYEE DIRECTORS

I.   CERTAIN OFFICER PROGRAMS

The following is a summary of programs that are available to employees at the
President level or higher ("Eligible Employees").

FINANCIAL COUNSELING

The Financial Counseling Program is a reimbursement program designed to address
the special financial planning needs of Eligible Employees. The Company provides
a one-time initial reimbursement of up to $12,500 for program set-up, to include
initial consultations with tax and financial experts and tax and financial
counseling for the initial year in which the employee participates in the
program. Thereafter, the company reimburses Eligible Employees up to $8,500
annually for tax and financial counseling services.

The amounts described above are maximum reimbursement levels and may be used
only for eligible expenses. Reimbursements may not be used for broker, portfolio
management or similar fees, and the Company does not make cash payouts of any
unused allowances. In addition, services provided by the Company's independent
auditor are not reimbursable under this program.

EXECUTIVE PHYSICAL

The Company will reimburse the cost of an annual physical examination for each
Eligible Employee.

CLUB MEMBERSHIP

Cincinnati, Ohio-based Eligible Employees are authorized to join the
Metropolitan Club or Banker's Club at the Company's expense. The Metropolitan
and Banker's clubs are private social/dining clubs, where the annual membership
fees for each Eligible Employee are currently no more than $2,000 per club. For
Eligible Employees based outside of Cincinnati, Ohio, the Company will reimburse
the costs of joining a local social/dining club. The primary purpose of these
memberships is to facilitate business-related entertaining and networking.
However, these are full memberships and as such Eligible Employees are able to
use these memberships for personal use as well. Apart from the annual membership
fee, the Company does not reimburse or otherwise cover any personal use of these
memberships.

PERSONAL SECURITY

The Company provides personal security services to the Chief Executive Officer
and the Vice-Chairs of the Company, at Company expense. In addition, The Global
Human Resources Officer may approve personal security services to other Company
Employees where appropriate, again at Company expense.



SPOUSE TRAVEL

The purpose of the spouse travel program is to familiarize the spouse with the
business issues and demands facing Eligible Employees and to meet other P&G
employees and spouses. Although the Company does not consider spouse travel to
be a personal benefit to Eligible Employees, it is including a description of
spouse travel reimbursement as part of the programs available to Eligible
Employees.

The Company allows spouses (or significant others) of Eligible Employees to
accompany the relevant Eligible Employee on up to two international business
trips per year and up to one domestic business trip per year, at Company
expense. In addition, the Company pays reasonable air and ground transportation,
sight-seeing tour, hotel, meal and other incidental entertainment costs when the
Company requests that spouses (or significant others) of Eligible Employees
attend an event or meeting, such as the annual offsite meeting of the Company's
Board of Directors. Other similar Company-paid travel is subject to approval by
the head of the relevant Global Business Unit, the head of the Global MDO, or
the Global Human Resources Officer, as appropriate.



II.  NON-EMPLOYEE DIRECTOR PROGRAMS

This paragraph summarizes a travel program available to spouses, significant
others and family members (collectively, "Guests") who accompany non-employee
directors ("Directors"). The purpose of these policies is to familiarize the
Guests with the business issues and demands facing the Directors and to meet
other Guests and employee spouses (or significant others). Although the Company
does not consider Guest travel to be a personal benefit to Directors, it is
including a description of Guest travel reimbursement as a program available to
Directors.

Generally, Guests are permitted to accompany Directors to regular Board meetings
and other Board activities, so long as the Director is using Company aircraft
and the Guests do not cause incremental aircraft costs. No more than once per
year, the Board holds a multi-day offsite meeting, often in a location outside
the United States. Guests are also permitted to accompany Directors to these
offsite meetings. In some of these cases, the Guests' travel costs may be
considered incremental or may involve commercial flights. The Company arranges
and pays for reasonable ground transportation, sight-seeing tour, hotel, meal
and other incidental entertainment costs for Directors and Guests while
Directors attend both regular and off-site Board meetings and other Board
activities.

EX-10.13

                                Exhibit (10.13)

                                                                  EXECUTION COPY

================================================================================

                              U.S. $24,000,000,000

                           REVOLVING CREDIT AGREEMENT

                            Dated as of July 27, 2005

                                      among

                   PROCTER & GAMBLE INTERNATIONAL S.A.R.L. AND
                  THE ADDITIONAL BORROWERS (AS DEFINED HEREIN)
                                as the Borrowers

                                       and

                            THE LENDERS PARTY HERETO
                                   as Lenders

                                       and

                                 CITIBANK, N.A.
                             as Administrative Agent

                                       and

                          CITIGROUP GLOBAL MARKETS INC.
                   as Sole Lead Arranger and Sole Book Runner

                                       and

                            JPMORGAN CHASE BANK, N.A.
                              as Syndication Agent

                                       and

              ABN AMRO BANK N.V. AND DEUTSCHE BANK SECURITIES INC.
                           as co-Documentation Agents

================================================================================



                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                         
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS...............................     1
   SECTION 1.01 Certain Defined Terms....................................     1
   SECTION 1.02 Computation of Time Periods..............................    11
   SECTION 1.03 Accounting Terms.........................................    11

ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES.............................    11
   SECTION 2.01 The Revolving Credit Advances............................    11
   SECTION 2.02 Making the Revolving Credit Advances.....................    12
   SECTION 2.03 Competitive Bid Facility.................................    13
   SECTION 2.04 Facility Fee.............................................    17
   SECTION 2.05 Termination or Reduction of the Commitments..............    17
   SECTION 2.06 Repayment of Advances....................................    18
   SECTION 2.07 Interest on Revolving Credit Advances....................    18
   SECTION 2.08 Interest Rate Determination..............................    19
   SECTION 2.09 Optional Conversion of Advances..........................    20
   SECTION 2.10 Prepayments..............................................    21
   SECTION 2.11 Increased Costs..........................................    22
   SECTION 2.12 Illegality...............................................    23
   SECTION 2.13 Payments and Computations................................    23
   SECTION 2.14 Taxes....................................................    24
   SECTION 2.15 Sharing of Payments, Etc.................................    27
   SECTION 2.16 Use of Proceeds..........................................    27
   SECTION 2.17 Evidence of Debt.........................................    27
   SECTION 2.18 Call Right of Affiliates.................................    28

ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING......................    28
   SECTION 3.01 Conditions Precedent to Initial Borrowing................    28
   SECTION 3.02 Conditions Precedent to Each Borrowing...................    29
   SECTION 3.03 Determinations Under Section 3.01........................    30

ARTICLE IV REPRESENTATIONS AND WARRANTIES................................    30
   SECTION 4.01 Representations and Warranties of the Borrowers..........    30



                                      -i-



                                                                          
ARTICLE V COVENANTS OF THE BORROWERS.....................................    32
   SECTION 5.01 Affirmative Covenants....................................    32
   SECTION 5.02 Negative Covenants.......................................    34

ARTICLE VI EVENTS OF DEFAULT.............................................    35
   SECTION 6.01 Events of Default........................................    35
   SECTION 6.02 Remedies.................................................    36

ARTICLE VII THE AGENT....................................................    37
   SECTION 7.01 Authorization and Action.................................    37
   SECTION 7.02 Agent's Reliance, Etc....................................    37
   SECTION 7.03 Citibank and Affiliates..................................    37
   SECTION 7.04 Lender Credit Decision...................................    38
   SECTION 7.05 Indemnification..........................................    38
   SECTION 7.06 Successor Agent..........................................    38
   SECTION 7.07 Sub-Agent................................................    38
   SECTION 7.08 Other Agents.............................................    39

ARTICLE VIII MISCELLANEOUS...............................................    39
   SECTION 8.01 Amendments, Etc..........................................    39
   SECTION 8.02 Notices, Etc.............................................    39
   SECTION 8.03 No Waiver; Remedies......................................    40
   SECTION 8.04 Costs and Expenses.......................................    40
   SECTION 8.05 Right of Set-off.........................................    42
   SECTION 8.06 Binding Effect...........................................    42
   SECTION 8.07 Assignments and Participations...........................    42
   SECTION 8.08 Confidentiality..........................................    44
   SECTION 8.09 Judgment Currency........................................    44
   SECTION 8.10 Additional Borrowers; Assumption of Advances.............    45
   SECTION 8.11 Governing Law............................................    46
   SECTION 8.12 Jurisdiction.............................................    46
   SECTION 8.13 Execution in Counterparts................................    46
   SECTION 8.14 Waiver of Jury Trial.....................................    46
   SECTION 8.15 Patriot Act..............................................    46




                                      -ii-



Schedules

Schedule I - List of Applicable Lending Offices


                                      -iii-



Exhibits

Exhibit A-1 - Form of Notice of Revolving Credit Borrowing
Exhibit A-2 - Form of Notice of Competitive Bid Borrowing
Exhibit B   - Form of Assignment and Acceptance
Exhibit C-1 - Form of Opinion of Luxembourg Counsel for the Initial Borrower
Exhibit C-2 - Form of Opinion of In-house Counsel for the Initial Borrower
Exhibit C-3 - Form of Opinion of Special Counsel for the Initial Borrower
Exhibit D   - Form of Borrower Accession Agreement
Exhibit E   - Form of Pledge Agreement
Exhibit F   - Form of Guaranty Agreement
Exhibit G   - Form of Registration Rights Agreement
Exhibit H   - Form of Section 2.14 Certificate
Exhibit I-1 - Form of Revolving Credit Note
Exhibit I-2 - Form of Competitive Bid Note


                                      -iv-



                                 $24,000,000,000
                           REVOLVING CREDIT AGREEMENT

                            Dated as of July 27, 2005

     PROCTER & GAMBLE INTERNATIONAL S.A.R.L., a societe a responsabilite limitee
organized under the laws of the Grand Duchy of Luxembourg (the "Initial
Borrower" and, together with the Additional Borrowers (as hereinafter defined),
collectively, the "Borrowers"), the LENDERS PARTY HERETO, CITIBANK, N.A., as
administrative agent for such Lenders (together with any successor thereto
appointed pursuant to Article VII, the "Agent"), CITIGROUP GLOBAL MARKETS INC.,
as sole lead arranger and sole book runner, JPMORGAN CHASE BANK, N.A., as
syndication agent, and ABN AMRO BANK N.V. and DEUTSCHE BANK SECURITIES INC., as
co-documentation agents, agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

     SECTION 1.01 Certain Defined Terms.

     As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):

     "Act" has the meaning specified in Section 8.15.

     "Additional Borrowers" has the meaning specified in Section 8.10(a).

     "Advance" means a Revolving Credit Advance or a Competitive Bid Advance by
a Lender to a Borrower as part of a Borrowing, and refers to a Base Rate Advance
or a Eurocurrency Rate Advance (each of which shall be a "Type" of Advance).

     "Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling", "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 10% or more of the Voting Equity of such Person.

     "Affiliate Guaranteed Borrower" means any Additional Borrower as to which a
Guaranty Agreement by any Borrower or any Affiliate thereof is delivered in
accordance with Section 8.10(a)(iv).

     "Agent's Account" means (a) the account of the Agent maintained thereby at
Citibank, N.A., at its office at Two Penns Way, New Castle, Delaware 19720,
Account No. ________, Attention: Bank Loan Syndications, (b) in the case of
Advances denominated in Euros, the account of the Sub-Agent designated in
writing from time to time by the Agent to the Borrowers and the Lenders for such
purpose, and (c) in any such case, such other account of the Agent as is
designated in writing from time to time by the Agent to each of the Borrowers
and the Lenders for such purpose.

"Applicable Lending Office" means, with respect to each Lender, such Lender's
Domestic Lending Office in the case of a Base Rate Advance and such Lender's
Eurocurrency Lending Office in the case of a Eurocurrency Rate Advance and, in
the case of a Competitive Bid Advance, the office of such Lender or any of its
Affiliates notified by such Lender to the Agent as its Applicable Lending Office
with respect to


                                      -1-



such Competitive Bid Advance. It is acknowledged and agreed that any Lender may
have one or more Applicable Lending Offices with respect to Advances of any Type
made or to be made to any Borrower and one or more other Applicable Lending
Offices with respect to Advances of such Type made or to be made to any other
Borrower.

     "Applicable Margin" means, as of any date, (a) for Base Rate Advances,
0.000% per annum and (b) for Eurocurrency Rate Advances, 0.060% per annum.

     "Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and any Person and approved by the Initial Borrower and the Agent,
in substantially the form of Exhibit B hereto.

     "Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum shall at all times be equal to the higher of:

          (a) the rate of interest announced publicly by Citibank, N.A. in New
     York, New York, from time to time, as Citibank, N.A.'s base rate; and

          (b) 0.50% per annum above the Federal Funds Rate.

     "Base Rate Advance" means a Revolving Credit Advance denominated in Dollars
that bears interest as provided in Section 2.07(a)(i).

     "beneficial owner" has the meaning specified in Section 2.14(c)(v).

     "Borrowers" has the meaning specified in the recital of parties to this
Agreement.

     "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
Borrowing.

     "Borrower Accession Agreement" has the meaning specified in Section
8.10(a).

     "Business Day" means a day of the year on which banks are not required or
authorized by law to close in New York City and, if the applicable Business Day
relates to any Eurocurrency Rate Advances, on which dealings are carried on in
the London interbank market (or, in the case of an Advance denominated in Euros,
on which the Trans-European Automated Real-Time Gross Settlement Express
Transfer (TARGET) System is open).

     "Closing Date" has the meaning specified in Section 3.01.

     "Collateral" has the meaning specified in Section 1 of the Pledge Agreement

     "Commitment" means, with respect to each Lender, the amount set forth
opposite such Lender's name on the signature pages hereof or, if such Lender has
entered into any Assignment and Acceptance, set forth for such Lender in the
Register maintained by the Agent pursuant to Section 8.07(d), as such amount may
be reduced pursuant to Section 2.05.

     "Communications" has the meaning specified in Section 8.02(b).

     "Company" means The Procter & Gamble Company, an Ohio corporation of which
the Initial Borrower is, as of the Closing Date, a wholly-owned Subsidiary.


                                      -2-



     "Competitive Bid Advance" means an advance by a Lender to any Borrower as
part of a Competitive Bid Borrowing and refers to a Fixed Rate Advance or a
Eurocurrency Rate Advance.

     "Competitive Bid Borrowing" means a borrowing consisting of simultaneous
Competitive Bid Advances from each of the Lenders whose offer to make one or
more Competitive Bid Advances as part of such Borrowing has been accepted under
the competitive bidding procedure described in Section 2.03.

     "Competitive Bid Note" has the meaning specified in Section 2.03(f).

     "Competitive Bid Reduction" means, at any time, the deemed use of each
Lender's Commitment in an amount equal to such Lender's Pro Rata Share of all
outstanding Competitive Bid Advances at such time.

     "Confidential Information" means information that the Company or any Loan
Party furnishes to the Agent or any Lender on a confidential basis or that a
reasonable Person would conclude is confidential or proprietary, but does not
include any such information that is or becomes generally available to the
public or that is or becomes available to the Agent or such Lender from a source
other than any of the Loan Parties, the Company or any of their Affiliates or
any of their respective advisors.

     "Consolidated" refers to the consolidation of accounts in accordance with
GAAP.

     "Consolidated Assets" means, with respect to any Loan Party, all assets of
such Loan Party and its Included Subsidiaries that, in accordance with GAAP,
would be classified as assets on the balance sheet of such Loan Party determined
on a Consolidated basis.

     "Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section 2.08 or
2.09.

     "Covered Jurisdiction" means, with respect to any Borrower, the United
States, Switzerland and Ireland.

     "Debt" of any Person means, without duplication, (a) all indebtedness of
such Person for borrowed money, (b) all obligations of such Person for the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of such Person's business), (c) all obligations
of such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all non-contingent obligations to reimburse any Person in respect of
any amounts paid under acceptances, letters of credit or similar extensions of
credit, (g) all obligations of such Person in respect of Hedge Agreements, (h)
all Debt of others referred to in clauses (a) through (g) above or clause (i)
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of such Debt
against loss, (iii) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (iv)
otherwise to assure a creditor against loss, and (i) all Debt referred to in
clauses (a) through (h) above secured by (or for which the holder of such Debt
has an existing right, contingent or otherwise, to be secured by) any Mortgage
on


                                      -3-



property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Debt.

     "Default" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.

     "Dollars" and the "$" sign each means lawful currency of the United States
of America.

     "Domestic Lending Office" means, with respect to any Lender, the office,
offices, Affiliate or Affiliates of such Lender specified as its "Domestic
Lending Office" opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, or such other office or
Affiliate of such Lender as such Lender may from time to time specify to each of
the Borrowers and the Agent. It is acknowledged and agreed that any Lender may
specify one or more Domestic Lending Offices with respect to Advances made or to
be made to any Borrower and one or more other Domestic Lending Offices with
respect to Advances made or to be made to any other Borrower; provided that no
Lender may specify more than one Domestic Lending Office unless it also
specifies a "Principal Domestic Lending Office", in which case such "Principal
Domestic Lending Office" shall be deemed to be its "Domestic Lending Office" for
purposes of the definition herein of "Eurocurrency Lending Office and Section
8.02.

     "EBITDA" means, for any Person for any period, net income (or net loss)
plus the sum of (a) interest expense, (b) income tax expense, (c) depreciation
expense and (d) amortization expense, in each case determined for such Person
and its Consolidated Subsidiaries in accordance with GAAP for such period.

     "EMU" means Economic and Monetary Union as contemplated in the Treaty of
Rome.

     "EMU Legislation" means legislative measures of the European Union for the
introduction of, changeover to or operation of the Euro in one or more member
states, being in part legislative measures to implement EMU.

     "Equivalent" in Dollars of Euros on any date means the equivalent in
Dollars of Euros determined by using the quoted spot rate at which the
Sub-Agent's principal office in London offers to exchange Dollars for Euros in
London prior to 4:00 P.M. (London time) (unless otherwise indicated by the terms
of this Agreement) on such date as is required pursuant to the terms of this
Agreement, and the "Equivalent" in Euros of Dollars means the equivalent in
Euros of Dollars determined by using the quoted spot rate at which the
Sub-Agent's principal office in London offers to exchange Euros for Dollars in
London prior to 4:00 P.M. (London time) (unless otherwise indicated by the terms
of this Agreement) on such date as is required pursuant to the terms of this
Agreement.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

     "EURIBO Rate" means, for any Interest Period, the rate per annum (rounded
upward to the nearest whole multiple of 1/100 of 1% per annum, if such average
is not such a multiple) appearing on Page 248 of the Moneyline Telerate Service
(or on any successor or substitute page) as the London interbank offered rate
for deposits in Euro at approximately 11:00 A.M. (London time) on the Business
Day immediately preceding the commencement of such Interest Period, for a term
comparable to such Interest Period or, if for any reason such rate is not
available, the average (rounded upward to the nearest whole multiple of 1/100 of
1% per annum, if such average is not such a multiple) of the respective rates
per annum at which deposits in Euros are offered by the principal office of each
of the Reference Banks


                                      -4-



in London, England to prime banks in the London interbank market at 11:00 A.M.
(London time) on the Business Day immediately preceding the first day of such
Interest Period in an amount substantially equal to such Reference Bank's
Eurocurrency Rate Advance comprising part of such Borrowing to be outstanding
during such Interest Period and for a period equal to such Interest Period,
subject, however, to the provisions of Section 2.08.

     "Euro" and "(euro)"means the lawful currency of the European Union as
constituted by the Treaty of Rome which established the European Community.

     "Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.

     "Eurocurrency Lending Office" means, with respect to any Lender, the
office, offices, Affiliate or Affiliates of such Lender specified as its
"Eurocurrency Lending Office" opposite its name on Schedule I hereto or in
Assignment and Acceptance pursuant to which it became a Lender (or, if no such
office is specified, its Domestic Lending Office), or such other office,
offices, Affiliate or Affiliates of such Lender as such Lender may from time to
time specify to each of the Borrowers and the Agent. It is acknowledged and
agreed that any Lender may specify one or more Eurocurrency Lending Offices with
respect to Advances made or to be made to any Borrower and one or more other
Eurocurrency Lending Offices with respect to Advances made or to be made to any
other Borrower.

     "Eurocurrency Rate" means, for any Interest Period for each Eurocurrency
Rate Advance comprising part of the same Borrowing, (a) in the case of any
Advance denominated in Dollars, the rate per annum (rounded upward to the
nearest whole multiple of 1/100 of 1% per annum) appearing on Moneyline Telerate
Markets Page 3750 (or on any successor or substitute page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00 A.M.
(London time) on the Business Day immediately preceding the first day of such
Interest Period, for a term comparable to such Interest Period or, if for any
reason such rate is not available, the average (rounded upward to the nearest
whole multiple of 1/100 of 1% per annum, if such average is not such a multiple)
of the rate per annum at which deposits in Dollars is offered by the principal
office of each of the Reference Banks in London, England to prime banks in the
London interbank market at 11:00 A.M. (London time) on the Business Day
immediately preceding the first day of such Interest Period in an amount
substantially equal to such Reference Bank's Eurocurrency Rate Advance
comprising part of such Borrowing to be outstanding during such Interest Period
and for a period equal to such Interest Period or, (b) in the case of any
Advance denominated in Euros, the EURIBO Rate. If the Moneyline Telerate Markets
Page 3750 (or on any successor or substitute page) is unavailable, the
Eurocurrency Rate for any Interest Period for each Eurocurrency Rate Advance
comprising part of the same Borrowing shall be determined by the Agent on the
basis of applicable rates furnished to and received by the Agent from the
Reference Banks on the Business Day immediately preceding the first day of such
Interest Period, subject, however, to the provisions of Section 2.08.

     "Eurocurrency Rate Advance" means a Revolving Credit Advance denominated in
either Optional Currency that bears interest as provided in Section 2.07(a)(ii)
or a Competitive Bid Advance denominated in either Optional Currency that bears
interest by reference to the Eurocurrency Rate.

     "Events of Default" has the meaning specified in Section 6.01.

     "Excluded Taxes" means, (a) with respect to any Lender or the Agent, Taxes
imposed on such Person's overall net income (and franchise Taxes imposed on such
Person in lieu of net income Taxes) as a result of any present or former
connection between such Person and the relevant taxing authority, in each case,
whether in effect as of the date hereof or subsequently imposed as a result of a
Change in Law,


                                      -5-



and (b) with respect to payments made by any Borrower organized in a Covered
Jurisdiction to any Person, any Taxes not imposed as a direct result of a Change
in Law occurring after the date on which such Person became a Lender or the
Agent.

     "Existing Agent" means Merrill Lynch Capital Corporation, in its capacity
as agent under the Existing Credit Agreement.

     "Existing Credit Agreement" means the Bridge Credit Agreement dated as of
January 28, 2005 between the Initial Borrower and the Existing Agent, as
amended, supplemented and otherwise modified by the First Amendment to Bridge
Credit Agreement and Pledge Agreement dated as of April 14, 2005, the Second
Amendment to Bridge Credit Agreement dated as of May 4, 2005 and the Third
Amendment to Bridge Credit Agreement dated as of May 17, 2005.

     "Existing Pledge Agreement" means the Pledge Agreement dated as of March
28, 2005 by the Initial Borrower in favor of the Existing Agent, as amended,
supplemented and otherwise modified by the First Amendment to Bridge Credit
Agreement and Pledge Agreement dated as of April 14, 2005 and the Third
Amendment to Bridge Credit Agreement dated as of May 17, 2005.

     "Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.

     "Fixed Rate Advances" means a Competitive Bid Advance denominated in either
Optional Currency that bears interest as provided in Section 2.03(a)(i).

     "GAAP" has the meaning specified in Section 1.03.

     "Guarantor" means, with respect to any Affiliate Guaranteed Borrower, the
Borrower or the Affiliate of a Borrower that has guaranteed the obligations of
such Affiliate Guaranteed Borrower under a Guaranty Agreement delivered in
accordance with Section 8.10(a)(iv).

     "Guaranty Agreement" means a guaranty agreement, in substantially the form
of Exhibit F hereto, made by the Initial Borrower or a Related Party in favor of
the Agent and the Lenders.

     "Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.

     "Included Subsidiaries" means with respect to any Loan Party, the
Subsidiaries of such Loan Parties that such Loan Party elects to include in the
Consolidated financial statements of such Loan Party most recently delivered to
the Agent pursuant to Section 4.01(e), 5.01(d)(i) or 5.01(d)(ii).

     "Initial Lender" means each financial institution identified as an Initial
Lender on the signature pages to this Agreement.

     "Interest Payment Date" means (a) with respect to any Base Rate Advance,
(i) the last day of each March, June, September and December during the period
in which such Base Rate Advance is outstanding and (ii) the date such Base Rate
Advance is Converted or paid in full, and (b) with respect to


                                      -6-



any Eurocurrency Rate Advance, (i) the last day of each Interest Period
applicable to such Eurocurrency Rate Advance and, if such Interest Period has a
duration of more than three months, each day that occurs during such Interest
Period every three months from the first day of such Interest Period and (ii)
the date such Eurocurrency Rate Advance is Converted or paid in full.

     "Interest Period" means, for each Eurocurrency Rate Advance comprising part
of the same Borrowing, the period commencing on the date of such Eurocurrency
Rate Advance or the date of the Conversion of any Base Rate Advance into such
Eurocurrency Rate Advance and ending on the last day of the period selected by
the Borrower requesting a Borrowing pursuant to the provisions below and,
thereafter, with respect to Eurocurrency Rate Advances, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of the period selected by such Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be one week or
one, two, three or six months, as such Borrower may, upon notice received by the
Agent not later than 9:00 A.M. (New York City time) on the Business Day
immediately preceding the first day of such Interest Period, select; provided,
however, that:

          (a) no Borrower may select any Interest Period that ends after the
     Termination Date;

          (b) Interest Periods commencing on the same date for Eurocurrency Rate
     Advances comprising part of the same Borrowing shall be of the same
     duration;

          (c) whenever the last day of any Interest Period would otherwise occur
     on a day other than a Business Day, the last day of such Interest Period
     shall be extended to occur on the next succeeding Business Day, provided,
     however, that, if such extension would cause the last day of such Interest
     Period to occur in the next following calendar month, the last day of such
     Interest Period shall occur on the next preceding Business Day; and

          (d) whenever the first day of any Interest Period occurs on a day of
     an initial calendar month for which there is no numerically corresponding
     day in the calendar month that succeeds such initial calendar month by the
     number of months equal to the number of months in such Interest Period,
     such Interest Period shall end on the last Business Day of such succeeding
     calendar month.

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

     "Lenders" means each Initial Lender and each Person that shall become a
party hereto pursuant to Section 8.07 and, as to any Lender, the term "Lender"
includes any of its Affiliates designated as such by such Lender located in
(e.g., being fiscally resident in or organized in or having a branch, office,
permanent establishment or other place of business in) a Covered Jurisdiction.

     "Loan Documents" means, collectively, this Agreement, each Note, if any,
each Borrower Accession Agreement, the Registration Rights Agreement, each
Guaranty Agreement and the Pledge Agreement.

     "Loan Parties" means, collectively, at any time, the Borrowers and the
Guarantors at such time.

     "Material Adverse Change" means any material adverse change in the
financial condition or results of operations of the Borrowers and their
Subsidiaries, taken as a whole.


                                      -7-



     "Material Adverse Effect" means a material adverse effect on (a) the
financial condition or results of operations of the Loan Parties and their
Subsidiaries, taken as a whole, (b) the rights and remedies of the Agent or the
Lenders under any Loan Document or (c) the ability of the Loan Parties to
perform their obligations under the Loan Document.

     "Material Subsidiary" means, at any time, any Subsidiary of the Initial
Borrower having (a) assets with a value of not less than 5% of the total value
of the assets of the Initial Borrower and its Subsidiaries, taken as a whole, or
(b) Consolidated EBITDA of not less than 5% of the aggregate Consolidated EBITDA
of the Initial Borrower and its Subsidiaries, taken as a whole, in each case as
of the end of or for the most recently completed fiscal quarter of the Initial
Borrower.

     "Moody's" means Moody's Investors Service, Inc.

     "Mortgage" means any lien or security interest or other charge or
encumbrance having the effect of a lien or security interest.

     "Non-Excluded Taxes" has the meaning specified in Section 2.14(a).

     "Note" means a Revolving Credit Note or a Competitive Bid Note, as context
may require.

     "Notice" has the meaning specified in Section 8.02(c).

     "Notice of Competitive Bid Borrowing" has the meaning specified in Section
2.03(a).

     "Notice of Revolving Credit Borrowing" has the meaning specified in Section
2.02(a).

     "Optional Currency" means Dollars or Euros, as context may require.

     "Permitted Mortgages" means the following types of Mortgages:

          (a) Mortgages for taxes, assessments and governmental charges or
     levies to the extent not otherwise required to be paid under Section
     5.01(b);

          (b) Mortgages imposed by law, including, without limitation,
     materialmen's, mechanics', carriers', workmen's, storage and repairmen's
     Mortgages and other similar Mortgages arising in the ordinary course of
     business;

          (c) pledges or deposits to secure obligations under workers'
     compensation laws, unemployment insurance or other similar social security
     legislation (including, without limitation, in respect of employee benefit
     plans subject to ERISA) or to secure public or statutory obligations;

          (d) Mortgages securing the performance of, or payment in respect of,
     tenders, statutory obligations, contract bids, government or utility
     obligations, payment, performance, surety and return-of-money bonds and
     other similar obligations incurred in the ordinary course of business and
     other obligations of a similar nature, whether pursuant to statutory
     requirements, common law or consensual arrangements;

          (e) any interest or title of a lessor or sublessor or a licensor and
     any restriction or encumbrance to which the interest or title of such
     lessor, sublessor or licensor may be subject;


                                       -8-



          (f) licenses and other arrangements for the use of software and other
     intellectual property by such Person;

          (g) Mortgages arising out of judgments or awards that do not
     constitute an Event of Default under Section 6.01(e) or 6.01(f);

          (h) rights of way, easements, restrictions (including zoning
     restrictions), covenants, consents, reservations, encroachments,
     variations, mineral reservations and rights, leases, licenses and other
     similar restrictions, charges, encumbrances (whether or not recorded),
     prior rights of other Persons, and similar obligations with respect to real
     property arising by operation of law or contained in similar instruments;

          (i) Mortgages arising from the rights of lessors under leases
     (including financing statements regarding property subject to such leases
     or subleases);

          (j) rights of consignors of goods, whether or not perfected by the
     filing of a financing statement under the Uniform Commercial Code of any
     jurisdiction (or similar filings and recordings under equivalent provisions
     of applicable law), including, without limitation, goods which are the
     subject of tolling agreements or manufacturing and servicing agreements;
     and

          (k) customary rights of set-off upon deposits of cash arising as a
     matter of law in favor of banks, other depository institutions, brokers and
     other securities intermediaries in which such cash is maintained in the
     ordinary course of business.

     "Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.

     "Platform" has the meaning specified in Section 8.02(b).

     "Pledge Agreement" means the pledge agreement, in substantially the form of
Exhibit E hereto, by the Initial Borrower in favor of the Agent.

     "Principal Manufacturing Property" means any facility (together with the
land on which it is erected and fixtures comprising a part thereof) used
primarily for manufacturing or processing, wherever located, owned or leased by
any Borrower, any Subsidiary of any Borrower, or any Guarantor and having a
gross book value in excess of $750,000,000, other than any such facility or
portion thereof (a) which is a pollution control or other facility financed by
obligations issued by (i) a state or local governmental unit pursuant to Section
103(b)(4)(E), 103(b)(4)(F) or 103(b)(6) of the Internal Revenue Code of 1954, or
any successor provision thereof, or (ii) the equivalent of the financing
referred to in subclause (a)(i) above in any jurisdiction other than the United
States, or (b) which, in the opinion of the Board of Directors of the Intial
Borrower or the applicable Loan Party, is not of material importance to the
total business conducted by the Loan Parties and their Subsidiaries, considered
as a whole.

     "Process Agent" has the meaning specified in Section 8.12.

     "Pro Rata Share" of any amount means, with respect to any Lender at any
time, the product of (a) a fraction the numerator of which is the amount of such
Lender's Unused Commitment at such time and the denominator of which is the
aggregate Unused Commitments of all Lenders at such time and (b) such amount.


                                      -9-



     "Reference Banks" means (a) in the case of any Revolving Credit Borrowing,
Citibank, N.A. and [ ] and (b) in the case of any Competitive Bid Borrowing, two
of the Lenders making the all or part of such Competitive Bid Borrowing (as
selected by the applicable Borrower) or if only one Lender is making such
Competitive Bid Borrowing, such Lender

     "Register" has the meaning specified in Section 8.07(d).

     "Registration Rights Agreement" means a registration rights agreement, in
substantially the form of Exhibit G hereto, between the Company and the Company
and the Agent.

     "Related Party" means a Person (a) a majority of whose voting common equity
is owned directly or indirectly by, or is under common control with, the Initial
Borrower, and that includes the name "Procter & Gamble" or "P&G" in its legal
name or commonly used trade names, or (b) that directly or indirectly owns a
majority of the voting common equity in the Initial Borrower and includes the
name "Procter & Gamble" or "P&G" in its legal name or commonly used trade names.

     "Required Lenders" means at any time Lenders owed in excess of 50% of the
then aggregate unpaid principal amount (based on the Equivalent in Dollars at
such time) of the Revolving Credit Advances owing to Lenders, or, if no such
principal amount is then outstanding, Lenders having in excess of 50% of the
Commitments; provided, however, that if any Lender shall be an Affiliate of any
Borrower at such time, there shall be excluded from the determination of
Required Lenders at such time the then aggregate unpaid principal amount (based
on the Equivalent in Dollars at such time) of the Revolving Credit Advances
owing to such Affiliate (in its capacity as a Lender) at such time or, if no
such principal amount is then outstanding, such Affiliate's Commitment at such
time.

     "Revolving Credit Advance" means an advance by a Lender to a Borrower as
part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a
Eurocurrency Rate Advance.

     "Revolving Credit Borrowing" means a Borrowing consisting of simultaneous
Revolving Credit Advances of the same Type made by each of the Lenders pursuant
to Section 2.01.

     "Revolving Credit Note" has the meaning specified in Section 2.17(a).

     "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc.

     "Sub-Agent" means Citibank International plc.

     "Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.

     "Taxes" has the meaning specified in Section 2.14(a).

     "Termination Date" means the earlier of (a) July 27, 2008 and (b) the date
of termination in whole of the aggregate Commitments pursuant to Section 2.05 or
6.02.


                                      -10-



     "Transaction" means the Company's acquisition of The Gillette Company as
announced in the Company's press release dated January 28, 2005 filed on Form
8-K with the United States Securities and Exchange Commission.

     "Transaction Termination Date" means the date of any public announcement by
the Company that the Transaction has expired or has been terminated.

     "Treaty of Rome" means the Treaty of Rome of 25 March 1957, as amended by
the Single European Act 1986 and the Maastricht Treaty (which was signed at
Maastricht on 7 February 1992 and came into force on 1 November 1993), as such
treaty may be amended from time to time and as referred to in the EMU
legislation.

     "Type" has the meaning specified in the definition of "Advance" in Section
1.01.

     "Unused Commitment" means, with respect to any Lender at any time, (a) such
Lender's Commitment at such time, less (b) the sum of:

          (i) the aggregate principal amount of all Revolving Credit Advances
     made by such Lender (in its capacity as a Lender) and outstanding at such
     time; and

          (ii) the product of (x) a fraction the numerator of which is the
     difference between the amount of such Lender's Commitment at such time
     minus the aggregate principal amount of the Revolving Credit Loans held by
     such Lender at such time and the denominator of which is the difference
     between the aggregate Commitments of all Lenders at such time minus the
     aggregate principal amount of the Revolving Credit Loans made by the
     Lenders and outstanding at such time and (y) the aggregate principal amount
     of Competitive Bid Advances made by the Lenders and outstanding at such
     time.

     "Utilization Fee" means, as of any date that the sum of the aggregate
principal amount of the Advances (other than Competitive Bid Advances)
outstanding exceeds 50% of the aggregate Commitments, 0.015% per annum.

     "Voting Equity" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.

     SECTION 1.02 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".

     SECTION 1.03 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(e) ("GAAP").

                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

     SECTION 2.01 The Revolving Credit Advances. Each Lender severally agrees,
on the terms and conditions hereinafter set forth, to make Revolving Credit
Advances to each Borrower from time to


                                      -11-



time on any Business Day during the period from the Closing Date until the
Termination Date in an aggregate amount (based in respect of any Advances to be
denominated in Euros by reference to the Equivalent thereof in Dollars
determined on the date of delivery of the applicable Notice of Revolving Credit
Borrowing) not to exceed such Lender's Unused Commitment at such time. Each
Borrowing shall be in a minimum amount of $10,000,000, in respect of Revolving
Credit Advances denominated in Dollars, or (euro)10,000,000, in respect of
Revolving Credit Advances denominated in Euros (or, if less, an aggregate amount
equal to the amount by which the aggregate amount of a proposed Competitive Bid
Borrowing requested by any Borrower exceeds the aggregate amount of Competitive
Bid Advances offered to be made by the Lenders and accepted by such Borrower in
respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing is
made on the same date as such Revolving Credit Borrowing), and shall consist of
Revolving Credit Advances of the same Type made on the same day by the Lenders
ratably according to their respective Commitments; provided that such minimum
amount shall not apply with respect to any Revolving Credit Advances made in
accordance with the provisions of Section 2.04(a)(ii) or Section 2.07(c). Within
the limits of each Lender's Commitment, each Borrower may borrow under this
Section 2.01, prepay pursuant to Section 2.10 and reborrow under this Section
2.01.

     SECTION 2.02 Making the Revolving Credit Advances. (a) Each Revolving
Credit Borrowing shall be made on notice, given not later than (i) 9:00 A.M.
(New York City time) on the Business Day immediately preceding the date of the
proposed Borrowing in the case of a Revolving Credit Borrowing consisting of
Eurocurrency Rate Advances denominated in Dollars, (ii) 11:00 A.M. (London time)
on the second Business Day prior to the date of the proposed Revolving Credit
Borrowing in the case of a Revolving Credit Borrowing consisting of Eurocurrency
Rate Advances denominated in Euros, or (iii) 9:00 A.M. (New York City time) on
the Business Day of the date of the proposed Revolving Credit Borrowing in the
case of a Revolving Credit Borrowing consisting of Base Rate Advances, by any
Borrower to the Agent (and, in the case of a Revolving Credit Borrowing
consisting of Eurocurrency Rate Advances denominated in Euros, simultaneously to
the Sub-Agent), which shall give to each Lender prompt notice thereof by
telecopier or Email. Each such notice of a Revolving Credit Borrowing (a "Notice
of Revolving Credit Borrowing") shall be by Email, confirmed promptly by
telephone, shall be in substantially the form of Exhibit A-1 hereto, specifying
therein the requested (A) date of such Revolving Credit Borrowing, (B) Type and
Optional Currency of Revolving Credit Advances comprising such Revolving Credit
Borrowing, (C) aggregate amount of such Revolving Credit Borrowing, (D) in the
case of a Revolving Credit Borrowing consisting of Eurocurrency Rate Advances,
the initial Interest Period for each such Revolving Credit Advance, (E) the
account to which the proceeds of the requested Revolving Credit Borrowing are to
be transferred and (F) whether the proceeds of such Revolving Credit Borrowing
will be used for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System). Each Lender shall, before 11:00 A.M. (New York City time) on the date
of such Revolving Credit Borrowing, make available for the account of its
Applicable Lending Office to the Agent at the Agent's Account, in same day
funds, such Lender's ratable portion of such Revolving Credit Borrowing. After
the Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Agent will make such funds available to
the appropriate Borrower by transferring the amount thereof to the account
designated by such Borrower for such purpose.

     (b) Anything in subsection (a) above to the contrary notwithstanding, no
Borrower may select Eurocurrency Rate Advances for any Revolving Credit
Borrowing if the obligation of the Lenders to make Eurocurrency Rate Advances
shall then be suspended pursuant to Section 2.08 or 2.12.

     (c) Each Notice of Revolving Credit Borrowing shall be irrevocable and
binding on the Borrower giving such notice. In the case of any Revolving Credit
Borrowing which the related Notice of Revolving Credit Borrowing specifies is to
be composed of Eurocurrency Rate Advances, such Borrower


                                      -12-



shall indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill on or before the date specified in
such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing
the applicable conditions set forth in Article III, including, without
limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the Revolving Credit Advance to be made by such
Lender as part of such Revolving Credit Borrowing when such Revolving Credit
Advance, as a result of such failure, is not made on such date.

     (d) Unless the Agent or the Sub-Agent, as the case may be, shall have
received notice from a Lender prior to the date of any Revolving Credit
Borrowing that such Lender will not make available to the Agent or the
Sub-Agent, as the case may be, such Lender's Pro Rata Share of such Revolving
Credit Borrowing, the Agent or the Sub-Agent, as the case may be, may assume
that such Lender has made such portion available to the Agent or the Sub-Agent,
as the case may be, on the date of such Revolving Credit Borrowing in accordance
with subsection (a) of this Section 2.02 and the Agent or the Sub-Agent, as the
case may be, may, in reliance upon such assumption, make available to the
Borrower requesting such Revolving Credit Borrowing on such date a corresponding
amount. If and to the extent that such Lender shall not have so made such
ratable portion available to the Agent or the Sub-Agent, as the case may be,
such Lender and such Borrower severally agree to repay to the Agent or the
Sub-Agent, as the case may be, forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to such Borrower until the date such amount is repaid to the Agent or
the Sub-Agent, as the case may be, at (i) in the case of such Borrower, the
interest rate applicable at the time to Revolving Credit Advances comprising
such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal
Funds Rate. If such Lender shall repay to the Agent or the Sub-Agent, as the
case may be, such corresponding amount, such amount so repaid shall constitute
such Lender's Revolving Credit Advance as part of such Revolving Credit
Borrowing for purposes of this Agreement.

     (e) The failure of any Lender to make the Revolving Credit Advance to be
made by it as part of any Revolving Credit Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Revolving Credit Advance
on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.

     (f) Any Revolving Credit Advance made by any Applicable Lending Office of
any Lender shall be deemed to be an Advance of such Lender for purposes of
calculating the utilization of the Commitment of such Lender hereunder, except
that if such Applicable Lending Office of such Lender is another Lender, such
Revolving Credit Advance shall be deemed to be an Advance of such other Lender
for purposes of calculating the utilization of the Commitments of both such
Lenders hereunder.

     SECTION 2.03 Competitive Bid Facility. (a) Each Lender severally agrees
that any Borrower may make Competitive Bid Borrowings under this Section 2.03
from time to time on any Business Day during the period from the Closing Date
until the date occurring 30 days prior to the then scheduled Termination Date in
the manner set forth below; provided that, the aggregate principal amount of the
Competitive Bid Advances comprising each Competitive Bid Borrowing shall not
exceed the aggregate Unused Commitments of the Lenders at such time.

          (i) Any Borrower may request a Competitive Bid Borrowing under this
     Section 2.03 by delivering to the Agent (and, in the case of a Competitive
     Bid Borrowing not consisting of Fixed Rate Advances or Eurocurrency Rate
     Advances to be denominated in Dollars, simultaneously to the Sub-Agent), by
     telephone or Email, confirmed promptly in writing, or by telecopier, a
     notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid
     Borrowing"), in substantially the form of Exhibit A-2 hereto, specifying
     therein (A) the requested date of such


                                      -13-



     proposed Competitive Bid Borrowing (which shall be a Business Day), (B) the
     requested aggregate amount and Optional Currency of such proposed
     Competitive Bid Borrowing, (C) whether such proposed Competitive Bid
     Borrowing shall consist of Fixed Rate Advances or Eurocurrency Rate
     Advances, (D) in the case of a Competitive Bid Borrowing consisting of (1)
     Eurocurrency Rate Advances, the requested Interest Period for each such
     Eurocurrency Rate Advance and (2) Fixed Rate Advances, the requested
     maturity date for repayment of each such Fixed Rate Advance (which maturity
     date may not be earlier than the date occurring seven days after the date
     of such proposed Competitive Bid Borrowing or later than the earlier of (x)
     360 days after the date of such proposed Competitive Bid Borrowing and (y)
     the Termination Date), (E) the requested interest payment date or dates for
     each Competitive Bid Advance comprising part of such proposed Competitive
     Bid Borrowing, (F) whether or not the Competitive Bid Advances comprising
     such proposed Competitive Bid Borrowing may be prepaid and, if so, whether
     with or without penalty, (G) the address and account number of such
     Borrower to which the proceeds of such proposed Competitive Bid Borrowing
     are to be advanced, (H) whether the proceeds of such Competitive Bid
     Borrowing will be used for the purpose of purchasing or carrying margin
     stock (within the meaning of Regulation U issued by the Board of Governors
     of the Federal Reserve System) and (I) the requested other terms, if any,
     to be applicable to such proposed Competitive Bid Borrowing, not later than
     (I) 9:00 A.M. (New York City time) at least two Business Days prior to the
     date of the proposed Competitive Bid Borrowing, if such Borrower shall
     specify in the related Notice of Competitive Bid Borrowing that the rates
     of interest to be offered by the Lenders shall be fixed rates per annum
     (the Advances comprising any such Competitive Bid Borrowing, which shall be
     denominated in Dollars or Euros, being referred to herein as "Fixed Rate
     Advances") (II) 9:00 A.M. (New York City time) three Business Days
     preceding the date of the proposed Competitive Bid Borrowing in the case of
     a Competitive Bid Borrowing consisting of Eurocurrency Rate Advances
     denominated in Dollars, and (III) 2:00 P.M. (New York City time) three
     Business Days preceding the date of the proposed Competitive Bid Borrowing
     in the case of a Competitive Bid Borrowing consisting of Eurocurrency Rate
     Advances denominated in Euros. Each Notice of Competitive Bid Borrowing
     shall be irrevocable and binding on the Borrower that requested such
     Competitive Bid Borrowing. The Agent or the Sub-Agent, as the case may be,
     shall in turn promptly notify each Lender of each request for a Competitive
     Bid Borrowing received by it from any Borrower by sending such Lender a
     copy of the related Notice of Competitive Bid Borrowing.

          (ii) Each Lender may, in its sole discretion, elect to irrevocably
     offer to make one or more Competitive Bid Advances to the Borrower
     requesting the Competitive Bid Advances as part of such proposed
     Competitive Bid Borrowing at a rate or rates of interest specified by such
     Lender in its sole discretion, by notifying the Agent or the Sub-Agent, as
     the case may be (which shall give prompt notice thereof to the Borrower
     requesting the Competitive Bid Borrowing), before 12:00 P.M. (New York City
     time) one Business Day prior to the date of such proposed Competitive Bid
     Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed
     Rate Advances, and (B) before 1:00 P.M. (New York City time) two Business
     Days prior to the date of the proposed Competitive Bid Borrowing, in the
     case of a Competitive Bid Borrowing consisting of Eurocurrency Rate
     Advances, of the minimum amount and maximum amount of each Competitive Bid
     Advance that such Lender would be willing to make as part of such proposed
     Competitive Bid Borrowing (which amounts, subject to the proviso of the
     first sentence of this Section 2.03(a), may exceed such Lender's
     Commitment, if any), the rate or rates of interest therefor and such
     Lender's Applicable Lending Office with respect to such Competitive Bid
     Advance; provided that if the Agent, in its capacity as a Lender, shall, in
     its sole discretion, elect to make any such offer, it shall notify the
     Borrower requesting such Competitive Bid Borrowing of such offer at least
     30 minutes before the time and on the date on which notice of such election
     is to be given to the Agent or to the Sub-Agent, as the case may be, by the
     other Lenders. If any


                                      -14-



     Lender shall elect not to make such an offer, such Lender shall so notify
     the Agent, before 10:00 A.M. (New York City time) or the Sub-Agent before
     12:00 noon (London time), as the case may be, on the date on which notice
     of such election is to be given to the Agent or to the Sub-Agent, as the
     case may be, by the other Lenders, and such Lender shall not be obligated
     to, and shall not, make any Competitive Bid Advance as part of such
     proposed Competitive Bid Borrowing; provided that the failure by any Lender
     to give such notice shall not cause such Lender to be obligated to make any
     Competitive Bid Advance as part of such proposed Competitive Bid Borrowing.

          (iii) The Borrower requesting any particular Competitive Bid Borrowing
     shall, in turn, before (A) 4:00 P.M. (New York City time) one Business Day
     prior to the date of such proposed Competitive Bid Borrowing, in the case
     of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and (B)
     4:00 P.M. (New York City time) two Business Days prior to the date of such
     proposed Competitive Bid Borrowing, in the case of a Competitive Bid
     Borrowing consisting of Eurocurrency Rate Advances, either:

               (A) cancel such Competitive Bid Borrowing by giving the Agent
          notice to that effect; or

               (B) accept one or more of the offers made by any Lender or
          Lenders pursuant to Section 2.03(a)(ii), in its sole discretion but
          subject to the next two succeeding sentences, by giving notice to the
          Agent or to the Sub-Agent, as the case may be, of the amount of each
          Competitive Bid Advance (which amount shall be equal to or greater
          than the minimum amount, and equal to or less than the maximum amount,
          notified to such Borrower by the Agent or the Sub-Agent, as the case
          may be, on behalf of such Lender for such Competitive Bid Advance
          pursuant to Section 2.03(a)(ii)) to be made by each Lender as part of
          such Competitive Bid Borrowing, and reject any remaining offers made
          by Lenders pursuant to Section 2.03(a)(ii) by giving the Agent or the
          Sub-Agent, as the case may be, notice to that effect; provided,
          however, that such Borrower may not accept offers that, in the
          aggregate, exceed the amount of the proposed Competitive Bid Borrowing
          specified in the related Notice of Competitive Bid Borrowing. The
          Borrower that requested such Competitive Bid Borrowing shall accept
          the offers made by any Lender or Lenders to make Competitive Bid
          Advances in order of the lowest to the highest rates of interest
          offered by such Lenders for a particular Competitive Bid Borrowing. If
          two or more Lenders have offered the same interest rate for a
          particular Competitive Bid Borrowing, the amount to be borrowed at
          such interest rate will be allocated among such Lenders ratably
          according to the amount that each such Lender offered at such interest
          rate.

          (iv) If the Borrower that requested any particular Competitive Bid
     Borrowing notifies the Agent or the Sub-Agent, as the case may be, that
     such Competitive Bid Borrowing is cancelled pursuant to Section
     2.03(a)(iii)(A), the Agent or the Sub-Agent, as the case may be, shall give
     prompt notice thereof to each of the Lenders and such Competitive Bid
     Borrowing shall not be made.

          (v) If the Borrower that requested any particular Competitive Bid
     Borrowing accepts one or more of the offers made by any Lender or Lenders
     pursuant to Section 2.03(a)(iii)(B) in respect of such Competitive Bid
     Borrowing, the Agent or the Sub-Agent, as the case may be, shall in turn
     promptly notify (A) each Lender that has made an offer as described in
     Section 2.03(a)(ii) of the date and the aggregate amount of such
     Competitive Bid Borrowing and whether or not any offer or offers made by
     such Lender pursuant to Section 2.03(a)(ii) have been


                                      -15-



     accepted by such Borrower and (B) each Lender that is to make a Competitive
     Bid Advance as part of such Competitive Bid Borrowing, (1) of the amount of
     each Competitive Bid Advance to be made by such Lender as part of such
     Competitive Bid Borrowing and (2) upon receipt, that the Agent or the
     Sub-Agent, as the case may be, has received forms of documents appearing to
     fulfill the applicable conditions set forth in Article III. Each Lender
     that is to make a Competitive Bid Advance as part of any Competitive Bid
     Borrowing shall, before 12:00 Noon (New York City time) on the date of such
     Competitive Bid Borrowing specified in the notice received from the Agent
     or from the Sub-Agent, as the case may be, pursuant to subclause (v)(A) of
     the immediately preceding sentence or any later time when such Lender shall
     have received notice from the Agent or from the Sub-Agent, as the case may
     be, pursuant to subclause (v)(B)(2) of the immediately preceding sentence,
     make available for the account of its Applicable Lending Office to the
     Agent at the applicable Agent's Account, in same day funds, such Lender's
     portion of such Competitive Bid Borrowing. Upon fulfillment of the
     applicable conditions set forth in Article III and after receipt by the
     Agent of such funds, the Agent will make such funds available to the
     Borrower that requested such Borrowing at the address and the account
     number specified by such Borrower in the related Notice of Competitive Bid
     Borrowing or, if no such address and account number are specified in the
     related Notice of Competitive Bid Borrowing, at the Agent's address
     referred to in Section 8.02. Promptly after (x) each Competitive Bid
     Borrowing, the Agent will notify each Lender of the amount of such
     Competitive Bid Borrowing, the corresponding Competitive Bid Reduction
     resulting therefrom and the dates upon which such Competitive Bid Reduction
     commenced and will terminate and (y) the prepayment of any Competitive Bid
     Borrowing by the applicable Borrower, the Agent will notify each Lender of
     the amount and date of each such prepayment and the amount, if any, of the
     corresponding Competitive Bid Reduction remaining after giving effect
     thereto.

          (vi) If the Borrower that requested any applicable Competitive Bid
     Borrowing notifies the Agent or the Sub-Agent, as the case may be, that it
     accepts one or more of the offers made by any Lender or Lenders pursuant to
     Section 2.03(a)(iii)(B), such notice of acceptance shall be irrevocable and
     binding on such Borrower. Such Borrower shall indemnify each Lender against
     any loss, cost or expense incurred by such Lender as a result of any
     failure to fulfill on or before the date specified in such Notice of
     Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable
     conditions set forth in Article III, including, without limitation, any
     loss (excluding loss of anticipated profits), cost or expense incurred by
     reason of the liquidation or reemployment of deposits or other funds
     acquired by such Lender to fund the Competitive Bid Advance to be made by
     such Lender as part of such Competitive Bid Borrowing when such Competitive
     Bid Advance, as a result of such failure, is not made on such date.

     (b) Each Competitive Bid Borrowing shall be in an aggregate amount of not
less than $10,000,000, in respect of Revolving Credit Advances denominated in
Dollars, or (euro)10,000,000, in respect of Revolving Credit Advances
denominated in Euros and, following the making of each Competitive Bid
Borrowing, the Borrowers shall be in compliance with the limitation set forth in
the proviso to the first sentence of Section 2.03(a).

     (c) Within the limits and on the conditions set forth in this Section 2.03,
any Borrower may from time to time borrow under Section 2.03(a), repay pursuant
to Section 2.06(b) or prepay pursuant to Section 2.03(d), and reborrow under
Section 2.03(a).

     (d) The Borrower to which any particular Competitive Bid Borrowing is made
shall have no right to prepay the principal amount of any Competitive Bid
Advance (or any portion thereof) unless, and then only on the terms, specified
by such Borrower for such Competitive Bid Advance in the related


                                      -16-



Notice of Competitive Bid Borrowing delivered pursuant to Section 2.03(a)(i)
and, if applicable, set forth in the Competitive Bid Note evidencing such
Competitive Bid Advance.

     (e) The Borrower to which any particular Competitive Bid Borrowing is made
shall pay interest on the unpaid principal amount of each Competitive Bid
Advance from the date of such Competitive Bid Advance to the date the principal
amount of such Competitive Bid Advance is repaid in full, at the rate of
interest for and in the Optional Currency of such Competitive Bid Advance
specified by the Lender making such Competitive Bid Advance in its notice with
respect thereto delivered pursuant to Section 2.03(a)(ii), payable on the
interest payment date or dates specified by such Borrower for such Competitive
Bid Advance in the related Notice of Competitive Bid Borrowing delivered
pursuant to Section 2.03(a)(i) and, if applicable, provided in the Competitive
Bid Note evidencing such Competitive Bid Advance.

     (f) Each Borrower agrees that upon notice by any Lender to such Borrower
(with a copy of such notice to the Agent) to the effect that a promissory note
or other evidence of indebtedness is required or appropriate in order for such
Lender to evidence (whether for purposes of pledge, enforcement or otherwise)
any Competitive Bid Advance owing to, or to be made by, such Lender as part of a
Competitive Bid Borrowing, such Borrower shall promptly execute and deliver to
such Lender a separate promissory note, in substantially the form of Exhibit I-2
hereto (each, a "Competitive Bid Note"), payable to the order of such Lender in
a principal amount equal to the amount of indebtedness of such Borrower
resulting from such Competitive Bid Advance.

     SECTION 2.04 Facility Fee. (a) The Initial Borrower agrees to pay to the
Agent for the account of each Lender a facility fee in Dollars on the aggregate
amount of such Lender's Commitment, from the Closing Date in the case of each
Initial Lender and from the effective date specified in the Assignment and
Acceptance pursuant to which it became a Lender in the case of each other Lender
until the Termination Date, at a rate per annum equal to 0.025% per annum,
payable in arrears quarterly on the last day of each March, June, September and
December, commencing September 30, 2005, and on the Termination Date.

     (b) Unless the Initial Borrower shall have notified the Agent in writing on
or before 9:00 A.M. (New York City time) on the Business Day immediately
preceding the last day of each March, June, September and December, commencing
September 30, 2005, and the Termination Date, that it will pay, in cash, the
Facility Fee that is due and payable by it on such date, the Lenders will be
deemed to have made Revolving Credit Advances on such date in an amount equal to
the Facility Fee that would otherwise be due and payable on such date, which
Revolving Credit Advances shall, unless the Initial Borrower has otherwise
notified the Agent in writing on or before such Business Day, be a Eurocurrency
Rate Advance denominated in Dollars having an initial Interest Period of one
month. Each Revolving Credit Advance made pursuant to this Section 2.04(a)(ii)
shall be deemed (A) to have made pursuant to the Commitments and shall be
subject to the limitation that the aggregate outstanding principal amount of the
Revolving Credit Advances may at no time exceed the Commitments then in effect
and (B) not to have been used for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the Board of Governors of
the Federal Reserve System).

     SECTION 2.05 Termination or Reduction of the Commitments. (a) Optional. The
Initial Borrower shall have the right, upon at least three Business Days' notice
to the Agent, to terminate in whole or reduce ratably in part the Unused
Commitments of the Lenders, provided that each partial reduction shall be in the
aggregate amount of $10,000,000.

     (b) Mandatory. (i) The Commitments shall automatically terminate on the
Termination Date.


                                      -17-



     (ii) In the event the Transaction Termination Date occurs, the Commitments
shall be reduced to zero on the date which is 30 Business Days after the
Transaction Termination Date.

     (iii) The Commitments shall be automatically reduced on each date on which
the prepayment of Advances is required to be made pursuant to Section
2.10(b)(iii) by an amount equal to 75% of the amount of the net cash proceeds
received by the Borrowers from any issuance of any publicly traded bonds,
debentures, or similar debt securities described in such Section 2.10(b)(iii).

     SECTION 2.06 Repayment of Advances. (a) Revolving Credit Advances. Each
Borrower shall repay to the Agent for the ratable account of the Lenders on the
Termination Date the aggregate principal amount of all Revolving Credit Advances
made to it that are then outstanding.

     (b) Repayment of Competitive Bid Advances. Each Borrower shall repay to the
Agent, for the account of each Lender that has made a Competitive Bid Advance,
the aggregate outstanding principal amount of each Competitive Bid Advance made
to such Borrower and owing to such Lender on the earlier of (i) the maturity
date therefor, in the case of any such Competitive Bid Advance that is a Fixed
Advance, or the last day of the Interest Period therefor, in the case of any
such Competitive Bid Advance that is a Eurocurrency Rate Advance, in each case
as specified in the related Notice of Competitive Bid Borrowing delivered
pursuant to Section 2.03(a)(i) and, if applicable, provided in the Competitive
Bid Note evidencing such Competitive Bid Advance, and (ii) the Termination Date.

     SECTION 2.07 Interest on Revolving Credit Advances. (a) Scheduled Interest.
Subject to the provisions of Section 2.07(c), each Borrower shall pay interest
on the unpaid principal amount of each Revolving Credit Advance made to it that
is owing to each Lender from the date of such Revolving Credit Advance until
such principal amount shall be paid in full, at the following rates per annum:

          (i) Base Rate Advances. During such periods as such Revolving Credit
     Advance is a Base Rate Advance, a rate per annum equal at all times to the
     sum of (x) the Base Rate in effect from time to time plus (y) the
     Applicable Margin in effect from time to time plus (z) the Utilization Fee,
     if any, in effect from time to time, payable in arrears on each Interest
     Payment Date with respect to such Base Rate Advance.

          (ii) Eurocurrency Rate Advances. During such periods as such Revolving
     Credit Advance is a Eurocurrency Rate Advance, a rate per annum equal at
     all times during each Interest Period for such Advance to the sum of (x)
     the Eurocurrency Rate for such Interest Period for such Advance plus (y)
     the Applicable Margin in effect from time to time plus (z) the Utilization
     Fee, if any, in effect from time to time, payable in arrears on each
     Interest Payment Date with respect to such Eurocurrency Rate Advance.

     (b) Default Interest. Each Borrower shall pay interest on:

          (i) any portion of the unpaid principal amount of each Revolving
     Credit Advance made to it that is owing to each Lender that is not paid
     when due, from the date such amount shall be due until such amount shall be
     paid in full, payable in arrears on the date such amount shall be paid in
     full and on demand, at a rate per annum equal at all times to 2% per annum
     above the rate per annum required to be paid on such Revolving Credit
     Advance pursuant to clause (a)(i) or (a)(ii) above, as the case may be;

          (ii) any portion of the unpaid principal amount of each Competitive
     Bid Advance made to such Borrower and owing to any Lender, payable in
     arrears on the date or dates interest is payable on such Competitive Bid
     Advance, at a rate per annum equal at all times to 2% per


                                      -18-



     annum above the rate per annum required to be paid on such Competitive Bid
     Advance in the offer made by such Lender pursuant to Section 2.03(a)(ii)
     and accepted by such Borrower under Section 2.03(a)(v), and

          (iii) to the fullest extent permitted by law, the amount of any
     interest, fee or other amount payable hereunder that is not paid when due,
     from the date such amount shall be due until such amount shall be paid in
     full, payable in arrears on the date such amount shall be paid in full and
     on demand, at a rate per annum equal at all times to 2% per annum above the
     rate per annum required to be paid on Base Rate Advances pursuant to clause
     (a)(i) above.

     (c) Capitalization of Interest. Anything contained in this Agreement to the
contrary notwithstanding, unless the appropriate Borrower has notified the Agent
in writing on or before 9:00 A.M. (New York City time) on the Business Day
immediately preceding any Interest Payment Date or date of a prepayment pursuant
to Section 2.10(b)(i), that it will pay, in cash, the interest applicable to any
Revolving Credit Advance, including any applicable Utilization Fee, that is due
and payable by it on such Interest Payment Date in accordance with Section
2.07(a) or on such prepayment date in accordance with Section 2.10(b)(i), as
applicable, the Lenders will be deemed to have made Revolving Credit Advances on
such Interest Payment Date or prepayment date, as applicable, in an amount equal
to the aggregate amount of interest, including any applicable Utilization Fee,
that would otherwise be due and payable on such date, which Revolving Credit
Advance shall, unless such Borrower has otherwise notified the Agent in writing
on or before such Business Day, (i) be of the same Type and Optional Currency as
the Advance (the "Reference Advance") in respect of which such interest
(including any applicable Utilization Fee) shall have accrued (in each case
after giving effect to any Conversion of the Reference Advance on such Interest
Payment Date), and (ii) if such Revolving Credit Advance is a Eurocurrency Rate
Advance, have an initial Interest Period of the same duration as the Interest
Period commencing on such Interest Payment Date with respect to the Reference
Advance. Each Revolving Credit Advance made pursuant to this Section 2.07(c)
shall be deemed (A) to have been made pursuant to the Commitments and shall be
subject to the limitation that the aggregate outstanding principal amount of the
Advances may at no time exceed the Commitments then in effect, and (B) to have
been used for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System) if the related Reference Advance was used for the purpose of purchasing
or carrying margin stock.

     SECTION 2.08 Interest Rate Determination. (a) Each Reference Bank agrees to
furnish to the Agent timely information for the purpose of determining each
Eurocurrency Rate. If any one or more of the Reference Banks shall not furnish
such timely information to the Agent for the purpose of determining any such
interest rate, the Agent shall determine such interest rate on the basis of
timely information furnished by the remaining Reference Banks. The Agent shall
give prompt notice to each of the Borrowers and the Lenders of the applicable
interest rate determined by the Agent for purposes of Section 2.07(a)(i) or
(ii), and the rate, if any, furnished by each Reference Bank for the purpose of
determining the interest rate under Section 2.07(a)(ii).

     (b) If, with respect to any Eurocurrency Rate Advances, the Required
Lenders in good faith notify the Agent that the Eurocurrency Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Required Lenders of making, funding or maintaining their respective Eurocurrency
Rate Advances for such Interest Period, the Agent shall forthwith so notify each
of the Borrowers and the Lenders, whereupon (i)(A) each Eurocurrency Rate
Advance denominated in Dollars will automatically Convert into Base Rate
Advances, and (B) each Eurocurrency Rate Advance denominated in Euros will
automatically be exchanged for an Equivalent of Dollars and Convert into Base
Rate Advances, and (ii) the obligation of the Lenders to make, or to Convert
Advances into, Eurocurrency Rate Advances


                                      -19-



shall be suspended until the Agent shall notify each of the Borrowers and the
Lenders that the circumstances causing such suspension no longer exist.

     (c) If any Borrower shall fail to select the duration of any Interest
Period for any Eurocurrency Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify each of the Borrowers and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Eurocurrency Rate Advances denominated in the same Optional
Currency and having an Interest Period of one week.

     (d) On the date on which the aggregate unpaid principal amount of
Eurocurrency Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $10,000,000, in respect of Advances
denominated in Dollars, or (euro)10,000,000, in respect of Advances denominated
in Euros, such Advances shall automatically (i) if such Eurocurrency Rate
Advances are denominated in Dollars, Convert into Base Rate Advances and (ii) if
such Eurocurrency Rate Advances are denominated in Euros, be exchanged for an
Equivalent amount of Dollars and Convert into Base Rate Advances.

     (e) Upon the occurrence and during the continuance of any Event of Default,
(i) each Eurocurrency Rate Advance will, upon the written request of the Agent
(at the request of the Required Lenders), on the last day of the then existing
Interest Period therefor, (A) if such Eurocurrency Rate Advance is denominated
in Dollars, be Converted into a Base Rate Advance and (B) if such Eurocurrency
Rate Advance is denominated in Euros, be exchanged for an Equivalent amount of
Dollars and be Converted into a Base Rate Advance and (ii) the obligation of the
Lenders to make, or to Convert Advances into, Eurocurrency Rate Advances shall
be suspended.

     (f) If either, with respect to Eurocurrency Rate Advances denominated in
Dollars, the Moneyline Telerate Markets Page 3750, or, with respect to
Eurocurrency Rate Advances denominated in Euros, the Page 248 of the Moneyline
Telerate Service, is unavailable and, in each such case, fewer than two
Reference Banks furnish timely information to the Agent for determining the
applicable Eurocurrency Rate,

          (i) the Agent shall forthwith notify the applicable Borrower and the
     Lenders that the interest rate cannot be determined for such Eurocurrency
     Rate Advances,

          (ii) each such Advance will automatically, on the last day of the then
     existing Interest Period therefor, (A) if such Eurocurrency Rate Advance is
     denominated in Dollars, Convert into a Base Rate Advance and (B) if such
     Eurocurrency Rate Advance is denominated in Euros, be prepaid by the
     applicable Borrower or be automatically exchanged for an Equivalent amount
     of Dollars and be Converted into a Base Rate Advance (or if such Advance is
     then a Base Rate Advance, will continue as a Base Rate Advance), and

          (iii) the obligation of the Lenders to make Eurocurrency Rate Advances
     or to Convert Advances into Eurocurrency Rate Advances shall be suspended
     until the Agent shall notify each of the Borrowers and the Lenders that the
     circumstances causing such suspension no longer exist.

     SECTION 2.09 Optional Conversion of Advances. Any Borrower may subject to
the provisions of Sections 2.08 and 2.12, Convert all or any portion of
Revolving Credit Advances of one Type made to it comprising the same Borrowing
into Advances of the other Type; provided, however, that (a) any such Conversion
of (i) Base Rate Advances into Eurocurrency Advances denominated in Dollars or
of Eurocurrency Advances of one Interest Period into Eurocurrency Advances
denominated in Dollars


                                      -20-



and of another Interested Period shall be made on notice received no later than
9:00 A.M. (New York City time) on the Business Day immediately preceding the
date of the proposed Conversion, or (ii) in all other cases, shall be made on
notice received no later than 9:00 A.M. (New York City time) on the Business Day
of the proposed Conversion, (b) in the case of any Conversion of Eurocurrency
Rate Advances denominated in Dollars into Base Rate Advances other than on the
last day of an Interest Period therefor, the Borrower requesting such Conversion
shall be obligated to reimburse the Lenders in respect thereof pursuant to
Section 8.04(c), and (c) any Conversion of Base Rate Advances into Eurocurrency
Rate Advances shall be in an amount not less than $10,000,000. Each such notice
of a Conversion shall, within the restrictions specified above, specify (i) the
date of such Conversion, (ii) the Dollar denominated Advances to be Converted,
and (iii) if such Conversion is into Eurocurrency Rate Advances, the duration of
the initial Interest Period for each such Advance. Each notice of Conversion
shall be irrevocable and binding on the Borrower giving such notice.

     SECTION 2.10 Prepayments. (a) Optional. Each Borrower may, upon at least
three Business Days notice to the Agent stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given such Borrower
shall, prepay the outstanding principal amount of the Advances comprising part
of the same Borrowing in whole or ratably in part, together with accrued
interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (i) each partial prepayment shall be in an aggregate
principal amount of $10,000,000, in respect of each prepayment of Advances
denominated in Dollars, or (euro)10,000,000, in respect of each prepayment of
Advances denominated in Euros, and in an integral multiples of $1,000,000 or
(euro)1,000,000, as applicable, in excess thereof, and (ii) in the event of any
such prepayment of a Eurocurrency Rate Advance, such Borrower shall be obligated
to reimburse the Lenders in respect thereof pursuant to Section 8.04(c).
Notwithstanding anything in the previous sentence to the contrary, no Borrower
may prepay any Competitive Bid Advances other than in accordance with Section
2.03(d).

     (b) Mandatory. (i) If, on any date, the Agent notifies the Initial Borrower
that, on any Interest Payment Date, the sum of (A) the aggregate principal
amount of all Advances denominated in Dollars plus (B) the Equivalent in Dollars
(determined on the Business Day immediately preceding such Interest Payment
Date) of the aggregate principal amount of all Advances denominated in Euros
then outstanding exceeds 110% of the aggregate Commitments of the Lenders on
such date, one or more of the Borrowers (as determined by the Initial Borrower)
shall, as soon as practicable and in any event within five Business Days after
receipt of such notice, subject to the proviso to this sentence below, prepay
the outstanding principal amount of any Advances owing by such Borrowers in an
aggregate amount sufficient to reduce such sum to an amount not to exceed 100%
of the aggregate Commitments of the Lenders on such date, together with any
interest accrued to the date of such prepayment on the aggregate principal
amount of Advances prepaid; provided, however, that if the aggregate principal
amount of Base Rate Advances outstanding at the time of such required prepayment
is less than the amount of such required prepayment, the portion of such
required prepayment in excess of the aggregate principal amount of Base Rate
Advances then outstanding shall be deferred until the earliest to occur of the
last day of the Interest Period of the outstanding Eurocurrency Rate Advances in
an aggregate amount equal to the excess of such required prepayment. The Agent
shall give prompt notice of any prepayment required under this Section
2.10(b)(i) to each of the Borrowers and the Lenders, and shall provide prompt
notice to each of the Borrowers of any such notice of required prepayment
received by it from any Lender.

     (ii) On each Business Day, each of the Borrowers shall repay the
outstanding Advances by an amount equal to the excess of the outstanding
principal amount of the Advances over the aggregate Commitments after giving
effect to any reduction of the Commitments pursuant to Section 2.05 on the
immediately preceding Business Day.


                                      -21-



     (iii) Each Borrower shall prepay an aggregate principal amount of the
Advances comprising part of the same Borrowing in an amount equal to 75% of the
amount of net cash proceeds received by such Borrower from each issuance in the
U.S. or European capital markets of publicly traded bonds, debentures, or
similar debt securities having a maturity in excess of one year.

     SECTION 2.11 Increased Costs. (a) If, due to either (i) the introduction of
or any change in or in the interpretation of any law or regulation enacted or
issued after the date of this Agreement or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) issued after the date of this
Agreement, there shall be any material increase in the cost to any Lender of
agreeing to make or making, funding or maintaining Eurocurrency Rate Advances
(excluding for purposes of this Section 2.11 any such increased costs resulting
from (i) Taxes (as to which Section 2.14 shall govern) and (ii) changes in the
basis of taxation of overall net income or overall gross income by the United
States or by the foreign jurisdiction, state or any political subdivision
thereof under the laws of which such Lender has any present or former
connection, then the applicable Borrower shall from time to time, within 30 days
of written demand by such Lender (with a copy of such demand to the Agent), pay
to the Agent for the account of such Lender additional amounts sufficient to
compensate such Lender for such increased cost. A certificate as to the amount
of such increased cost in reasonable detail and stating the basis upon which
such amount has been calculated and certifying that such Lender's method of
allocating such costs is fair and reasonable and that such Lender's demand for
payment of such costs hereunder is not inconsistent with its treatment of other
borrowers which, as a credit matter, are similarly situated to such Borrower and
which are subject to similar provisions, submitted to such Borrower and the
Agent by such Lender, shall be conclusive and binding for all purposes, absent
error in the calculation of such amount.

     (b) If any Lender reasonably determines that compliance with any law or
regulation enacted or issued after the date of this Agreement, or any guideline
or request from any central bank or other governmental authority (whether or not
having the force of law) issued after the date of this Agreement, affects or
would affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is materially increased by or based upon the existence of such Lender's
commitment to lend hereunder and other commitments of this type, then, within 30
days of written demand by such Lender (with a copy of such demand to the Agent),
the applicable Borrower shall pay to the Agent for the account of such Lender,
from time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender or such corporation in the light of such circumstances,
to the extent that such Lender reasonably determines such increase in capital to
be allocable to the existence of such Lender's commitment to lend hereunder. A
certificate as to the amount of such increased cost in reasonable detail and
stating the basis upon which such amount has been calculated and certifying that
such Lender's method of allocating such costs is fair and reasonable and that
such Lender's demand for payment of such costs hereunder is not inconsistent
with its treatment of other borrowers which, as a credit matter, are similarly
situated to such Borrower and which are subject to similar provisions, submitted
to such Borrower and the Agent by such Lender, shall be conclusive and binding
for all purposes, absent error in the calculation of such amount.

     (c) Before making any demand under this Section 2.11, each Lender agrees to
use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, such increased cost and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.

     (d) If any Lender shall subsequently recoup any costs (other than from a
Borrower) for which such Lender has theretofore been compensated by a Borrower
under this Section 2.11, such Lender shall remit to such Borrower an amount
equal to the amount of such recoupment.


                                      -22-



     SECTION 2.12 Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for any Lender or its Eurocurrency Lending Office to perform its obligations
hereunder to make Eurocurrency Rate Advances in Dollars or Euros or to fund or
maintain Eurocurrency Rate Advances in Dollars or Euros hereunder, (a) each
Eurocurrency Rate Advance, as the case may be, will automatically, upon such
demand, (i) if such Eurocurrency Rate Advance is denominated in Dollars, Convert
into a Base Rate Advance and (ii) if such Eurocurrency Rate Advance is
denominated in Euros, be exchanged for an Equivalent amount of Dollars and
Convert into a Base Rate Advance, and (b) the obligation of the Lenders to make
Eurocurrency Rate Advances or to Convert Advances into Eurocurrency Rate
Advances shall be suspended until the Agent shall notify each of the Borrowers
and the Lenders that the circumstances causing such suspension no longer exist;
provided, however, that before making any such demand, each Lender agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Eurocurrency Lending Office if the making
of such a designation would allow such Lender or its Eurocurrency Lending Office
to continue to perform its obligations to make Eurocurrency Rate Advances or to
continue to fund or maintain Eurocurrency Rate Advances and would not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender.

     SECTION 2.13 Payments and Computations. (a) Each Borrower shall make each
payment hereunder and under the Notes, if any, with respect to principal of,
interest on, and other amounts relating to, Advances denominated in Dollars,
irrespective of any right of counterclaim or set-off, not later than 11:00 A.M.
(New York City time) on the day when due in Dollars to the Agent, by deposit of
such funds to the applicable Agent's Account in same day funds. Each Borrower
shall make each payment hereunder and under the Notes, if any, irrespective of
any right of counterclaim or set-off, with respect to principal of, interest on,
and other amounts relating to, Advances denominated in Euros, not later than
11:00 A.M. (London time) on the day when due in Euros to the Agent, by deposit
of such funds to the applicable Agent's Account in same day funds. The Agent
will promptly thereafter cause to be distributed like funds relating to the
payment of principal or interest or facility fees ratably (other than amounts
payable pursuant to Section 2.03, 2.11, 2.14 or 8.04(c)) to the Lenders for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Lender to such Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 8.07(c), from and after the effective date
specified in such Assignment and Acceptance, the Agent shall make all payments
hereunder and under the Notes, if any, in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.

     (b) All computations of interest based on the Base Rate shall be made by
the Agent on the basis of a year of 365 or 366 days, as the case may be, and all
computations of interest based on the Eurocurrency Rate or the Federal Funds
Rate and of facility fees shall be made by the Agent or the Sub-Agent, as the
case may be, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest or facility fees are payable. Each
determination by the Agent of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.

     (c) Whenever any payment hereunder or under the Notes, if any, shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or facility fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or


                                      -23-



principal of Eurocurrency Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.

     (d) Unless the Agent or the Sub-Agent, as the case may be, shall have
received notice from the appropriate Borrower prior to the date on which any
payment is due to the Lenders hereunder that such Borrower will not make such
payment in full, the Agent or the Sub-Agent, as the case may be, may assume that
such Borrower has made such payment in full to the Agent or to the Sub-Agent, as
the case may be, on such date, and the Agent or the Sub-Agent, as the case may
be, may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent such Borrower shall not have so made such payment in full to
the Agent or to the Sub-Agent, as the case may be, each Lender shall repay to
the Agent or to the Sub-Agent, as the case may be, forthwith on demand such
amount distributed to such Lender together with interest thereon, for each day
from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Agent or to the Sub-Agent, as the case may be,
at (i) the Federal Funds Rate, in the case of Advances denominated in Dollars,
or (ii) the cost of funds incurred by the Sub-Agent, in respect of such amount
in the case of Advances denominated in Euros.

     SECTION 2.14 Taxes. (a) Each Borrower shall only be required to pay or
reimburse any Lender or the Agent for present or future taxes, levies, imposts,
deductions, charges or withholdings arising from or in connection with any
payments made by any Borrower under this Agreement or any of the other Loan
Documents, or any liabilities with respect to the foregoing (collectively,
"Taxes"), other than Excluded Taxes. If any Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any of
the other Loan Documents to any Lender or the Agent, (i) such Borrower shall
make such deductions in respect of Taxes, (ii) such Borrower shall pay the full
amount deducted in respect of Taxes to the relevant taxation authority or other
governmental or regulatory authority in accordance with applicable law, and
(iii) to the extent, there is an increase in any Taxes (other than Excluded
Taxes) imposed on such Lender or the Agent as a result of this Agreement or any
of the other Loan Documents (such increased amount being the "Non-Excluded
Taxes" of such Lender or the Agent), the sum payable by such Borrower shall be
increased as may be necessary so that after making all required deductions of
Non-Excluded Taxes such Lender or the Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made
in respect of Non-Excluded Taxes. Within 30 days after the date of any payment
of Non-Excluded Taxes by any Borrower, such Borrower shall furnish to the Agent,
at its address referred to in Section 8.02, the original or a copy of a receipt
evidencing such payment. For purposes of this section 2.14, the term "Change in
Law" shall mean the adoption of any law, rule, regulation, court decision or
precedential administrative guidance after the date of this Agreement.

     (b) Each of the Borrowers shall indemnify each Lender and the Agent for,
and hold each of them harmless against, the full amount of Non-Excluded Taxes
paid by such Lender or the Agent, as the case may be. This indemnification shall
be made within 90 days from the date on which such Lender or the Agent, as the
case may be, makes written demand therefor and provides adequate documentary
evidence of payment thereof.

     (c) Each Lender and the Agent shall deliver or cause to be delivered to any
requesting Borrower required to withhold under section 1441 or 1442 or comply
with any information reporting or backup withholding requirements of the U.S.
Internal Revenue Code of 1986, as amended, or the regulations thereunder, the
following properly completed and duly executed documents:

          (i) if such Lender or the Agent is not a United States Person, a
     complete and executed (A) U.S. Internal Revenue Form W-8BEN with Part II
     completed in which Lender claims and validly establishes the benefits of a
     tax treaty with the United States providing for a


                                      -24-



     zero or reduced rate of withholding (or any successor forms thereto),
     including all appropriate attachments or (B) a U.S. Internal Revenue
     Service Form W-8ECI (or any successor forms thereto);

          (ii) if such Lender or the Agent is a natural person, a complete and
     executed (A) U.S. Internal Revenue Service Form W-8BEN (or any successor
     forms thereto) and a certificate, in substantially the form of Exhibit H
     hereto (a "Section 2.14 Certificate"), or (B) U.S. Internal Revenue Service
     Form W-9 (or any successor forms thereto);

          (iii) if such Lender or the Agent is organized under the laws of the
     United States, any State thereof, or the District of Columbia, (A) a
     complete and executed U.S. Internal Revenue Service Form W-9 (or any
     successor forms thereto), including all appropriate attachments or (B) if
     such Person is disregarded for federal income tax purposes, the documents
     that would be required under clause (i), (ii), this clause (iii), (iv), (v)
     or (vi) of this Section 2.14(c) with respect to its beneficial owner as if
     such beneficial owner were a Lender;

          (iv) if such Lender or the Agent (A) is not organized under the laws
     of the United States, any State thereof, or the District of Columbia and
     (B) is treated as a corporation for U.S. federal income tax purposes, a
     complete and executed U.S. Internal Revenue Service Form W-8BEN
     establishing a zero rate of withholding (or any successor forms thereto)
     and a Section 2.14 Certificate;

          (v) if such Lender or the Agent (A) is treated as a partnership or
     other non-corporate entity, and (B) is not organized under the laws of the
     United States, any State thereof, or the District of Columbia, (1) a
     complete and executed U.S. Internal Revenue Service Form W-8IMY (or any
     successor forms thereto) (including all required documents and attachments)
     and (2) a Section 2.14 Certificate, and, without duplication, with respect
     to each of its beneficial owners and the beneficial owners of such
     beneficial owners looking through chains of owners to individuals or
     entities that are treated as corporations for U.S. federal income tax
     purposes (all such owners, "beneficial owners"), the documents that would
     be required by clause (i), (ii), (iii), (iv), this clause (v) and/or clause
     (vi) of this Section 2.14(c) with respect to each such beneficial owner if
     such beneficial owner were Lender, provided, however, that no such
     documents will be required with respect to a beneficial owner to the extent
     the actual Lender or the Agent is determined to be in compliance with the
     requirements for certification on behalf of its beneficial owner as may be
     provided in applicable U.S. Treasury Regulations, or the requirements of
     this clause (v) of Section 2.14(c) are otherwise determined to be
     unnecessary (all such determinations under this clause (v) of Section
     2.14(c) to be made in the sole discretion of the Initial Borrower); or

          (vi) (A) if such Lender or the Agent is disregarded for U.S. federal
     income tax purposes, such Person shall deliver the document that would be
     required by this clause (vi), or by clause (i), (ii), (iii), (iv), or (v)
     of Section 2.14(c) with respect to its sole owner if such sole owner were
     such Lender or the Agent, or (B) if such Lender or the Agent is not a
     United States person and is acting in the capacity as an "intermediary" (as
     defined in U.S. Treasury Regulations), (1) a complete and executed U.S.
     Internal Revenue Service Form W-8IMY (or any successor form thereto)
     (including all required documents and attachments), and (2) if such
     intermediary is a "non-qualified intermediary" (as defined in U.S. Treasury
     Regulations), from each person upon whose behalf the "non-qualified
     intermediary" is acting, the documents that would be required by clause
     (i), (ii), (iii), (iv), (v) or this clause (vi) of Section 2.14(c) with
     respect to each such Person if each such Person were Lender.


                                      -25-



In addition, each Lender or the Agent, shall provide any requesting Borrower
with such other forms, certificates and documentation that such Lender or the
Agent is legally entitled to furnish as may be necessary or appropriate to
obtain any reduction of or exemption from any withholding or other Tax imposed
by any governmental authority on payments made by such Borrower under any Loan
Document.

Each Lender and the Agent shall provide the appropriate forms, certificates and
other documentation described in this Section 2.14(c) (x) prior to becoming a
party to this Agreement; (y) upon a Change in Law or circumstances requiring or
making appropriate a new or additional form, certificate or documentation; and
(z) whenever reasonably requested by any of the Borrowers or the Agent. If the
forms referred to above in this Section 2.14(c) that are provided by a Lender at
the time such Lender becomes a party to this Agreement indicate a withholding
tax rate in excess of zero on payments under this Agreement to be received by
such Lender from a Borrower organized in a Covered Jurisdiction, such
withholding tax at such rate shall be treated as Excluded Taxes unless and until
such Lender provides all such forms, duly completed and delivered, establishing
that a lesser rate applies, whereupon such withholding tax at such lesser rate
shall be considered Excluded Taxes solely for the periods governed by such form.
If the forms referred to above in this Section 2.14(c) that are provided by a
Lender at the time such Lender becomes a party to this Agreement indicate a
withholding tax rate in excess of zero on payments under this Agreement to be
received by such Lender from a Borrower that is not organized in a Covered
Jurisdiction, such withholding tax at such rate shall be treated as Non-Excluded
Taxes solely for the periods governed by such form. If, however, on the date a
Lender assigns all or a portion of its commitments under this Agreement to an
Affiliate thereof, such Lender assignor was entitled to additional amounts under
Section 2.14(a), then the related Lender assignee shall be entitled to
additional amounts solely to the extent that amounts payable to such Lender
assignee are themselves subject to a withholding tax imposed as a direct result
of a Change in Law occurring after the date on which the Lender assignor became
a party to this Agreement. Any additional Taxes imposed on any Lender as a
direct result of a change in the Applicable Lending Office of such Lender shall
be treated as Excluded Taxes except to the extent that (I) any such additional
Non-Excluded Taxes are imposed as a result of a Change in Law occurring after
the date of change of its Applicable Lending Office, or (II) such change is made
at the request of the Initial Borrower in which case the additional Non-Excluded
Taxes shall be treated as Non-Excluded Taxes imposed by reason of a Change in
Law and indemnified pursuant to subsection (a) above.

     (d) For any period with respect to which any Lender or the Agent has failed
to provide the Initial Borrower with the duly completed forms, certificates or
other documents described in Section 2.14(c) or any successor thereto (other
than if such failure is due to such Lender or the Agent, as the case may be, not
being legally entitled to provide any such form, certificate or other document
or if it is legally inadvisable for such Lender or the Agent, as the case may
be, to deliver such form, certificate or other document), such Lender or the
Agent shall not be entitled to the payment of any additional amounts pursuant to
Section 2.14(a) or to indemnification under Section 2.14(b) with respect to
Non-Excluded Taxes by reason of such failure, and such Taxes shall be considered
Excluded Taxes; provided, however, that should any Lender or the Agent become
subject to Non-Excluded Taxes because of its failure to deliver a form required
hereunder, the appropriate Borrower shall, at the Agent's or such Lender's sole
expense, take such steps (consistent with legal and regulatory restrictions) as
such Lender or the Agent shall reasonably request to assist such Person in
recovering such Non-Excluded Taxes from the proper governmental or regulatory
authority. However, none of the Borrowers will be required to take any action
that would be inadvisable or overly burdensome.

     (e) Each Lender and the Agent hereby agrees that, upon the occurrence of
any circumstances entitling such Person to any additional amounts under Section
2.14(a) or to indemnification under Section 2.14(b), such Lender or the Agent
shall use its best efforts (consistent with its internal policy and legal and
regulatory restrictions), at its own expense, to designate a different
Applicable Lending Office if


                                      -26-



the making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts or indemnification that may thereafter accrue.

     (f) If any Lender or the Agent entitled to additional compensation under
any of the foregoing provisions of this Section 2.14 shall fail to designate a
different Applicable Lending Office that avoids the need for additional
compensation as provided in Section 2.14, then the Initial Borrower may cause
such Lender or the Agent to (and, if the Initial Borrower so demands, such
Lender or the Agent shall) assign all of its rights and obligations under this
Agreement to one or more other Persons identified by any Borrower in accordance
with the terms of Section 8.07(a).

     (g) If any Lender or the Agent determines that it has received a refund of
or credit against any Taxes as to which it has been indemnified by any Borrower
or with respect to which any Borrower has paid additional amounts pursuant to
this Section 2.14, it shall pay over such refund or credit to Borrower (but only
to the extent of amounts paid by such Borrower under this Section 2.14), net of
all out-of-pocket expenses of such Lender or the Agent and without interest
(other than any interest paid by the relevant governmental or regulatory
authority with respect to such refund or credit); provided, however, that such
Borrower, upon the request of such Lender or the Agent, agrees to repay the
amount paid over to such Borrower to such Lender or the Agent in the event such
Lender or the Agent is required to repay such refund to such governmental
authority or such credit is subsequently denied. Nothing in this Section 2.14(g)
shall be deemed to require the Agent or any Lender to provide copies of tax
returns or other confidential tax information.

     (i) Each Lender and the Agent shall take all actions reasonably requested
by any Borrower to assist such Borrower, at the sole expense of such Borrower,
to recover from the relevant taxation authority or other governmental authority
any Taxes in respect of which amounts were paid by such Borrower pursuant to
Section 2.14(a) or Section 2.14(b).

     SECTION 2.15 Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Credit Advances owing to it
(other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its ratable
share of payments on account of the Revolving Credit Advances obtained by all
the Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. Each of the
Borrowers agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.15 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of such Borrower in the amount of such participation.

     SECTION 2.16 Use of Proceeds. The proceeds of the Advances shall be
available (and each Borrower agrees that it shall use such proceeds) for general
corporate purposes of each Borrower and its Subsidiaries, including to finance
acquisitions, providing backup liquidity to support the issuance of commercial
paper and the consummation of the Transaction.

     SECTION 2.17 Evidence of Debt. (a) Each Lender shall maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness of
each Borrower to such Lender


                                      -27-



resulting from each Advance owing to such Lender from time to time, including
the amounts of principal and interest payable and paid to such Lender from time
to time on account thereof. Each Borrower agrees that upon notice by any Lender
to such Borrower (with a copy of such notice to the Agent) to the effect that a
promissory note or other evidence of indebtedness is required or appropriate in
order for such Lender to evidence (whether for purposes of pledge, enforcement
or otherwise) the Revolving Credit Advances owing to, or to be made by, such
Lender, such Borrower shall promptly execute and deliver to such Lender a
promissory note of such Borrower payable to the order of such Lender, in
substantially the form of Exhibit I-1 hereto (a "Revolving Credit Note"), in a
principal amount equal to the Commitment of such Lender.

     (b) The Register maintained by the Agent pursuant to Section 8.07(d) shall
include a control account, and a subsidiary account for each Lender, in which
accounts (taken together) shall be recorded (i) the date and amount of each
Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if
appropriate, the Interest Period applicable thereto, (ii) the terms of each
Assignment and Acceptance delivered to and accepted by it, (iii) the amount of
any principal or interest due and payable or to become due and payable from each
Borrower to each Lender hereunder, (iv) the amount of any sum received by the
Agent from such Borrower hereunder and each Lender's share thereof, and (v)
whether the proceeds of each Borrowing has be used for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U issued by the Board
of Governors of the Federal Reserve System).

     (c) Entries made in good faith by the Agent in the Register pursuant to
subsection (b) above, and by each Lender in its account or accounts pursuant to
subsection (a) above, shall be prima facie evidence of the amount of principal
and interest due and payable or to become due and payable from each Borrower to,
in the case of the Register, each Lender and, in the case of such account or
accounts, such Lender, under this Agreement, absent manifest error; provided,
however, that the failure of the Agent or such Lender to make an entry, or any
finding that an entry is incorrect, in the Register or such account or accounts
shall not limit or otherwise affect the obligations of any Borrower under this
Agreement.

     SECTION 2.18 Call Right of Affiliates. Any Affiliate of a Borrower may,
upon at least three Business Days' notice to the Agent stating the proposed date
and aggregate principal amount of the purchase, and, if such notice is given
such Affiliate shall, purchase from the Lenders the outstanding principal amount
of Advances comprising part of the same Borrowings in whole or ratably in part,
together with accrued interest thereon. After giving effect to each such
purchase, the purchasing Affiliate shall be treated as a Lender to the extent of
the rights and obligations so purchased, except as otherwise expressly set forth
herein. Each purchase made pursuant to this Section 2.18 shall also be subject
to Section 8.07(a).

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

     SECTION 3.01 Conditions Precedent to Initial Borrowing. The initial
Borrowing of Advances under this Agreement shall be made on and as of the first
date (the "Closing Date") on which the following conditions precedent have been
satisfied:

     (a) All amounts owing by the Initial Borrower under the Existing Credit
Agreement shall have been, or concurrently with the initial Borrowing hereunder
shall be, paid in full, and all commitments of the lenders thereunder shall have
been, or concurrently with the initial Borrowing hereunder shall be, terminated
in accordance with the terms of the Existing Credit Agreement.


                                      -28-



     (b) The Initial Borrower shall have paid all accrued fees and expenses of
the Agent (including reasonable fees and expenses of counsel to the Agent).

     (c) On the Closing Date, the following statements shall be true and the
Agent shall have received for the account of each Lender a certificate signed by
a duly authorized representative of the Initial Borrower, dated the Closing
Date, stating that:

          (i) The representations and warranties contained in Section 4.01 are
     correct in all material respects on and as of the Closing Date, and

          (ii) No event has occurred and is continuing that constitutes a
     Default.

     (d) The Agent shall have received on or before the Closing Date the
following, each dated such date, in form and substance satisfactory to the Agent
and in sufficient copies for each Lender:

          (i) Certified copies of each of the charter or other organizational
     documents of the Initial Borrower and of resolutions of the Initial
     Borrower approving this Agreement and of all documents evidencing other
     necessary corporate action and governmental approvals, if any, with respect
     to this Agreement, together with an English translation of each of the
     foregoing documents that are not otherwise being provided in English.

          (ii) A certificate of an authorized representative of the Initial
     Borrower certifying the names and true signatures of the other authorized
     representatives of the Initial Borrower authorized to sign this Agreement
     and the other documents to be delivered hereunder.

          (iii) The Pledge Agreement and the Registration Rights Agreement, in
     each case duly executed and delivered by the Initial Borrower, together
     with (A) proper financing statements under the Uniform Commercial Code and
     similar requirements of law that are necessary to perfect and protect the
     Mortgage created or purported to be created under the Pledge Agreement,
     covering all Collateral described therein, and (B) proper termination
     statements under the Uniform Commercial Code and similar requirements of
     law that are necessary to terminate or amend existing liens on all
     Collateral granted in favor of the Existing Agent under the terms of the
     Existing Pledge Agreement, in each case, in appropriate form for filing or
     recording.

          (iv) Favorable written opinions of counsel for the Initial Borrower,
     in the form of (A) Exhibit C-1 hereto from Luxembourg counsel to the
     Initial Borrower, (B) Exhibit C-2 hereto from the Initial Borrower's
     special counsel, and (C) Exhibit C-3 hereto from Cadwalader, Wickersham &
     Taft LLP, special counsel to the Initial Borrower.

          (v) A favorable opinion of Shearman & Sterling LLP, counsel for the
     Agent, in form and substance satisfactory to the Agent.

     SECTION 3.02 Conditions Precedent to Each Borrowing. The obligation of each
Lender to make any Advance on the occasion of each Borrowing (other than any
deemed Revolving Credit Borrowing pursuant to Section 2.04(b) or Section
2.07(c)) shall be subject to the conditions precedent that:

     (a) on the date of such Borrowing the following statements shall be true
(and each of the giving of the applicable Notice of Revolving Credit Borrowing
or Notice of Competitive Bid Borrowing, as applicable, and the acceptance by any
Borrower of the proceeds of such Borrowing shall constitute a


                                      -29-



representation and warranty by the applicable Borrower that on the date of such
Borrowing such statements are true):

          (i) the representations and warranties contained in Section 4.01
     (except the representations set forth in the last sentence of subsection
     (e) thereof and in subsection (f) thereof) are correct in all material
     respects on and as of the date of such Borrowing, before and after giving
     effect to such Borrowing and to the application of the proceeds therefrom,
     as though made on and as of such date; and

          (ii) no event has occurred and is continuing, or would result from
     such Borrowing or from the application of the proceeds therefrom, that
     constitutes a Default;

     (b) the Agent shall have received a properly completed Part I of Federal
Reserve Form U-1, duly executed by an authorized representative of the Initial
Borrower; and

     (c) the Agent shall have received such other approvals, opinions or
documents as the Required Lenders through the Agent may reasonable request.

     SECTION 3.03 Determinations Under Section 3.01. For purposes of determining
compliance with the conditions specified in Section 3.01, each Lender shall be
deemed to have consented to, approved or accepted or to be satisfied with each
document or other matter required thereunder to be consented to or approved by
or acceptable or satisfactory to the Lenders unless an officer of the Agent
responsible for the transactions contemplated by this Agreement shall have
received notice from such Lender prior to the date that the Initial Borrower, by
notice to the Lenders, designates as the proposed Closing Date, specifying its
objection thereto.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

     SECTION 4.01 Representations and Warranties of the Borrowers. Each of the
Borrowers represents and warrants as to itself as follows:

     (a) Such Borrower and its Guarantor, if any, is a corporation, general
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
formation and is duly qualified and in good standing in each jurisdiction
wherein the failure to so qualify would have a material adverse effect on the
financial condition or results of operations of such Borrower and its
Subsidiaries, taken as a whole. Each of the Subsidiaries of such Borrower and
its Guarantor, if any, is duly organized and validly existing under the laws of
its jurisdiction of incorporation or formation.

     (b) The execution, delivery and performance by such Borrower and its
Guarantor, if any, of each Loan Document to which it is a party delivered
hereunder, and the consummation of the transactions contemplated hereby, are
within their respective corporate or other similar organization powers, have
been duly authorized by all necessary corporate or other similar organization
action, and do not contravene (i) their respective charter, by-laws or other
organizational documents or (ii) law or any material contractual restriction
binding on or affecting such Borrower or such Guarantor, as the case may be.

     (c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for the due execution,


                                      -30-



delivery and performance by such Borrower and its Guarantor, if any, of this
Agreement or any other Loan Document to which it is a party, except for any such
authorizations, approvals, actions, notices or filings as have already been made
or obtained and are in full force and effect.

     (d) This Agreement has been, and each other Loan Document when delivered
hereunder will have been, duly executed and delivered by such Borrower and its
Guarantor, if any, party thereto. This Agreement is, and each other Loan
Document to which it is a party when delivered hereunder will be, the legal,
valid and binding obligation of such Borrower and its Guarantor, if any,
enforceable against it in accordance with their respective terms.

     (e) (i) The unaudited financial statements of such Borrower and its
Subsidiaries delivered to the Agent prior to the Closing Date, in the case of
the Initial Borrower, or upon the effectiveness of the Borrower Accession
Agreement, in the case of each Additional Borrower (other than an Affiliate
Guaranteed Borrower), (A) were prepared in good faith from its internal
accounting systems and (B) are in substantially the form used by its managers
and those of its Subsidiaries for internal review and business operations in the
ordinary course.

          (ii) The financial statements of each Guarantor, if any, delivered to
     the Agent pursuant to Section 8.10(a)(iii) fairly present, subject, in the
     case of any such financial statements that are not audited, to year-end
     audit adjustments and footnote disclosure, the financial condition of such
     Guarantor and its Included Subsidiaries as at the date of such financial
     statements and the results of the operations of such Guarantor and its
     Included Subsidiaries for the period ended on such date.

          (iii) Except for the Transaction or as disclosed in writing to the
     Agent prior to the Closing Date, since December 31, 2004, there has been no
     Material Adverse Change.

     (f) There is no pending or overtly threatened action, suit, investigation,
litigation or proceeding affecting such Borrower, any of its Subsidiaries or its
Guarantor, if any, before any court, governmental agency or arbitrator that
could reasonably be expected to adversely affect the legality, validity or
enforceability of any Loan Document, or the consummation of the transactions
contemplated hereby.

     (g) Such Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance made to such Borrower will be used to extend
credit to any Person other than another Borrower for the purpose of purchasing
or carrying any margin stock.

     (h) The proceeds of the Advances will be used solely in accordance with
Section 2.16, the making of each Advance pursuant to this Agreement will comply
in all respects with the provisions of Regulation U issued by the Board of
Governors of the Federal Reserve System, and any purchases of common stock of
the Company by it shall be effected in compliance with all applicable laws.

     (i) All written information (other than financial information, projections,
estimates and other forward looking statements) heretofore furnished by such
Borrower and its Guarantor, if any, to the Lenders for purposes of or in
connection with this Agreement or any transaction contemplated hereby, taken as
a whole, in each case as such written information may be amended, modified or
supplemented by it from time to time, is correct in all material respects and
does not omit to state any material fact or any fact necessary to make the
statements contained therein not materially misleading in light of the
circumstances under which such statements were made.


                                      -31-



     (j) Such Borrower is not an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended.

     (k) All of the Advances and other obligations owing by such Borrower to the
Agent and the other Lenders and under the Credit Agreement and the Notes, if
any, rank pari passu or senior to all of its other senior unsecured indebtedness
for money borrowed.

                                    ARTICLE V

                           COVENANTS OF THE BORROWERS

     SECTION 5.01 Affirmative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Initial Borrower
will, in the case of clause (e) of this Section 5.01, and each of the Borrowers
will, in all other cases under this Section:

     (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries
and its Guarantors, if any, to comply, in all material respects, with all
applicable laws, rules, regulations and orders, except where the failure to so
comply would not have a Material Adverse Effect.

     (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries and its Guarantor, if any, to pay and discharge, before the same
shall become delinquent, (i) all material taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all material
lawful claims that, if unpaid, might by law become a Mortgage upon its property;
provided, however, that none of the Borrowers, the Subsidiaries of a Borrower or
the Guarantors shall be required to pay or discharge any such tax, assessment,
charge, levy or claim that is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained, unless
and until any Mortgage resulting therefrom attaches to its property and
enforcement, collection, execution, levy or foreclosure proceedings shall have
been commenced with respect thereto.

     (c) Preservation of Corporate Existence, Etc. Preserve and maintain, and
cause each of its Subsidiaries and its Guarantor, if any, to preserve and
maintain, its existence as a corporation, general partnership or limited
liability company, as applicable, its rights (charter and statutory) and
franchises; provided, however, that (i) each of the Borrowers, each of their
respective Subsidiaries and each of the Guarantors may consummate any merger,
consolidation or transfer, sale or lease of its assets as an entirety to any
Person not prohibited under Section 5.02(b), (ii) each of the Borrowers, each of
their respective Subsidiaries and each of the Guarantors may wind up, liquidate
or dissolve any inactive or immaterial Subsidiary of such Person, (iii) none of
the Borrowers, the Subsidiaries of a Borrower or the Guarantors shall be
required to preserve any right or franchise if the Board of Directors of such
Borrower, such Subsidiary or such Guarantor shall determine that the
preservation thereof is no longer desirable in the conduct of its business, and
that the loss thereof is not disadvantageous in any material respect to the Loan
Parties and their Subsidiaries, taken as a whole, or the Lenders, and (iv) each
of the Borrowers, each of their respective Subsidiaries and each of the
Guarantors may reincorporate or otherwise change its legal form so long as (A)
the applicable Borrower provides written notice thereof to the Agent reasonably
promptly following such reincorporation or change (together with certified
copies of each amended charter or other organizational document, and, solely in
the case of the Borrowers if the Collateral has not been released prior to such
date in accordance with Section 10 of the Pledge Agreement, any amendments or
supplements to the Pledge Agreement necessary for the Agent, on behalf of the
Lenders, to maintain the perfected nature of its Mortgage covering the
Collateral), and (B) such reincorporation or change would not result in a
Material Adverse Effect.


                                      -32-



     (d) Reporting Requirements. Deliver to the Agent (for distribution by the
Agent to the Lenders):

          (i) as soon as available and in any event within 60 days after the end
     of each of the first three quarters of each fiscal year of each of the Loan
     Parties (other than any Affiliate Guaranteed Borrower), a Consolidated
     balance sheet of such Loan Party and its Included Subsidiaries as of the
     end of such quarter and Consolidated statements of income and cash flows of
     such Loan Parties and its Included Subsidiaries for the period commencing
     at the end of the previous fiscal year and ending with the end of such
     quarter, duly certified (subject to year-end audit adjustments) by an
     authorized representative of such Loan Party as having been prepared in
     accordance with generally accepted accounting principles and, to the best
     of such Loan Party's knowledge, as fairly presenting in all material
     respects the financial condition, results of operations and cash flows of
     such Loan Party and its Included Subsidiaries for the period covered
     thereby;

          (ii) as soon as available, and in any event within 120 days after the
     end of each fiscal year of each of the Loan Parties (other than any
     Affiliate Guaranteed Borrower), a copy of the annual audit report for such
     year for such Loan Party and its Included Subsidiaries, containing the
     Consolidated balance sheet of such Loan Parties and its Included
     Subsidiaries as of the end of such fiscal year and Consolidated statements
     of income and cash flows of such Loan Party and its Included Subsidiaries
     for such fiscal year, in each case accompanied by an unqualified opinion or
     an opinion reasonably acceptable to the Required Lenders by Deloitte &
     Touche LLP or other independent public accountants of recognized standing;

          (iii) as soon as possible and in any event within five days after the
     occurrence of each Default or Event of Default continuing on the date of
     such statement, a statement of any Loan Party setting forth details of such
     Default or Event of Default and the action that one or more of the Loan
     Parties and their Subsidiaries has taken and propose to take with respect
     thereto;

          (iv) promptly after the sending or filing thereof, copies of all
     reports that any Borrower sends to any of its securityholders, and copies
     of all reports and registration statements that such Borrower or any of its
     Subsidiaries files with the Securities and Exchange Commission or any
     national securities exchange;

          (v) promptly after the commencement thereof, notice of all actions and
     proceedings before any court, governmental agency or arbitrator affecting
     any of the Borrowers or any of their Subsidiaries of the type described in
     Section 4.01(f); and

          (vi) such other information respecting any of the Loan Parties or any
     of their Subsidiaries as the Required Lenders through the Agent may from
     time to time reasonably request;

provided, however, that in the case of clauses (i), (ii) and (iv) of this
subsection (d), each Borrower may comply with its obligations thereunder by
posting the relevant documents to its website, to any of the other Borrowers'
websites, to www.sec.gov, or to such other website as notified to the Agent and
the Lenders in lieu of delivering hard copies thereof to the Lenders.

     (e) Obtaining of Public Debt Rating. Use commercially reasonable efforts to
obtain, as soon as reasonably practicable and in any event no later than July
31, 2006, a rating of the non-credit enhanced long-term senior unsecured debt of
the initial Borrower from Moody's or S&P.


                                      -33-



     SECTION 5.02 Negative Covenants. So long as any Advance shall remain unpaid
or any Lender shall have any Commitment hereunder, none of the Borrowers shall:

     (a) Restrictions on Mortgages. (i) Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries or its Guarantor, if any, to, create,
incur, assume or suffer to exist, any Mortgage on or with respect to any of its
property and assets, other than:

          (i) Mortgages created under the Loan Documents;

          (ii) Permitted Mortgages;

          (iii) Mortgages existing as of the date hereof;

          (iv) Mortgages granted in favor of the Borrowers or any of their
     Subsidiaries on all or any portion of the assets of the Loan Parties and
     their Subsidiaries other than up to 75% of their Principal Manufacturing
     Properties, considered as a whole;

          (v) deposits made, and letters of credit issued, to secure the
     performance of operating leases of the Loan Parties and their Subsidiaries
     arising in the ordinary course of business;

          (vi) Mortgages in favor of governmental bodies to secure progress or
     advance payments;

          (vii) Mortgages arising solely from precautionary filings of financing
     statements under the Uniform Commercial Code of any jurisdiction (or
     similar filings and recordings under equivalent provisions of applicable
     law);

          (viii) any Mortgages existing on any property at the time such
     property is acquired by any Loan Party or any of its Subsidiaries, or on
     any property of any Person at the time such Person becomes, or is merged
     into, the Company or any of its Subsidiaries;

          (ix) purchase money and title retention Mortgages, capitalized leases
     and construction- or improvement-cost Mortgages;

          (x) Mortgages arising under or in connection with Hedge Agreements
     entered into by any Loan Party or any of its Subsidiaries;

          (xi) Mortgages on accounts (as defined in the applicable Uniform
     Commercial Code at any time in effect), receivables, notes, contracts or
     contract rights, general intangibles, lockboxes, (in each case related to
     the applicable accounts or receivables) and collections and proceeds
     therefrom created in connection with the securitization or monetization of
     accounts receivable or other commercial paper programs of the Company and
     its Subsidiaries;

          (xii) Mortgages arising in connection with repurchase agreements,
     reverse purchase agreements and other similar agreements for the purchase,
     sale or loan of securities, in each case in the ordinary course of
     business;

          (xiii) Mortgages of all of the Loan Parties, their Subsidiaries and
     Guarantors, if any, not otherwise permitted hereunder encumbering assets
     not exceeding 20% of Consolidated Assets of the Loan Parties and their
     Included Subsidiaries at any time; and


                                      -34-



          (xiv) any extension, refinancing, renewal or refunding of any Mortgage
     referred to in clauses (i) through (xiii) of this Section 5.02(a).

Notwithstanding the foregoing, on and after the date that the Pledge Agreement
has been terminated, the Borrowers and their respective Subsidiaries and
Guarantors, if any, shall not withdraw (within the meaning of Section 211.3(f)
of Regulation U issued by the Board of Governors of the Federal Reserve System)
assets from coverage by this Section 5.02(a) that, solely as a consequence of
such withdrawal (and not due to any fluctuations in the value of the assets
themselves) would cause the value of the assets subject to this Section 5.02(a)
to be less than the aggregate principal amount of the Advances that were used
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System).

     (b) Consolidation, Merger and Sale of Assets. Consolidate or merge with or
into, or transfer, sell or lease its assets as an entirety to, or permit any
Guarantor, if any, to consolidate or merge with or into, or transfer, sell or
lease its assets as an entirety to, any Person, unless the Person (if other than
a Borrower or a Subsidiary of the Company) formed by such consolidation or into
which such Borrower, or such Guarantor is merged or which acquires or leases the
assets of such Borrower or such Guarantor substantially as an entirety assumes
such Borrower's or such Guarantor's obligations under the Loan Documents (and,
upon such assumption, such Person shall be a Borrower or Guarantor, as
applicable, for all purposes of the Loan Documents), or another Borrower assumes
such Borrower's obligations, or another Guarantor assumes such Guarantor's
obligations, under the Loan Documents; provided, that after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing, and such consolidation, merger, transfer, sale or lease of assets is
not prohibited under the indentures pursuant to which any publicly held debt of
such Borrower or such Guarantor was issued.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

     SECTION 6.01 Events of Default. Each of the following events shall
constitute an "Event of Default" under this Agreement:

     (a) Any Borrower shall fail to pay any principal of any Advance when the
same becomes due and payable; or any Borrower shall fail to pay any interest on
any Advance or make any other payment of fees payable under this Agreement or
any Note within ten days after the same becomes due and payable; or any Loan
Party shall fail to make any payment of any other amount payable under any Loan
Document within ten days after the same becomes due and payable; or

     (b) Any representation or warranty made by any Loan Party (or any of its
authorized representatives) under or in connection with this Agreement or any of
the other Loan Documents shall prove to have been incorrect in any material
respect when made; or

     (c) (i) Any Borrower shall fail to perform or observe any term, covenant or
agreement contained in, or any Guarantor shall fail to perform or observe any
term, covenant or agreement that any Borrower has agreed to cause such Guarantor
to perform under, (A) Section 5.01(d) or (e) (other than clauses (e)(i), (e)(ii)
or (e)(iii)) or (B) Section 5.02, or (ii) any Loan Party shall fail to perform
or observe any other term, covenant or agreement contained in, or any Guarantor
shall fail to perform or observe any term, covenant or agreement that any
Borrower has agreed to cause such Guarantor to perform under, this Agreement or
any of the Loan Documents on its part to be performed or observed if, in the
case of this clause (ii), such failure shall remain unremedied for 30 days after
written notice thereof shall have been given to the Initial Borrower by the
Agent or any Lender; or


                                      -35-



     (d) Any Borrower or any of its Subsidiaries or any Guarantor shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against any Borrower or any of its Subsidiaries or any Guarantor seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 90 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or any Borrower or any of its Subsidiaries or any
Guarantor shall take any corporate or other action to authorize any of the
actions set forth above in this subsection (d); or

     (e) Any judgment or order for the payment of money in excess of
$250,000,000 shall be rendered against any Borrower, any Guarantor or any of the
Material Subsidiaries and not satisfied and there shall be any period of 60
consecutive days during which a stay of enforcement of such unsatisfied judgment
or order, by reason of a pending appeal or otherwise, shall not be in effect;
provided, however, that any such judgment or order shall not be an Event of
Default under this Section 6.01(e) if and for so long as (i) the amount of such
judgment or order is covered by a valid and binding policy of insurance between
the defendant and the insurer covering payment thereof and (ii) such insurer,
which shall be rated at least "A" by A.M. Best Company, has been notified of,
and has not disputed the claim made for payment of, the amount of such judgment
or order; or

     (f) Any non-monetary judgment or order shall be rendered against any
Borrower or any of its Subsidiaries or any Guarantor that would have a Material
Adverse Effect and not resolved, and there shall be any period of 60 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect.

     SECTION 6.02 Remedies.

     (a) If any Event of Default shall occur and be continuing, then, and in any
such event, the Agent (i) shall at the request, or may with the consent, of the
Required Lenders, by notice to each of the Borrowers, declare the obligation of
each Lender to make Advances to be terminated, whereupon the obligation of each
Lender to make such Advances shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to each of
the Borrowers, declare the Advances, all interest thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Advances, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by each of the Borrowers.

     (b) Notwithstanding anything to the contrary in clause (a) of this Section
6.02, in the event of an actual or deemed entry of an order for relief with
respect to any Borrower under the Federal Bankruptcy Code, (i) the obligation of
each Lender to make Advances to such Borrower shall automatically be terminated
and (ii) the Advances made to such Borrower, all interest thereon and all
amounts payable under this Agreement with respect thereto shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by each of the
Borrowers.


                                      -36-



                                   ARTICLE VII

                                    THE AGENT

     SECTION 7.01 Authorization and Action. Each Lender hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement and the other Loan Documents as
are delegated to the Agent by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto. As to any matters
not expressly provided for by this Agreement or the other Loan Documents
(including, without limitation, enforcement or collection of the Advances), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lenders and all holders
of Notes; provided, however, that the Agent shall not be required to take any
action that exposes the Agent to personal liability or that is contrary to this
Agreement or the other Loan Documents applicable law. The Agent agrees to give
to each Lender prompt notice of each notice given to it by each of the Borrowers
pursuant to the terms of this Agreement or the other Loan Documents.

     SECTION 7.02 Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement or
any of the other Loan Documents, except for its or their own negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Agent: (i) may treat the Lender that made any Advance as the holder of the Debt
resulting therefrom until the Agent receives and accepts an Assignment and
Acceptance entered into by such Lender, as assignor, and any assignee thereof as
provided in Section 8.07; (ii) may consult with legal counsel (including counsel
for any of the Loan Parties), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith (without negligence or willful misconduct) by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement or any of the other Loan
Documents; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any of the other Loan Documents on the part of any of the Loan
Parties or to inspect the property (including the books and records) of any of
the Loan Parties; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of, or the perfection or priority of any lien or security interest created or
purported to be created under or in connection with, this Agreement or any of
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (vi) shall incur no liability under or in respect of this
Agreement or any of the other Loan Documents by acting in good faith upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopier or telegram) believed by it to be genuine and signed or sent by the
proper party or parties.

     SECTION 7.03 Citibank and Affiliates. With respect to its Commitment, the
Advances made by it and any Note or Notes issued to it, Citibank shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent; and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include Citibank in its individual
capacity. Citibank and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, any of the Borrowers, any of
their Subsidiaries and any Person who may do business with or own securities of
any of the Borrowers or their Subsidiaries, all as if Citibank were not the
Agent and without any duty to account therefor to the Lenders.


                                      -37-



     SECTION 7.04 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.

     SECTION 7.05 Indemnification. The Lenders agree to indemnify the Agent (to
the extent not reimbursed by the Borrowers), ratably according to the respective
principal amounts of the Advances then owing to each of them (or if no Advances
are at the time outstanding or if any Advances are then owing to Persons that
are not Lenders, ratably according to the respective amounts of their
Commitments), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any of the other Loan Documents or any action taken or omitted by
the Agent hereunder or thereunder (collectively, the "Indemnified Costs"),
provided that no Lender shall be liable for any portion of the Indemnified Costs
resulting from the Agent's negligence or willful misconduct. Without limitation
of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand
for its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the Agent
is not reimbursed for such expenses by the Borrowers. In the case of any
investigation, litigation or proceeding giving rise to any Indemnified Costs,
this Section 7.05 applies whether any such investigation, litigation or
proceeding is brought by the Agent, any Lender or a third party.

     SECTION 7.06 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and each of the Borrowers and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent acceptable to the Initial Borrower. If no successor Agent shall
have been so appointed by the Required Lenders and approved by the Initial
Borrower, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement and the other Loan Documents. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Article VII shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Loan Documents.

     SECTION 7.07 Sub-Agent. The Sub-Agent has been designated under this
Agreement to carry out the duties of the Agent. The Sub-Agent shall be subject
to each of the obligations in this Agreement to be performed by the Sub-Agent,
and each of the Borrowers and the Lenders agrees that the Sub-Agent shall be
entitled to exercise each of the rights and shall be entitled to each of the
benefits of the Agent under this Agreement as such rights and benefits relate to
the performance of its obligations hereunder.


                                      -38-



     SECTION 7.08 Other Agents. Each Lender hereby acknowledges that no
syndication agent and no documentation agent nor any other Lender designated as
any "agent" (other than the Agent) on the signature pages or the cover hereof
has any liability hereunder other than in its capacity as a Lender.

                                  ARTICLE VIII

                                  MISCELLANEOUS

     SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of
this Agreement or any of the other Loan Documents, nor consent to any departure
by any Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by each of the Borrowers and the Required Lenders, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Borrowers and
all of the Lenders (other than any Lender that is an Affiliate of any Borrower),
do any of the following: (a) waive any of the conditions specified in Section
3.01, (b) increase the Commitments of the Lenders or postpone the Termination
Date, (c) reduce the principal of, or interest on, the Revolving Credit Advances
or any fees or other amounts payable hereunder, (d) postpone any scheduled date
for any payment of principal of, or interest on, the Revolving Credit Advances
or any fees or other amounts payable hereunder pursuant to Section 2.04, 2.06 or
2.07, (e) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Revolving Credit Advances, or the number of Lenders,
that shall be required for the Lenders or any of them to take any action
hereunder, or (f) amend this Section 8.01; and provided further that no
amendment, waiver or consent shall, unless in writing and signed by the Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Agent under this Agreement or any other Loan Document.

     SECTION 8.02 Notices, Etc. (a) All notices and other communications
provided for hereunder shall be either (x) in writing (including telecopier or
telegraphic communication) and mailed, telecopied, telegraphed or delivered, or
(y) to the extent set forth in Section 8.02(b) and in the proviso to this
Section 9.02(a), by electronic mail (in .PDF form) ("Email"), confirmed
reasonably promptly thereafter in writing, if to the Initial Borrower, at the
address of such Person at 5, rue Eugene Ruppert, L-2453 Luxembourg, with a copy
to Sharon E. Abrams, General Counsel-Western Europe, Procter & Gamble, 47, Route
de Saint Georges, 1213 Petit-Lancy 1, Switzerland, Tel. +41-22-709-7452, Fax
+41-22-870-4452, Email: [_________]; if to any Additional Borrower to such
Person at the address specified therefor in the applicable Borrower Accession
Agreement; if to any Initial Lender, at its Domestic Lending Office specified
opposite its name on Schedule I hereto; if to any other Lender, at its Domestic
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender, as the case may be; and if to the Agent, at its address at
[_____________]; or, as to any Borrower or the Agent, at such other address as
shall be designated by such party in a written notice to the other parties and,
as to each other party, at such other address as shall be designated by such
party in a written notice to each of the Borrowers and the Agent; provided, that
Notices of Revolving Credit Borrowing, Notices of Competitive Bid Borrowing and
materials delivered pursuant to Section 5.01(d)(i), (d)(ii) and (d)(iv) shall be
delivered to the Agent as specified in Section 9.02(b) or as otherwise specified
to the Company by the Agent. All such notices and communications shall, when
mailed, telecopied or Emailed, be effective when deposited in the mails,
telecopied or confirmed by Email, respectively, except that notices and
communications to the Agent pursuant to Article II or III shall not be effective
until received by the Agent. Delivery by telecopier or facsimile of an executed
counterpart of any amendment or waiver of any provision of this Agreement or any
other Loan Document or of any Exhibit hereto or thereto to be executed and
delivered hereunder shall be effective as delivery of a manually executed
counterpart thereof.


                                      -39-



     (b) Notices of Revolving Credit Borrowing, Notices of Competitive Bid
Borrowing and materials required to be delivered pursuant to Section 5.01(d)(i),
(d)(ii) and (d)(iv) may be delivered to the Agent in an electronic medium in a
format acceptable to the Agent by Email at oploanswebadmin@citigroup.com, or
such other email address as the Agent shall specify in writing to each of the
Loan Parties. Each of the Borrowers agrees that the Agent may make such
materials, as well as any other written information, documents, instruments and
other material relating to each of the Borrowers, any of its Subsidiaries or any
other materials or matters relating to this Agreement, any of the other Loan
Documents or any of the transactions contemplated hereby or thereby
(collectively, the "Communications") available to the Lenders by posting such
notices on Intralinks or a substantially similar electronic system reasonably
approved by the Company (the "Platform"). Although the primary web portal is
secured with a dual firewall and a User ID/Password Authorization System and the
Platform is secured through a single user per deal authorization method whereby
each user may access the Platform only on a deal-by-deal basis, each of the
Borrowers acknowledges that (i) the distribution of material through an
electronic medium is not necessarily secure and that there may be
confidentiality and other risks associated with such distribution, (ii) the
Platform is provided "as is" and "as available" and (iii) neither the Agent nor
any of its Affiliates warrants the accuracy, adequacy or completeness of the
Communications or the Platform and each expressly disclaims liability for errors
or omissions in the Communications or the Platform. No warranty of any kind,
express, implied or statutory, including, without limitation, any warranty of
merchantability, fitness for a particular purpose, non-infringement of third
party rights or freedom from viruses or other code defects, is made by the Agent
or any of its Affiliates in connection with the Platform.

     (c) Each Lender agrees that notice to it (as provided in the next sentence)
(a "Notice") specifying that any Communications have been posted to the Platform
shall constitute effective delivery of such information, documents or other
materials to such Lender for purposes of this Agreement. Each Lender agrees (i)
to notify the Agent in writing of such Lender's Email address to which a Notice
may be sent by electronic transmission (including by electronic communication)
on or before the date such Lender becomes a party to this Agreement (and from
time to time thereafter to ensure that the Agent has on record an effective
Email address for such Lender) and (ii) that any Notice may be sent to such
Email address.

     SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender or
the Agent to exercise, and no delay in exercising, any right hereunder or under
any other Loan Document shall operate as a waiver thereof; nor shall any single
or partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided herein and in
the Pledge Agreement, when executed and delivered hereunder, are cumulative and
not exclusive of any remedies provided by law.

     SECTION 8.04 Costs and Expenses. (a) The Initial Borrower agrees to pay
reasonably promptly following demand therefor all reasonable out-of-pocket costs
and expenses of the Agent in connection with the preparation, execution,
delivery, administration, modification and amendment of this Agreement, the
other Loan Documents and the other documents to be delivered hereunder,
including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, consultant, and audit expenses and (B) the reasonable
fees and expenses of counsel for the Agent with respect thereto and with respect
to advising the Agent as to its rights and responsibilities under this Agreement
and the other Loan Documents. Each of the Borrowers further agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Agent and the
Lenders, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement against such Borrower (whether
through negotiations, legal proceedings or otherwise) of this Agreement, the
other Loan Documents and the other documents to be delivered hereunder and
thereunder, including, without limitation, reasonable fees and expenses of
counsel for the


                                      -40-



Agent and each Lender in connection with the enforcement of rights against such
Borrower under this Section 8.04(a).

     (b) Each of the Borrowers agrees to indemnify and hold harmless the Agent
and each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party"; and each of the
Agent and the Lenders, and their respective Affiliates officers, directors,
employees, agents and advisors being, in relation to each other, a "Related
Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
the Advances, this Agreement or any of the other Loan Documents, any of the
transactions contemplated herein or therein or the actual or proposed use of the
proceeds of the Advances; provided, however, that no Borrower shall have any
obligation to indemnify an Indemnified Party pursuant to this Section 8.04(b)
with respect to any claim, damage, loss, liability or expense (i) that resulted
from negligence, willful misconduct, violation of law or the breach of any Loan
Document by such Indemnified Party or a Related Indemnified Party, (ii) is
attributable to Taxes or Other Taxes, which in each case shall be governed
solely by Section 2.14, (iii) that arises out of a claim, litigation,
arbitration or proceeding of one or more of the Agent and/or any of the Lenders
solely against the Agent and/or any of the other Lenders not attributable to the
actions of such Borrower or any of its Subsidiaries or Affiliates or (iv) that
arises out of a claim, litigation, arbitration or proceeding in which one or
more of the Borrowers and/or their Subsidiaries or Affiliates prevail. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this Section 8.04(b) applies, such indemnity shall be effective whether or
not such investigation, litigation or proceeding is brought by the directors,
shareholders or creditors of any Borrower or an Indemnified Party or any other
Person or any Indemnified Party is otherwise a party thereto and whether or not
the transactions contemplated hereby are consummated. Each of the Borrowers and
each of the Indemnified Parties hereby agrees not to assert any claim against
each such other Person, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to the
Advances, this Agreement or any of the other Loan Documents, any of the
transactions contemplated herein or therein or the actual or proposed use of the
proceeds of the Advances. No Indemnified Party shall settle or otherwise pay or
agree to pay any claim, damages, losses liabilities or expenses for which any
Borrower is obligated to provide indemnification under this Section 8.04(b)
without the prior written consent of such Borrower.

     (c) If any payment of principal of, or Conversion of, any Eurocurrency Rate
Advance is made by any Borrower to or for the account of a Lender other than on
the last day of the Interest Period for such Advance, as a result of a payment
or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of
the maturity of the Advances pursuant to Section 6.02 or for any other reason,
or by an assignee to a Lender other than on the last day of the Interest Period
for such Advance upon an assignment of rights and obligations under this
Agreement pursuant to Section 8.07 as a result of a demand by a Borrower
pursuant to Section 8.07(a), each of the Borrowers shall, upon demand by such
Lender (with a copy of such demand to the Agent), pay to the Agent for the
account of such Lender any amounts required to compensate such Lender for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment or Conversion, including, without limitation, any loss (excluding
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to
fund or maintain such Advance.

     (d) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the other Loan
Documents.


                                      -41-



     SECTION 8.05 Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.02 to authorize the Agent to
declare the Advances due and payable pursuant to the provisions of Section 6.02,
each Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender or such
Affiliate to or for the credit or the account of any Borrower against any and
all of the obligations of any Borrower now or hereafter existing under this
Agreement, whether or not such Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. Each Lender agrees
promptly to notify each of the Borrowers after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender and its Affiliates under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Lender and its Affiliates may
have.

     SECTION 8.06 Binding Effect. This Agreement shall become effective when it
shall have been executed and delivered by the Initial Borrower and the Agent and
when the Agent shall have been notified by each Initial Lender that such Initial
Lender has executed it and thereafter shall be binding upon and inure to the
benefit of the Borrowers, the Agent and each Lender and their respective
successors and assigns, except that (other than in accordance with Section
5.02(b) or Section 8.10) no Borrower shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.

     SECTION 8.07 Assignments and Participations. (a) Without the written
consent of the Initial Borrower (which consent may be withheld in its sole and
absolute discretion) and of the Agent (which consent shall not be unreasonably
withheld), no Lender may assign all or any portion of its rights and obligations
under this Agreement to any Person, except to an Affiliate of such Lender, as
provided in Section 2.11, 2.14 or 2.18, or as set forth in Section 8.07(g) or to
another Lender that is an Affiliate of such Lender. If any Lender (i) requests
any payment to under Section 2.11 or Section 2.14 or (ii) gives notice to any
Borrower pursuant to Section 2.12, then, so long as no Default or Event of
Default has occurred and is continuing at such time, any Borrower may demand
upon at least three Business Days' notice to such Lender and the Agent that such
Lender, and, upon such demand, such Lender shall, assign all of its rights and
obligations under this Agreement to any Person designated by such Borrower. Each
assignment pursuant to the terms of this Section 8.07(a) (A) shall be of a
constant, and not a varying, percentage of all rights and obligations under this
Agreement (and, in the case of an assignment demanded by a Borrower, shall be
either an assignment of all of the rights and obligations of the assigning
Lender under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement), except that any such assignment of a
Commitment by a Lender to another Lender that is an Affiliate of such Lender
need not be accompanied by an assignment of the same percentage of any of the
assigning Lender's Advances and any such assignment of one or more Advances by a
Lender to another Lender that is an Affiliate of such Lender need not be
accompanied by an assignment of the same percentage the assigning Lender's
Commitment or any of the assigning Lenders other Advances, (B) except in the
case of an assignment to a Person that, immediately prior to such assignment,
was a Lender or an assignment of all of a Lender's rights and obligations under
this Agreement, shall in no event be less than $10,000,000, and (C) shall be
evidenced by evidenced by an Assignment and Acceptance executed by each of the
parties thereto and delivered to the Agent, for its acceptance and recording in
the Register. No Lender shall be obligated to make any such assignment as a
result of a demand by a Borrower pursuant to this Section 8.07(a) unless and
until such Lender shall have received one or more payments from either each of
the Borrowers or one or more assignees therefrom in an aggregate amount at least
equal to the aggregate outstanding principal amount of the Advances owing to
such Lender, together with accrued interest thereon to the date of payment of


                                      -42-



such principal amount and all other amounts payable to such Lender under this
Agreement. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (1) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (2) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).

     (b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any of the other Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or perfection or priority
of any lien or security interest created or purported to be created under or in
connection with, this Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; (ii) such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower or the performance or
observance by any Borrower of any of its obligations under this Agreement or any
of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 4.01 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement and the other Loan Documents as are delegated to
the Agent by the terms hereof and thereof, together with such powers and
discretion as are reasonably incidental thereto; and (vi) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.

     (c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee in accordance with Section 8.07(a), together
with any Note or Notes subject to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form of
Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to each of the Borrowers.

     (d) The Agent shall maintain at its address referred to in Section 8.02 a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and
Commitment of, and principal amount of the Advances owing to, each Lender from
time to time, and whether the proceeds of each such Advanced were used for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U issued by the Board of Governors of the Federal Reserve System) (the
"Register"). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and each of the Borrowers, the Agent and the
Lenders may treat each Person whose name is recorded as a Lender in the Register
as a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by each of the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.


                                      -43-



     (e) Each Lender may upon not less than five Business Days' notice to the
Initial Borrower sell participations to one or more banks or other entities in
or to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and any Note or Notes held by it); provided, however, that (i) such
Lender's obligations under this Agreement (including, without limitation, its
Commitment to each of the Borrowers hereunder) shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
any such Note for all purposes of this Agreement, (iv) each of the Borrowers,
the Agent and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of this Agreement or
any other Loan Document, or any consent to any departure by the Borrowers
therefrom, except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Advances or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any scheduled date for any payment of principal of,
or interest on, the Advances or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation. If any Lender sells a
participation as described in this Section 8.07(e), such Lender shall provide to
the Agent on behalf of the Borrowers, or maintain as agent of the Borrowers, the
information described in Section 8.07(d) with respect to such participation and
shall permit each of the Borrowers to review such information (to the extent
permitted under applicable law) from time to time upon request. Neither the sale
of any such participation nor the holding of such a participation by any
participant shall increase any obligation of any Borrower under Section 2.14.

     (f) Any Lender may, in connection with any assignment or participation or
proposed assignment or proposed participation, disclose to the assignee or
participant or proposed assignee or participant any financial statements and
related documents delivered to the Agent in accordance with Section 4.01(e),
Section 5.01(d)(i) or Section 5.01(d)(ii); provided that, prior to any such
disclosure, the assignee or participant or proposed assignee or proposed
participant shall agree to preserve the confidentiality of any Confidential
Information received by it in accordance with the terms of Section 8.08.

     (g) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and any Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.

     SECTION 8.08 Confidentiality. Neither the Agent nor any Lender shall
disclose any Confidential Information to any other Person without the consent of
each of the Borrowers, other than (a) to the Agent's or such Lender's Affiliates
and their officers, directors, employees, agents and advisors and, as
contemplated by 8.07(f), to actual or prospective assignees and participants,
and then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process and (c) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking; provided,
that, with respect to clause (b) above, the Agent and each Lender agree to
notify the Initial Borrower promptly of any such request for the disclosure of
Confidential Information unless such notification is prohibited by applicable
law, rule or regulation or by judicial process.

     SECTION 8.09 Judgment Currency. (a) If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due hereunder in Dollars
or Euros into another currency, the parties hereto agree, to the fullest extent
that they may effectively do so, that the rate of exchange used shall be that at
which in accordance with normal banking procedures the Agent could purchase
Dollars or Euros,


                                      -44-



as the case may be, with such other currency at Citibank's principal office in
London at 11:00 A.M. (London time) on the Business Day preceding that on which
final judgment is given.

     (b) The obligation of each Borrower in respect of any sum due from it in
any currency (the "Primary Currency") to any Lender or the Agent hereunder
shall, notwithstanding any judgment in any other currency, be discharged only to
the extent that on the Business Day following receipt by such Lender or the
Agent (as the case may be), of any sum adjudged to be so due in such other
currency, such Lender or the Agent (as the case may be) may in accordance with
normal banking procedures purchase the applicable Primary Currency with such
other currency; if the amount of the applicable Primary Currency so purchased is
less than such sum due to such Lender or the Agent (as the case may be) in the
applicable Primary Currency, each Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify such Lender or the Agent (as the
case may be) against such loss, and if the amount of the applicable Primary
Currency so purchased exceeds such sum due to any Lender or the Agent (as the
case may be) in the applicable Primary Currency, such Lender or the Agent (as
the case may be) agrees to remit to such Borrower such excess.

     SECTION 8.10 Additional Borrowers; Assumption of Advances. (a) The Initial
Borrower may request that any of the Related Parties become party to this
Agreement as an additional borrower (an "Additional Borrower"), and additionally
such Related Party or a Borrower may elect that all or any portion of the
Advances and other obligations of any Borrower under this Agreement and the
other Loan Documents shall be assumed by any other Borrower, in either case, by
delivering to the Agent each of the following:

          (i) a Borrower Accession Agreement, duly executed by the Initial
     Borrower and such Related Party, together with a certificate of an
     authorized representative of the Additional Borrower certifying the names
     and true signatures of the other authorized representatives of the
     Additional Borrower authorized to sign the Borrower Accession Agreement and
     the other documents to be delivered hereunder;

          (ii) an opinion of counsel addressing the matters covered by opinion
     paragraphs 1, 2, 3, and 4 of Exhibit C-1, opinion paragraph 1 of Exhibit
     C-2, and opinion paragraphs 1 and 2 of Exhibit C-3 in Section 3.01(d)(iv)
     (with such exceptions, assumptions and qualifications as are customary or
     appropriate in light of the circumstances under which such opinion is
     given);

          (iii) (A) except in the case of any Related Party that will be an
     Affiliate Guaranteed Borrower, the most recently available quarterly or
     annual financial statements of such Related Party and its Subsidiaries
     (which may be unaudited) and (B) in the case of an Affiliate Guaranteed
     Borrower, the most recently available quarterly or annual financial
     statements of the applicable Guarantor (which may be unaudited); and

          (iv) if, as of the date such Related Party becomes an Additional
     Borrower, such Related Party does not have long-term senior unsecured debt
     ratings of A- or better from S&P or A3 or better from Moody's, a duly
     executed and delivered Guaranty Agreement from the Company or a Related
     Party that maintains such debt rating at such time.

     (b) A Related Party in respect of which the Initial Borrower has delivered
a Borrower Accession Agreement to the Agent shall become an Additional Borrower
and, as such, shall have all of the rights and obligations of a Borrower
hereunder with respect to the Commitments specified to be made available to such
Additional Borrower, which shall be in a minimum amount of $500,000,000;
provided, that no Default or Event of Default shall have occurred and be
continuing or would result from such joinder or assumption, as applicable. Upon
any assumption of all of the Advances and other obligations


                                      -45-



of any Borrower, then, so long no Notice of Revolving Credit Borrowing or Notice
of Competitive Bid Borrowing in respect of such Borrower is outstanding at such
time, such Borrower shall no longer be a party to this Agreement.

     SECTION 8.11 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.

     SECTION 8.12 Jurisdiction. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or any other Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in any such New York State court or, to the extent permitted by
law, in such federal court. Each Borrower agrees that service of process in any
such action or proceeding brought in any such New York State court or in such
federal court may be made upon CT Corporation System and its offices at 111
Eighth Avenue, New York, New York 10011 (the "Process Agent"), and hereby
further agrees that any failure of the Process Agent to give any notice of any
such service to any Borrower shall not impair or affect the validity of such
service or of any judgment rendered in any action or proceeding based thereon.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan Document in
the courts of any jurisdiction.

     (b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any New York State or federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

     SECTION 8.13 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.

     SECTION 8.14 Waiver of Jury Trial. Each of the Borrowers, the Agent and the
Lenders hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or any of the other Loan Documents
or the actions of the Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.

     SECTION 8.15 Patriot Act. Each Lender hereby notifies each of the Borrowers
that, pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law on October 26, 2001)) (the "Act"), it is required to
obtain, verify and record information that identifies each Loan Party, which
information includes the name and address of each Loan Party and other
information that will allow such Lender to identify such Loan Party in
accordance with the Act.


                                      -46-



     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or representatives thereunto duly
authorized, as of the date first above written.

                                        PROCTER & GAMBLE INTERNATIONAL S.A.R.L.,
                                        as the Initial Borrower


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                                        CITIBANK, N.A., as Agent


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------

                                        Initial Lenders


Commitment                              CITIBANK, N.A., as a Lender
$6,000,000,000


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



Commitment                              JPMORGAN CHASE BANK, N.A.,
$3,000,000,000                          as a Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



Commitment                              ABN AMRO BANK N.V., as a Lender
$3,000,000,000


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



Commitment                              DEUTSCHE BANK AG NEW YORK BRANCH,
$3,000,000,000                          as a Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



Commitment                              MERRILL LYNCH CAPITAL CORP.
$3,000,000,000                          as Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



Commitment                              HSBC BANK USA, NATIONAL ASSOCIATION
$1,000,000,000                          as Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


Commitment                              THE HONG KONG SHANGHAI BANKING
$2,000,000,000                          CORPORATION LIMITED
                                        as Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



Commitment                              MORGAN STANLEY BANK
$300,000,000                            as Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


Commitment                              MORGAN STANLEY SENIOR FUNDING, INC.,
$2,700,000,000                          as a Lender


                                        By
                                           -------------------------------------
                                        Title:
                                               ---------------------------------


                       Signature Page to Credit Agreement



                                                                      SCHEDULE I
                                                                CREDIT AGREEMENT
                                                      APPLICABLE LENDING OFFICES



           Name of Lender                 Domestic Lending Office        Eurocurrency Lending Office
- -----------------------------------   ------------------------------   ------------------------------
                                                                 
ABN AMRO Bank N.V.                    540 West Madison Street          540 West Madison Street
                                      Suite 2621                       Suite 2621
                                      Chicago, IL 60661                Chicago, IL 60661
                                      Attn: Loan Administration        Attn: Loan Administration
                                      T: 312 992-5152                  T: 312 992-5152
                                      T: 312 992-5157                  T: 312 992-5157

Citibank, N.A.                        Two Penns Way                    Two Penns Way
                                      New Castle, DE 19720             New Castle, DE 19720
                                      Attn:                            Attn:
                                      T: 302 894-6016                  T: 302 894-6016
                                      F: 212 994-0961                  F: 212 994-0961

Deutsche Bank AG New York Branch      90 Hudson Street                 90 Hudson Street
                                      Jersey City, NJ 07302            Jersey City, NJ 07302
                                      Attn: Joe Cusmai                 Attn: Joe Cusmai
                                      T: 201 593-2202                  T: 201 593-2202
                                      F: 201 593-2313                  F: 201 593-2313

HSBC Bank USA, National Association   One HSBC Center                  One HSBC Center
                                      26th Floor                       26th Floor
                                      Buffalo, NY 14203                Buffalo, NY 14203
                                      Attn: Donna Riley                Attn: Donna Riley
                                      T: 716 841-4178                  T: 716 841-4178
                                      F: 716 841--5683                 F: 716 841--5683

The Hong Kong Shanghai Banking        Level 9                          Level 9
Corporation Limited                   HSBC Main Building               HSBC Main Building
                                      1 Queen's Road Central           1 Queen's Road Central
                                      Hong Kong                        Hong Kong
                                      Attn: Judy Hong                  Attn: Judy Hong
                                      T: 852 2822 2503                 T: 852 2822 2503
                                      F: 852 2866 4249                 F: 852 2866 4249

JPMorgan Chase Bank, N.A.             1111 Fannin Street, 10th Floor   1111 Fannin Street, 10th Floor
                                      Houston, TX 77002                Houston, TX 77002
                                      Attn: Cherry Arnaez              Attn: Cherry Arnaez
                                      T: 713 750-2789                  T: 713 750-2789
                                      F: 713 750-2782                  F: 713 750-2782

Merrill Lynch Capital Corp.           4 World Financial Center         4 World Financial Center
                                      New York, NY 10080               New York, NY 10080
                                      Attn: Brian Buttenmuller         Attn: Brian Buttenmuller
                                      T: 212 449-8743                  T: 212 449-8743
                                      F: 212 449-9435                  F: 212 449-9435

Morgan Stanley Bank                   2500 Lake Park Blvd.             2500 Lake Park Blvd.
                                      Suite 300C                       Suite 300C
                                      West Valley City, UT 84120       West Valley City, UT 84120
                                      Attn: Larry Benison              Attn: Larry Benison




                                                                 
                                      T: 718 754-7299                  T: 718 754-7299
                                      F: 718 754-7249                  F: 718 754-7249

Morgan Stanley Senior Funding, Inc.   1585 Broadway                    1585 Broadway
                                      New York, NY 10036               New York, NY 10036
                                      Attn: Larry Benison              Attn: Larry Benison
                                      T: 718 754-7299                  T: 718 754-7299
                                      F: 718 754-7249                  F: 718 754-7249

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
                                                ---------------------------------------------------------
                                                   2005       2004        2003         2002       2001
                                                ---------   ---------   ---------   ---------   ---------
                                                                                 
BASIC NET EARNINGS PER SHARE
- ----------------------------
Net earnings                                    $   7,257   $   6,481   $   5,186   $   4,352   $   2,922
Preferred dividends, net of tax benefit               136         131         125         124         121
                                                ---------   ---------   ---------   ---------   ---------

Net earnings available to common shareholders   $   7,121   $   6,350   $   5,061   $   4,228   $   2,801
                                                =========   =========   =========   =========   =========
Basic weighted average common shares
   outstanding                                    2,515.6     2,580.1     2,593.2     2,594.8     2,600.7
                                                =========   =========   =========   =========   =========

Basic net earnings per common share             $    2.83   $    2.46   $    1.95   $    1.63   $    1.08
                                                =========   =========   =========   =========   =========

DILUTED NET EARNINGS PER SHARE
- ------------------------------
Net earnings                                    $   7,257   $   6,481   $   5,186   $   4,352   $   2,922
Deduct preferred dividend impact on funding
   of ESOP                                              1           4           9          12          15
                                                ---------   ---------   ---------   ---------   ---------

Diluted net earnings                            $   7,256   $   6,477   $   5,177   $   4,340   $   2,907
                                                =========   =========   =========   =========   =========

Basic weighted average common shares
   outstanding                                    2,515.6     2,580.1     2,593.2     2,594.8     2,600.7
Add potential effect of:
   Conversion of preferred shares                   158.3       164.0       170.2       177.6       183.8
   Exercise of stock options and other
   unvested equity awards                            52.3        46.0        39.2        37.5        26.6
                                                ---------   ---------   ---------   ---------   ---------

Diluted weighted average common shares
   outstanding                                    2,726.2     2,790.1     2,802.6     2,809.9     2,811.1
                                                =========   =========   =========   =========   =========

Diluted net earnings per common share           $    2.66   $    2.32   $    1.85   $    1.54   $    1.03
                                                =========   =========   =========   =========   =========


(1) Despite being included currently in diluted net earnings per common share,
the actual conversion to common stock occurs pursuant to the repayment of the
ESOP debt through 2021.

(2) Approximately 1 million in 2005, 38 million in 2004 and 66 million in 2003
of the Company's outstanding stock options were not included in the diluted net
earnings per share calculation because to do so would have been antidilutive
(i.e., the exercise price exceeded market value).

EX-12

                                   EXHIBIT(12)

                 THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
               -------------------------------------------------
               Computation of Ratio of Earnings to Fixed Charges
               -------------------------------------------------

Amounts in Millions


                                                                 Years Ended June 30
                                                    -----------------------------------------------
                                                      2005      2004      2003      2002     2001
                                                    -------   -------   -------   -------   -------
                                                                             
EARNINGS, AS DEFINED

Earnings from operations before income taxes and
before adjustments for minority interests in
consolidated subsidiaries and after elimintating
undistributed earnings of equity method investees   $10,412   $ 9,454   $ 7,760   $ 6,442   $ 4,574

Fixed charges, excluding capitalized interest           924       719       657       687       872
                                                    -------   -------   -------   -------   -------
TOTAL EARNINGS, AS DEFINED                          $11,336   $10,173   $ 8,417   $ 7,129   $ 5,446
                                                    =======   =======   =======   =======   =======

FIXED CHARGES, AS DEFINED

Interest expense (including capitalized interest)   $   869   $   629   $   561   $   603   $   794
1/3 of rental expense (1)                                90        90        96        84        78
                                                    -------   -------   -------   -------   -------
TOTAL FIXED CHARGES, AS DEFINED                     $   959   $   719   $   657   $   687   $   872
                                                    =======   =======   =======   =======   =======

RATIO OF EARNINGS TO FIXED CHARGES                    11.8x     14.1x     12.8x     10.4x      6.2x


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

EX-13

                                                                               .
                                                                               .
                                                                               .

                                  EXHIBIT (13)
                         Annual Report to Shareholders
                                  (Pages 1-67)

TABLE OF CONTENTS

                                               
Letter to Shareholders                             1
Integrating Gillette                              10
P&G's Billion-Dollar Brands                       12
Global Business Unit Perspective                  14
Financial Contents                                22
Corporate Officers                                62
Board of Directors                                64
Shareholder Information                           65



FINANCIAL HIGHLIGHTS

Net Sales
(In billions of dollars)

            
2003           43.4
2004           51.4
2005           56.7



Operating Cash Flow
(In billions of dollars)

            
2003           8.7
2004           9.4
2005           8.7



Diluted Net Earnings
(per common share)

            
2003           1.85
2004           2.32
2005           2.66



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



                    Reported       Restructuring
                      EPS             Charges             Total
                                                 
2003                   1.85             .19                2.04
2004                   2.32               -                2.32
2005                   2.66               -                2.66


(1) Organization 2005 restructuring charges per share total $0.19 in 2003.

Financial Summary (Unaudited)



                                                                           Years Ended June 30
Amounts in millions                     -------------------------------------------------------------------------------------------
except per share amounts                   2005            2004             2003            2002            2001           2000
- -------------------------------------   -----------     -----------     -----------     -----------     -----------     -----------
                                                                                                      
Net Sales                               $    56,741     $    51,407     $    43,377     $    40,238     $    39,244     $    39,951
Operating Income                             10,927           9,827           7,853           6,678           4,736           5,954
Net Earnings                                  7,257           6,481           5,186           4,352           2,922           3,542
Net Earnings Margin                            12.8%           12.6%           12.0%           10.8%            7.4%            8.9%
Basic Net Earnings per Common Share     $      2.83     $      2.46     $      1.95     $      1.63     $      1.08     $      1.30
Diluted Net Earnings per Common Share          2.66            2.32            1.85            1.54            1.03            1.23
Dividends per Common Share                     1.03            0.93            0.82            0.76            0.70            0.64





P&G DELIVERED ANOTHER STRONG YEAR OF BROAD-BASED GROWTH IN FISCAL 2005.

+ 8% Sales(1)                           +15% Earnings per Share

90% Free Cash Flow Productivity(2)      +11 Dividends per Share

                                   [PICTURE]

P&G'S LINEUP OF 17 BILLION-DOLLAR BRANDS DELIVERED HIGH SINGLE-DIGIT VOLUME
GROWTH IN FISCAL 2005.

                                     [MAP]

Every Global Business Unit and Market Development Organization delivered
volume growth in fiscal 2005.

FELLOW SHAREHOLDERS:

At the beginning of this decade, we made several promises to P&G shareholders.

We said we would get P&G growing again. We set demanding but realistic growth
goals: 4-6% sales growth,(1) 10% or better earnings-per-share growth, and free
cash flow productivity equal to or greater than 90% of earnings.(2) P&G has met
or exceeded these growth goals for four consecutive years. Since 2000:

- -     We've grown sales more than 40%, to $57 billion. We've more than doubled
      profits. We've generated more than $30 billion in free cash flow.(3)

- -     We have returned $11 billion in cash to shareholders through dividends,
      and have increased shareholder value another $60 billion by nearly
      doubling the price of P&G stock.(4)

We said we would focus on being the global leader in P&G's core categories, with
leading global brands.

- -     P&G is the global leader in all four core categories. Baby Care and
      Feminine Care both have global shares above 35%. Fabric Care has more than
      a 30% share globally. Hair Care is over 20% in a large and fragmented
      category.

- -     P&G is growing share in categories that represent more than two-thirds of
      Company sales.

- -     Since 2000, we've grown P&G's billion-dollar brand lineup from 10 to 17
      brands. Pampers is now a $6 billion brand. Tide is a $3 billion brand.
      Pantene, Always, and Ariel are all $2 billion brands. Dawn became P&G's
      17th billion-dollar brand in 2005.

We said we would take the steps necessary to ensure P&G brands provide the best
consumer value.

- -     Baby Care is the innovation leader with Baby Stages of Development,
      Pampers Feel'n Learn, and Kandoo personal care for toddlers.

- -     Fabric Care is leading with Tide Coldwater and Tide with a touch of Downy.

- -     Tampax Pearl and Naturella are setting the standard for performance and
      value in Feminine Care.

- -     Pantene Pro-Health and Color Expressions are keeping Hair Care in the
      lead.

In each of these categories, innovation at affordable price points has resulted
in attractive value for consumers. At the

This Annual Report contains a number of forward looking statements.
For more information please see page 28 of the Management's Discussion and
Analysis.

(1)   Excluding the impact of foreign exchange. This was 2% on 2005.

(2)   Free cash flow productivity is defined as the ratio of free cash flow to
      net earnings. For more information, please see page 34 of the Management's
      Discussion and Analysis.

(3)   Free cash flow is defined as cash from operating activities less capital
      expenditures.

(4)   From June 30, 2000 to June 30, 2005, the closing price of P&G stock
      increased from $28.375 per share to $52.75, as adjusted for a stock split.


FOUR DRIVERS have enabled P&G to deliver consistent growth: CLEAR
STRATEGIES, CORE STRENGTHS, BALANCE, and LEADERSHIP.

Organic Unit Volume Growth
(% increase versus previous year)

               
2003               8%
2004              10%
2005               8%



Free Cash Flow
(In billions of dollars)

               
2003              7.2
2004              7.3
2005              6.5



[LINE GRAPH]

Total Shareholder Return
(Indexed versus June 30, 2000)

same time, we have focused on increasing productivity throughout P&G.

- -     We have increased sales per employee nearly 40% over the past five years.

- -     Even though R&D investment has increased over the past five years, R&D as
      a percentage of sales has declined from 4.8% in 2000 to 3.4% in 2005. More
      than 80% of initiatives succeeded in creating shareholder value, an
      improvement of 25% over the past three years.

- -     We have decreased P&G's Global Business Services (GBS) costs by more than
      15% on base business services since 2000.

- -     We have grown the productivity of P&G's Product Supply organization at a
      high single-digit rate since 2000.

- -     We have reduced capital spending as a percentage of sales since 2000 from
      nearly 8% to less than 4%, without foregoing any strategic investment in
      growth.

- -     We've added an incremental growth point to the Company's top line over the
      past two years with Marketing ROI (return on investment) initiatives.

This focus on productivity improvement has strengthened P&G's cost structure. As
a result, we've been able to make investments that have helped accelerate
top-line growth, while also generating strong free cash flow from operating
businesses.

In other words, we said we would grow sustainably - and we have.

SUSTAINING GROWTH IN FISCAL 2005

Of course, it's long-term performance that counts. Four years of solid
performance is a good start - but each time we add another year to P&G's track
record of consistent growth, we remind ourselves that the hard work is still
ahead.

Our commitment to delivering reliably year after year resulted in another strong
year of growth in fiscal 2005.

- -     We increased volume 8%. Organic volume(5) was also up 8%.

- -     We grew sales 10%, to $56.7 billion. Organic sales(6) were up 8%.

- -     We delivered $7.3 billion in net earnings, up 12%.

- -     Earnings per share were $2.66, up 15%.

- -     We generated $6.5 billion in free cash flow, or 90% of earnings.

(5)   Excludes the impacts of acquisitions and divestitures.

(6)   Excludes the impacts of acquisitions, divestitures, and foreign exchange
      of 2% in 2005.


- -     We increased dividends per share 11%, the 49th consecutive fiscal year in
      which P&G has increased dividends.

Growth was broad-based.

- -     Every Global Business Unit delivered volume growth. P&G Household Care and
      P&G Family Health both grew volume 8%, and P&G Beauty increased volume
      12%.

- -     The 17 billion-dollar brands delivered high single-digit volume growth
      this past fiscal year.

- -     Every Market Development Organization grew volume. Developed markets
      delivered mid-single-digit volume growth, and developing markets were up
      high teens.

- -     We grew volume 7% on average across P&G's top 10 retail customers. The
      balance of customers grew double-digit.

These results demonstrate that P&G's goals are achievable and its strategies are
working.

STRATEGIES, STRENGTHS, BALANCE, AND LEADERSHIP

Four drivers have enabled P&G to deliver this consistent growth: clear
strategies, core strengths, balance, and leadership.

P&G's strategies remain unchanged. We are continuing to focus on core businesses
and on P&G's leading brands, countries, and customers. We are continuing to
build P&G leadership in the faster-growing, higher-margin beauty and health care
businesses. We are continuing to invest in growth with lower-income consumers in
developing markets. I'm confident these remain the right choices for sustained
growth.

P&G's core strengths - branding, innovation, go-to-market, and scale - continue
to set our Company apart from competition.

I have discussed P&G's strategies and strengths in detail in previous letters.
This year, I want to focus on balance and leadership to provide a more complete
picture of the drivers enabling P&G's sustained, long-term growth.

BALANCE CREATES FLEXIBILITY TO ACHIEVE GOALS

P&G has become a more balanced company. This is important. A balanced approach
to growth and a balanced mix of businesses, brands, markets, and customers
provide flexibility to deliver results reliably, in good times and challenging
times alike.

P&G REPORT CARD

Progress Against P&G's Long-Term Goals and Strategies, 2001-2005

GROWTH GOALS



                              GOAL    RESULT
                            -------   ------
                                
Sales Growth                 4-6%       7%(1)

Earnings-per-Share
Growth                        10%+     11%(2)

Free Cash Flow
Productivity                  90%+     119%


GROWTH STRATEGIES

Build existing core businesses into stronger global leaders

- -     P&G GREW MARKET SHARE IN ALL FOUR CORE CATEGORIES

Grow leading brands, big countries, winning customers

- -     VOLUME UP 7%, ON AVERAGE, FOR P&G'S 17 BILLION-DOLLAR BRANDS

- -     VOLUME UP 6%, ON AVERAGE, FOR P&G'S TOP 16 COUNTRIES

- -     VOLUME UP 7%, ON AVERAGE, FOR P&G'S TOP 10 RETAIL CUSTOMERS

Develop faster-growing, higher-margin, more asset-efficient businesses with
global leadership potential

- -     BEAUTY SALES NEARLY DOUBLED TO $19.5 BILLION; PROFIT MORE THAN DOUBLED TO
      $2.9 BILLION

- -     HEALTH CARE SALES DOUBLED TO $7.8 BILLION; PROFIT MORE THAN TRIPLED TO $1
      BILLION

- -     P&G BEAUTY AND HEALTH NOW ARE 47% OF P&G SALES AND 50% OF PROFIT

Regain growth momentum and leadership in Western Europe

- -     WESTERN EUROPE VOLUME UP MID-SINGLE DIGIT, ON AVERAGE - TWICE THE RATE OF
      WESTERN EUROPE GDP GROWTH

- -     P&G BRANDS GROWING SHARE IN CATEGORIES ACCOUNTING FOR MORE THAN HALF OF
      WESTERN EUROPE SALES

Drive growth among lower-income consumers in developing markets

- -     LOWER-INCOME STRATEGY HAS DELIVERED MID-TEENS VOLUME GROWTH, ON AVERAGE,
      IN DEVELOPING MARKETS

(1)   Excluding foreign exchange of less than 1%.

(2)   Excludes amortization of goodwill and indefinite-lived intangibles, no
      longer required under accounting rules beginning in 2002, and Organization
      2005 restructuring charges per share of $0.32 in 2000, $0.61 in 2001,
      $0.26 in 2002, and $0.19 in 2003.



P&G HAS BECOME A MORE BALANCED COMPANY. With the acquisition of Gillette,
roughly half of P&G sales will come from Baby, Family, and Household categories,
and half will come from Beauty and Health businesses.

[PICTURE]

We have a uniquely balanced combination of businesses and brands. With the
planned acquisition of Gillette, roughly half of P&G sales will come from Baby,
Family, and Household, and half will come from Beauty and Health. P&G's lineup
of billion-dollar brands is well balanced. When the Gillette acquisition is
complete, we will have 10 billion-dollar brands in Beauty and Health, and 12
billion-dollar brands in Baby, Family, and Household.

We have a balanced geographic presence. About half of P&G sales come from North
America and half from international markets. Ten of the top 16 countries are
billion-dollar markets - countries in which we generate a billion dollars or
more in P&G sales each year. Eight of the top 16 countries are developing
markets - countries that we expect to become a larger part of our mix, adding
about a percentage point of growth each year.

We have a balanced mix of customers. Nearly half of P&G's top 10 retail
customers sell a billion dollars or more each year in P&G products. We have
grown volume 9% a year on average over the past three years with these
billion-dollar customers, and 9% with the top 10 customers worldwide. In
addition, we have delivered high-teens volume growth on average in
high-frequency stores common in developing countries. If they were a single
retailer, these high-frequency stores would be P&G's single largest volume
customer. P&G's growth is not dependent on any one channel or customer. Our
objective is to serve all consumers and to grow with all customers.

Our experience this past year is a good illustration of why balance matters. We
faced some tough challenges in fiscal 2005 - and yet we still achieved our
long-term goals. Rising commodity costs put significant pressure on global
Fabric Care. Oral Care faced increased competitive spending. Competitive price
discounting and trade promotion spending was particularly intense in North
America and Western Europe. Without P&G's balance, we might have been tempted to
reduce strategic investments in branding or innovation to deliver short-term
goals. Instead, we sustained these important investments and still delivered
ahead of sales and earnings growth goals. We were able to do this because other
major businesses, including Beauty, Baby and Family Care, Coffee and Snacks, and
fast-growing developing markets delivered well ahead of goals.



INDUSTRY LEADERSHIP CREATES CAPABILITY TO GROW

In addition to balance, there is another reason shareholders can rely on P&G to
deliver consistently: industry leadership that enables growth. Leadership is
important because it creates opportunities to grow, to sustain growth over the
long term, and to earn superior returns from consistent growth.

P&G aspires to be the leading consumer products company in sales, profitability,
market capitalization, shareholder return, and - particularly important - in
each of our core strengths. We are creating sustainable leadership advantages in
branding, innovation, go-to-market capability, and scale - and we aspire to be
the industry best in each area.

Branding

We have the largest lineup of leading brands in the industry: 17 billion-dollar
brands, and another 13 brands with sales of $500 million or more capable of
crossing the billion-dollar mark in the next several years. These are brands
consumers want in their homes and retailers want in their stores.

Innovation

Innovation starts with consumer understanding. We have one of the industry's
largest pools of consumer data, representing more than 100 million consumers
across 30 countries, 25 customers, and 20 categories. Deep consumer and shopper
understanding drives P&G innovation and brand building and strengthens the value
we bring to retail partners.

We translate this understanding into innovation that improves consumers' lives.
We invest nearly $2 billion a year in research and development, which is more
than most of our direct competitors combined. And, we multiply our innovative
capacity with a global network of innovation partners that gives us access to
literally thousands of ideas and technologies each year.

Go-to-Market Capability

We provide retailers with consumer and shopper research, supply chain solutions,
branding and marketing expertise, and more. This results in stronger retail
partnerships. In a recent industry survey of U.S. retailers, P&G was ranked #1
in six of eight categories: clearest strategy, most innovative, most helpful
consumer and shopper information, best supply chain management, best category
management, and best consumer marketing.

P&G's LEADERSHIP CREATES OPPORTUNITIES TO GROW. We attract more innovation
partners. We build strong partnerships with customers and suppliers. We attract
and retain top people who want to work for the industry leader.



P&G and Gillette are STRONGER TOGETHER than alone. We are focused on the SAME
STRATEGY. We are leveraging the SAME CORE STRENGTHS. We will have even GREATER
BALANCE and a STRONGER LEADERSHIP position. Together.

Scale

We create and capture scale - in purchasing, distribution, business services,
and more - at the company level. Global, regional, and local business units use
this scale to keep operating costs low, to bring innovation to market at
competitive prices, and to invest more than competition in R&D and marketing,
all of which drives sustainable top-line and bottom-line growth.

Being the industry leader in these four areas creates opportunities to grow. We
can attract more innovation partners because they recognize that P&G's leading
brands are highly efficient platforms for commercializing innovation. We can
develop stronger partnerships with industry-leading customers, marketing and
communications agencies, and suppliers because we offer greater growth
opportunities as the global leader in many of our businesses. We can attract and
retain top talent, people who want diverse career opportunities and who want to
work for the industry leader.

GILLETTE ADDS BALANCE AND LEADERSHIP

Gillette will accelerate the shift of P&G's business mix toward faster-growing,
higher-margin, more asset-efficient businesses: beauty and health. We are
bringing together many of the industry's most successful brands; with Gillette,
P&G will have 22 billion-dollar brands.

As a combined company, we will offer retailers a larger, more profitable mix of
brands, broader and deeper consumer and shopper knowledge, more product and
marketing innovation, and more supply chain solutions - creating even stronger
partnerships.

We will provide Gillette access to P&G's larger distribution networks in major
developing markets such as China, where P&G serves consumers in 2,000 cities and
more than 11,000 towns and villages.

Finally, we will add Gillette's highly regarded organization to P&G's own,
creating one of the strongest global organizations in any industry.

P&G and Gillette are stronger together than alone. We are focused on the same
strategy. We are leveraging the same core strengths. We will have even greater
balance and a stronger leadership position. This should mean more opportunities
to win with more consumers and customers in more categories and markets every
day.



OPPORTUNITIES TO GROW

Gillette, of course, is one of our biggest growth opportunities. We have
increased P&G's annual sales growth goal by a point through 2010, from 4-6% to
5-7%(1) given Gillette's leadership in faster-growing categories and the growth
synergies we expect to create once the integration is complete.

Beyond Gillette, there are opportunities to keep growing in all of P&G's
businesses. Our growth model calls for 2-3% from market expansion, roughly in
line with Gross Domestic Product (GDP) growth. As our business mix shifts toward
faster-growing categories and markets, we expect to get closer to 3% market
growth, which has been our experience over the past two years. The balance of
organic growth will come from a combination of continued share growth, white
space expansion, and new business creation.

We've proven over time that we can build share consistently. Our top five
categories have grown to an average global value share of about 30%. We have
achieved 50% to 60% shares in Western Europe Baby Care and Feminine Care, and
North America Fabric Care - and these businesses are still growing share today.
The next 20 categories are only halfway to the 30% share mark - representing
significant growth potential.

White space expansion is an opportunity that exists in both developing and
developed markets. We still have numerous opportunities to expand our top
categories into the 50 largest countries. Even in global categories such as
Fabric Care, Feminine Care, Hair Care, Baby Care, Skin Care, and Oral Care, we
still have a $15 billion white space opportunity.

The majority of white space opportunity exists in developing markets. These
countries represent 23% of P&G sales currently, but they have 86% of the world's
population, account for 25% of global GDP today, and will approach 30% by the
end of the decade. This is particularly important for P&G because increases in
household formation and income drive the growth and development of consumer
products categories.

New business creation is another source of top-line growth. P&G has a proven
track record of building new categories and creating new brands. No other
consumer products company is creating entirely new businesses at the rate we
are. We have generated nearly $5 billion of retail sales in

P&G's organic growth will come from continued SHARE GROWTH, WHITE SPACE
EXPANSION, and NEW BUSINESS creation.

(1) Excluding the impact of foreign exchange.



We are REALISTIC about the challenges we will face, and we have the FINANCIAL
FLEXIBILITY and ORGANIZATIONAL AGILITY to respond even when unexpected issues
arise.

categories where we did not compete or that did not exist four years ago.

We will continue to invest in new businesses, with emphasis on entering or
creating categories adjacent to existing P&G categories. We have identified
more than $20 billion of opportunity in categories that are growing an average
6% per year with P&G-average margins. These new categories are close enough to
P&G's core to give us confidence we could be a serious contender for
leadership.

CHALLENGES TO GROWTH

Even with these significant growth opportunities, we are realistic about the
challenges we face.

Completing the integration of Gillette is a key challenge. We've identified
$1-$1.2 billion in cost synergies. We remain confident we can achieve these
synergies while integrating our companies and, importantly, keeping P&G's and
Gillette's existing businesses healthy and growing.

Competitive pressure is unrelenting. P&G competes against some of the best
companies in the world, and we can expect them to continue competing
aggressively. We know we must sustain the pace of innovation that has been a key
driver of P&G's success over the past several years. At the same time, we know
it is likely that competitors will continue to compete on price and trade
incentives, so we must preserve the financial flexibility to price
competitively to ensure consumer value and to protect P&G brand market shares.

The high cost of commodities and other materials is another significant
challenge. Oil is up 45% versus year ago. Resin costs are up 20%. Coffee beans
are up more than 40%. All this is resulting in higher product costs. We will
continue to take pricing actions to recover commodity increases where and when
we can, and we will continue to focus on ongoing cost savings to offset
commodity increases.

These are some of the challenges we face. There will be other challenges we
cannot predict. The key is to have the financial flexibility and
organizational agility to respond even when unexpected issues arise. This is why
P&G's balance and leadership are so important. The Company's balance provides
the financial flexibility we need to respond to external challenges. P&G's
leadership enables us to continue investing in growth and to continue creating
value with retail partners and suppliers, even as we manage through tough
challenges.


EARNING YOUR TRUST

Growing a company the size of P&G is not easy, but our performance over the past
few years demonstrates that it is achievable - with clear strategies, core
strengths, a balanced approach to growth, and the benefits of leadership.

We know we must continue to see things as they are, to stay reality-based. We
must embrace change and proactively influence its course. We must play to P&G's
strengths and stay with the business strategy that is working. Above all, we
must serve consumers as our boss. Only by improving consumers' lives in
meaningful ways every day - with P&G brands of superior performance, quality,
and value - can we deliver the growth you expect every year.

I am confident P&G people are up to the challenge, and I thank you for your
continued trust and support.

/s/ A.G. Lafley
- --------------------
A.G. Lafley

Chairman of the Board,                    August 9, 2005
President and Chief Executive

[PICTURE]

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

Our performance demonstrates that with CLEAR STRATEGIES, a unique combination of
STRENGTHS, a BALANCED APPROACH to growth, and the benefits of LEADERSHIP, P&G
can SUSTAIN GROWTH for the long term.



[THE GILLETTE COMPANY LOGO]

$10.5 BILLION

2004 Sales with $1.7 billion net income

[PICTURE]

Blades and Razors has more than a 70% global market share - nearly five times
higher than the nearest competitor.

[DURACELL PICTURE]

Duracell increased its leading global market share of alkaline batteries to
40% in 2004.

[PICTURE]

Braun is the #1 global brand in the premium electric shaver market.

Oral-B has strong portfolio in manual, battery, and rechargeable toothbrushes
and is the global leader with a 36% share of market.

[PICTURE]

INTEGRATING GILLETTE

On July 12, 2005, P&G and Gillette shareholders overwhelmingly approved the
combination of the two companies, with more than 96% of voting shareholders in
favor of the acquisition. The Gillette integration team is jointly led by P&G
Chief Financial Officer Clayt Daley and Gillette CEO Jim Kilts. In this
discussion, P&G CEO A.G. Lafley addresses questions about the planned
integration.

"Mega-mergers" often fail, even when the companies are in the same industry. How
will this acquisition be different? There are a number of important differences
that make us confident this combination will not just work, but thrive. The
first is the health of our businesses. Often, when companies are acquired, one
of the companies is struggling. That's not the case here. Both Gillette and P&G
are delivering strong top- and bottom-line growth. We're combining Gillette's
and P&G's healthy brand franchises and core strengths. And, we're coming
together at a time when there are abundant opportunities for even more growth.
We believe we can and will grow faster together than either company could grow
alone.

Another key difference is the unique flexibility of P&G's organization
structure. P&G's Global Business Unit (GBU), Market Development Organization
(MDO), and Global Business Services (GBS) structure gives us the ability to
integrate new businesses while continuing to build existing businesses.

The Iams, Clairol, and Wella acquisitions demonstrated this capability. Our
market development organizations have taken Clairol's Herbal Essences brand
global while concurrently building Pantene to record global market share and
turning Head & Shoulders into one of our fastest-growing billion-dollar brands.
Likewise, P&G's Global Business Services organization has been integrating
back-office support for the new acquisitions while also raising service levels
and lowering costs for P&G's base business. No other consumer products company
has created similar organization capabilities. Gillette's businesses will take
full advantage of P&G's GBU, MDO, and GBS organization structure.

Do you remain confident that you can achieve the cost and revenue synergy goals?
Yes. We've identified more than a billion dollars in cost synergy opportunities.
Integration teams are developing plans to deliver them. We will eliminate
administrative overlap by integrating Gillette's and P&G's corporate staffs. We
will deliver critical support through P&G's Global Business Services
organization, leveraging scale to deliver best-in-class costs not available to
Gillette today. We see significant synergy opportunities in purchasing,
manufacturing, logistics, marketing, and retail selling.



We have also begun planning revenue synergies. Short term, our focus is on
expanding the distribution of Gillette brands into channels and markets where
they are not fully represented today, such as China. At the same time, we want
to leverage Gillette's strong in-store presence in channels and with customers
where P&G brands are not fully developed, such as home improvement channels.

Mid-term, our focus will be on broadening Gillette's brand equities. We're
confident the Gillette brand can stand for more than blades, razors, and pre-
and post-shave products in the hearts and minds of consumers. This is a great
global brand that can become an even bigger and broader platform for innovation.

Mismatched cultures are frequently a reason big mergers or acquisitions don't
work out. Are the cultures of Gillette and P&G compatible? Absolutely. Our
companies are more alike than different. We're both in the business of improving
consumers' lives every day. We both operate according to similar values handed
down over generations. We both have the same belief in the power of brands and
innovation. We both are known for outstanding people at every level, in every
part of the business. We're a great fit.

We did a culture survey with input from Gillette and P&G management and
employees. We looked at decision making, recognition and reward systems, and a
number of other critical cultural behaviors and norms. The two companies were
very similar in the majority of areas. There were a few differences - for
example, in how each company defines accountability and how we communicate
internally - which we see as opportunities to grow and to learn from each other.

The fit between our cultures is evident in the spirit of collaboration with
which people are working together. The people on Gillette and P&G businesses are
focused on delivering their current business goals, while the integration teams
are completing transition and synergy plans. We're being open and transparent
about every aspect of the integration effort. We're moving quickly and making
decisions collaboratively and promptly. And, we're communicating every step of
the way to build credibility and trust. Integrating the cultures and
organizations of two companies with histories as long and rich as P&G's and
Gillette's is a complex undertaking - but it's a challenge our people have taken
on with a real commitment to excellence and success.

What are you doing to attract and retain key Gillette talent? Our strategy is to
field the best team, drawing from both Gillette and P&G. We're focused on
ensuring leadership continuity on Gillette businesses and on assigning the right
Gillette and P&G people to critical roles.

We've had excellent success ensuring leadership continuity on the Gillette
businesses. Gillette CEO Jim Kilts will run the new Blades/Razor, Duracell, and
Braun global business unit, and the vast majority of his leadership team has
committed to join P&G.

We've focused initially on continuity at the leadership level, but we are
committed to retaining top Gillette talent at every level. We're approaching
this with the same mindset and capability we bring to our recruiting efforts at
top universities and business schools: P&G leaders are personally involved; we
have an extensive on-boarding program tailored to the needs of each individual;
and we're tracking results to ensure we deliver retention and continuity goals.

We're COMBINING Gillette's and P&G's HEALTHY BRAND FRANCHISES and CORE
STRENGTHS. We're coming together when there are abundant OPPORTUNITIES FOR
GROWTH.



                                   [17 LOGO]

P & G BILLION DOLLAR BRANDS are platforms for innovation. They are global
leaders. Consumers want them in their homes. Retailers want them in their
stores. They enable us to bring innovation to consumers around the world
effectively, efficiently, and profitably. They make consumers' lives a little
better, every day.

                                                                     A.G. LAFLEY



[PICTURE]

P & G BEAUTY CONTINUED TO DELIGHT CONSUMERS WITH NEW PRODUCT INNOVATIONS ON
LEADING BRANDS IN NORTH AMERICA.

[PICTURE]

WELLA'S PROFESSIONAL HAIR CARE BUSINESS DELIVERED 8% SALES GROWTH IN FISCAL YEAR
2005 - THE SECOND YEAR FOLLOWING ACQUISITION.

[PICTURE]

NATURELLA FEMININE CARE GLOBAL VOLUME MORE THAN DOUBLED BEHIND EXPANSION IN
LATIN AMERICA AND CENTRAL AND EASTERN EUROPE.

Net Sales
(In billions of dollars)

               
2003              12.2
2004              17.1
2005              19.5



Net Earnings
(In billions of dollars)

               
2003              1.9
2004              2.3
2005              2.9



Top 10 P&G Beauty Brands (Net Sales)

[LOGO]

P&G BEAUTY

FISCAL YEAR 2005 RESULTS

P&G Beauty delivered its third consecutive year of double-digit growth in
volume, sales, and profit. Volume increased 12%, sales increased 14%, and net
earnings increased 22%.

This industry leading performance was driven mainly by broad-based organic
growth across geographies and brands. Each of our top 10 countries delivered
higher sales than a year ago, with solid gains in both developed and developing
markets. Global market shares continue to grow, with most of our leading brands
at record highs.

Each of our billion-dollar brands - five in total - grew sales and market
share. Pantene, the world's leading hair care brand with over $2 billion in
sales and over 10% global share, posted 13% volume growth. Head & Shoulders, the
world's second-largest shampoo brand, grew volume 15%, achieving record global
market share of nearly 10%.

Olay, one of P&G's fastest growing billion-dollar brands, grew global volume
nearly 30%, driven by continued momentum of the Regenerist and Total Effects
lines, and new innovations like Olay Quench, a hand and body moisturizing
treatment with superior skin benefits. Always, the world's leading feminine
care brand, grew volume by 11% and reached record-high global market share of
22%. In addition, the Prestige and Professional business posted strong top-line
gains with global sales up double digits.

P&G Beauty also has a strong stable of potential billion-dollar brands with
sales in the range of $500 million to $1 billion which are driving growth. Hugo
Boss, along with Lacoste - which is now 10 times bigger than when we acquired
the license in 2001 - further strengthened our global leadership position in
men's fine fragrances. SK-II, our prestige skin care brand, grew volume 13%
behind innovations such as De-Wrinkle Essence and Facial Lift Emulsion.

With these many successes, we also face some challenges. Our growth last year in
U.S. Hair Care did not meet our high expectations, and we are pruning
underperforming brands. In hair colorants, we are still rebuilding our
innovation pipeline. We compete against outstanding companies with long
histories in beauty, and we never underestimate their ability to innovate and
attract the attention of consumers. 2005 was a very good year, and we are
prepared for the challenges of 2006.



[PICTURE]

[PHOTO OF SUSAN E. ARNOLD]
Vice Chairman
P&G Beauty

WHAT'S WORKING

P&G Beauty has become one of the leading beauty companies in the world. Beauty
is an attractive business with relatively high margins and low capital costs
compared to most other consumer goods segments. It's a large and fragmented
market with clear opportunity to build share and grow sales. And, it's
responsive to consumer driven innovation and branding. Beauty is a natural fit
for P&G.

P&G Beauty is focused on delivering consumer understanding that reaches beyond
functional needs to connect at a deeper emotional level. We are leading
innovation that goes beyond science to include sophisticated design that creates
a total beauty experience and delights consumers. In addition, we are driving
cost reduction by leveraging scale and eliminating inefficiencies, so we can
fully support innovation and offer superior consumer value while building margin
year-on-year, a balanced approach to sustain top- and bottom-line growth.

These focus areas allow us to meet an ever broader spectrum of consumer needs.
For example, our new Pantene Color Expressions shampoo helps colored hair retain
its vibrance and shine. Nice 'n Easy Root Touch-Up gives women an easy way to
replace color at the root line with the exact shade they want. Olay Quench uses
proprietary ingredients to deliver a non-greasy Amino Vitamin formula that is
drawn into the skin to repair it and leave it naturally radiant. Naturella
feminine care products with chamomile are skin-friendly, responding to
consumers' desire for freshness. Innovations like these, built from deep
understanding of consumers' needs and aspirations, are growing our P&G Beauty
business in every region of the world.

We continue, as well, to complement organic innovation with strategic
acquisitions and licensing arrangements. The Clairol and Wella acquisitions have
expanded our portfolio to colorants and to professional hair care. They've
extended our hair care, styling, and fragrance portfolios, as have license
agreements with classic fashion brands such as Valentino and Lacoste. In
addition to expanding our portfolio, these acquisitions have built our
capabilities to connect with consumers, to innovate, to commercialize, and to
win in Beauty.

P&G Beauty is building upon the Company's core strengths, and developing
complementary skills, to create winning Beauty-specific capabilities. As the
fastest growing global beauty business last year, we are well on our way to
becoming the most innovative and in-touch beauty company in the world.

P&G Beauty delivered its third consecutive year of double-digit growth in
volume, sales, and profit.


[MAP]

Prilosec OTC market share reached 35% of the U.S. heartburn treatment segment.

[PICTURE]

Crest toothpaste share in China increased >8% points to over 25%.

[PICTURE]

CHARMIN POSTED 8% VOLUME GROWTH BEHIND PRODUCT INNOVATIONS SUCH AS MEGAROLL.

[PICTURE]

Net Sales
(In billions of dollars)

               
2003              15.7
2004              17.7
2005              19.7



Net Earnings
(In billions of dollars)

               
2003              1.6
2004              1.9
2005              2.3



Top 10 P&G Family Health Brands (Net Sales)

[LOGO]

P&G FAMILY HEALTH

FISCAL YEAR 2005 RESULTS

P&G Family Health delivered a strong year of volume, sales, and profit growth.
Unit volume grew 8%, net sales grew 11%, and net earnings increased 18%. The
growth has been broad-based across the portfolio of leading brands. Six of P&G's
17 billion-dollar brands are in Family Health - Pampers, Crest, Bounty, Charmin,
Iams, and Actonel - and Vicks and Prilosec OTC are in the next tier of brands
with annual sales between $500 million and $1 billion. All eight of these brands
delivered solid global volume growth in fiscal year 2005.

Baby Care and Family Care led the way with combined sales up 11% and profits up
28%. Baby Care continued to extend its global leadership with global market
share of 37% behind sound product initiatives, holistic marketing, and expanded
product offerings to lower-income consumers. Pampers also launched Kandoo
children's personal care products in North America and expanded the lineup in
Western Europe, further extending the franchise from babies to younger children.
Family Care made strong progress behind its Bounty, Charmin, Puffs, and Tempo
brands in all regions where we operate. In the core market of the U.S., Family
Care market share rose to over 30%. In addition, Baby Care and Family Care have
successfully executed price increases to offset higher commodity costs, which
also helped year-on-year profit growth.

In Health Care, sales were up 11% and profits up 8%. Pharmaceuticals and
Personal Health Care led the way with excellent growth on Actonel and Prilosec
OTC. Actonel has now achieved a 33% global share of bisphosphonates in the
fast-growing osteoporosis market. Prilosec OTC achieved a U.S. share of 35%.
Oral Care delivered modest volume growth, despite aggressive competitive
activity and contraction of the tooth-whitening market, based on strong
performance in China and Russia on the Crest and Blend-a-Med brands. In the
U.S., Crest extended its franchise into oral rinses with the launch of Crest
Pro-Health Rinse, a no-alcohol formula that kills germs that cause plaque and
gingivitis without the burn of alcohol. Pet Health & Nutrition posted solid
top-line results, led by growth in North America and Japan. Iams is now the
single largest pet care brand in the U.S.

WHAT'S WORKING

We have sharpened our focus on keeping families healthy for life. We do this by
delighting consumers with better performing products that represent good value
for the money. We have strengthened our capability to execute commercial and
technical innovation with holistic marketing plans that resonate at every
consumer touchpoint.

Innovative products like Crest Pro-Health Rinse, Pampers Feel'n Learn Advanced
Training Pants, Actonel with Calcium, and Iams Savory Sauces offer a continuing
stream of new benefits. Prilosec OTC, which brought one of the biggest
prescription medicines to consumers for treating frequent heartburn at an
affordable price over-the-counter, continues to grow quickly. At the same time,
we are launching new products that delight lower-income consumers - like Vicks
Honey Cough Syrup in Brazil, Pampers Baby Basics in China, Blendax toothpaste in
Russia, and Bounty Basic and Charmin Basic in the United States.

The Pampers Feel'n Learn launch showcased our ability to bond with parents via
well-executed holistic marketing plans. We quickly built awareness and trial of
Feel'n Learn by surrounding parents with TV advertising, on-line potty training
kits, media coverage, and in-store displays containing consistent and compelling
images and messages. Parents couldn't miss the news of the unique way Feel'n
Learn helps empower toddlers to master the challenge of potty training.

In addition, we've continued our relentless focus on cost reduction, cash
generation, and operational discipline. To meet the needs of the world's
consumers and win the competitive value equation, we know we need to have
best-in-class structural costs. We are focusing on tight control of capital
spending, improved inventory control, and lower product and manufacturing costs
through standardized manufacturing platforms, localized raw materials supply,
and utilizing contract manufacturing where possible. And when necessary, we are
raising prices to offset commodity cost increases.

As we look forward, we are guided by a common vision for P&G Family Health - to
keep families healthy for life. We know our target consumer - women who play a
key role in the health of their families, from newborns to seniors, in developed
and developing markets. We will continue to leverage P&G's unique combination of
technologies and capabilities and continue to connect with external partners to
offer more brands, innovation, and value to improve family health everywhere.

[PHOTO OF R. KERRY CLARK]
Vice Chairman of the Board,
P&G Family Health

Family Health delivered a strong year of broad-based growth with sales up 11%
and earnings up 18%.


[PICTURE]

Behind strong growth in Europe and expansion into Japan, Lenor fabric
conditioner grew global volume >30%

FEBREZE AIR EFFECTS GAINED 14% MARKET SHARE IN LESS THAN ONE YEAR AFTER ITS U.S.
LAUNCH IN THE HIGHLY COMPETITIVE AIR FRESHENER SEGMENT.

[PICTURE]

PRINGLES SNACK STACKS LED THE BRAND TO HIGH SINGLE-DIGIT VOLUME GROWTH IN THE
UNITED STATES.

Net Sales
(In billions of dollars)

               
2003              15.2
2004              16.8
2005              18.4



Net Earnings
(In billions of dollars)

               
2003              2.3
2004              2.5
2005              2.5



Top 10 P&G Household Care Brands (Net Sales)

P&G HOUSEHOLD CARE

FISCAL YEAR 2005 RESULTS

P&G Household Care is part of P&G's strong business foundation, representing
about one-third of the Company's sales and earnings, and contributing some of
the highest margins in the Company. In 2005, P&G Household Care results reflect
the challenging environments in which many of our businesses operate.

Volume was up 8% and sales up 10%. Top-line growth was broad-based across the
leading Household Care brands. They include six of the Company's billion-dollar
brands - Tide, Ariel, Downy, Pringles, Folgers, and P&G's newest billion-dollar
brand, Dawn. Each of these brands posted solid volume growth for the year, led
by Tide and Downy, which both grew double-digits.

Profit was up modestly versus the prior year as the benefits from strong
top-line growth were largely offset by high commodity costs in our largest
businesses. In the Coffee business, we have been successful in pricing to cover
green coffee bean cost increases. In Fabric Care and Home Care, we have
increased our list prices in markets where the competitive environment would
allow. However, the benefits from the price increases began to impact our
results late in the fiscal year and only partially offset higher materials
costs. In addition, we have implemented many new internal cost savings programs
in all areas of the business to help reduce the need to raise consumer prices
for our brands. These challenges and our hard work to address them will continue
into fiscal year 2006.

WHAT'S WORKING

Our P&G Household Care mission is to make the everyday lives of the world's
consumers a little brighter and help them create a home they love. We do this by
understanding consumers' needs and then providing them with innovations at an
outstanding value. The concept is simple - executing it is the hard part. And
when we execute well, consumers reward us with higher volume, sales, and market
share results.

As the global market leader in Fabric Care, we introduced Tide with a touch of
Downy, Tide Coldwater and Downy Simple Pleasures in developed markets during the
year. And we grew our Fabric Care business in developing markets, particularly
Russia and China, by designing unique product formulations to meet the needs of
consumers across more pricing tiers than ever before.

Home Care continued to drive top-line growth for P&G, as our key brands expanded
into new product areas. We expanded Febreze from the fabric spray market into
the air freshener segment with Febreze Air Effects. We expanded Swiffer Duster
into Western Europe and will soon expand into a new usage occasion in North
America, with Swiffer Carpet Flick.

In Snacks, our unique Pringles production capabilities are enabling us to
deliver innovation such as Pringles Prints, which are fun for consumers and
allow us to offer retailers customized products for their stores. Also,
consumers continue to enjoy the variety offered by Pringles' steady stream of
new flavors.

In Coffee, Folgers continues to be the clear market leader in the U.S., at 32%
share. And with innovations such as our Home Cafe single-serving pod brewer, we
are expanding into high-value areas of the coffee market that offer consumers
more convenience and a great brew.

As we look forward, we know a combination of strong innovation, rigorous cost
controls, and pricing to offset increased commodity costs is required for
continued steady, profitable growth. The necessity of delivering
consumer-relevant innovation at a great value has never been more important
given heightened promotional activity by competitors and the need to distinguish
P&G brands from those that compete on the basis of low price. Consumers who shop
at all price points have high product performance expectations.

We are focusing on optimizing our cost structure and developing low-cost
activity systems to support the long-term health of our brands and our industry
leading margins. While these actions were not enough to fully offset higher
commodity costs in 2005, our continued focus on these critical factors will
enable us to return to steady profit growth over time and emerge even better
able to help consumers create a home they love.

[PHOTO OF BRUCE L. BYRNES]
Vice Chairman of the Board,
P&G Household Care

Top-line growth in P&G Household Care was broad-based across all of the leading
brands.



[MAP]

P&G's best-in-class Global Business Services organization is based in three
high-quality, low-cost hubs: San Jose, Costa Rica; Manila, Philippines;
Newcastle, UK.

SMALL NEIGHBORHOOD "HIGH-FREQUENCY STORES" SERVE ABOUT 80% OF CONSUMERS IN THE
DEVELOPING WORLD

[PICTURE]

Top 16 Brands
(Volume Growth)



                  Top 16           Balance
                  Brands          of Brands
                             
2003                8%                4%
2004               10%               10%
2005               10%                7%



Top 16 Countries
(Volume Growth)

[BAR CHART]


                  Top 16           Balance
                 Countries      of Countries
                             
2003                9%                3%
2004                9%               14%
2005                8%               15%


Geographic Sales Split
(FY 2005 Net Sales)

[PIE CHART]

                         
North America               48%
Western Europe              24%
Developing Geographies      23%
Northeast Asia               5%



Top 10 Customers
(Volume Growth)


                  Top 10           Balance
                Customers        of Customers
                             
2003               13%                6%
2004                8%               10%
2005                7%               10%


GLOBAL OPERATIONS

FISCAL YEAR 2005 RESULTS

Our focus on delighting the world's consumers and winning at the First Moment of
Truth, when consumers choose our brands in-store, has again delivered strong
results in fiscal year 2005. P&G's global organic volume grew 8%. In developed
markets, P&G continued its steady momentum with mid-single-digit organic volume
growth. Developing markets, which accounted for about 23% of P&G's sales in
fiscal 2005, posted the third consecutive year of mid-teens or greater volume
growth.

The growth was also well balanced across P&G's leading brands, countries, and
customers. P&G grew volume on all of its top 16 global brands and countries, and
grew market share in eight of the top 10 customers. Also, P&G's Global Business
Services (GBS) organization continued to provide world-class services at
substantial cost savings.

WHAT'S WORKING

Global Operations brings together P&G's Supply Chain, Market Development, and
Global Business Services operations. Our challenge is to leverage P&G's scale
and leading portfolio of brands to profitably grow the business by delivering
best-in-class consumer and shopper understanding, customer relationships, and
highest-quality, lowest-cost supply chain and business services infrastructure.
The keys to our success include:

Creating and Reapplying Winning Go-to-Market Strategies. We leverage local
consumer, shopper, and retail customer insights to build integrated
cross-business unit plans with customers and create efficiencies across the
breadth of P&G's businesses as we go to market. We then leverage P&G's global
scale to reapply success models quickly around the world. For example, our
learning from SK-II store counters in Asia has been designed into our Olay
launch in Spain with great results; and the Naturella feminine care brand,
originally developed in Latin America, is now being rolled out in Central and
Eastern Europe.

Winning the Value Equation with All Consumers. We continue to enrich our
understanding of the world's consumers and find new ways to expand our consumer
base. An example is value-conscious consumers. By better understanding their
needs and driving product innovation specifically designed to delight them - on
both product performance and cost - brands like Always, Crest, and Tide are now
appealing to a much larger consumer base than ever before. In addition, P&G has
rapidly increased its presence in high-frequency stores (HFS), the small
neighborhood stores which serve about 80% of consumers in the developing world.
We have grown HFS volume 50% in the last four years, and if consolidated
globally, HFS would be P&G's largest customer.

Winning by Jointly Creating Value with Our Customers. We partner with winning
retailers to jointly create value through in-depth shopper and supply chain
understanding. By partnering together, we create plans that often add two or
more points of sales growth versus the average. Examples of these activities
include in-store solutions that improve the shopping experience, targeted
marketing programs that leverage our shopper knowledge, and supply chain
optimization projects that improve the availability of our products on the
shelf.

Building P&G Beauty and Health Capability. In every region around the world, we
are building our Beauty and Health go-to-market capability. We are providing
more dedicated people to support our retail partners to enhance programs that
are uniquely important to these businesses, such as in-store marketing to build
trial and awareness of new innovations. In addition, we are strengthening
capabilities to reach professionals in the Hair Styling, Oral Care, and Pet
Health businesses - thought leaders and trendsetters in their industries.

Leverage P&G's Best-in-Class Global Business Services Organization. GBS provides
P&G with an often-unseen competitive advantage. GBS combines information
management and analysis capabilities to take P&G's use of information to a far
more strategic level. These efforts help P&G's Market Development Organizations
and Global Business Units make better, smarter, real-time business decisions.

Looking forward, the proposed acquisition of Gillette will provide P&G Global
Operations with an exciting and challenging year ahead. The outstanding Global
Operations capabilities outlined above will be key enablers for the successful
integration of Gillette's brands, people, go-to-market plans, and business
services needs. These strong capabilities also give us confidence that P&G can
continue to grow its base business, improve its cost structure and delight more
of the world's consumers while executing the Gillette integration with
excellence.

[PHOTO OF ROBERT A. MCDONALD]
Vice Chairman,
Global Operations

Our focus on delighting consumers and winning the First Moment of Truth has
delivered strong results.

[PICTURE]


22 THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

At Procter & Gamble, we take great pride in our long history of doing what's
right. If you analyze what's made our Company successful over the years, you may
focus on our brands, our marketing strategies, our organization design and our
ability to innovate. But if you really want to get at what drives our Company's
success, the place to look is our people. Our people are deeply committed to our
Purpose, Values and Principles. It is this commitment to doing what's right that
unites us.

This commitment to doing what's right is embodied in our financial reporting.
High quality financial reporting is our responsibility - one we execute with
integrity and within both the letter and spirit of the law.

High quality financial reporting is characterized by accuracy, objectivity and
transparency. Management is responsible for maintaining an effective system of
internal controls over financial reporting to deliver those characteristics in
all material respects. The Board of Directors, through its Audit Committee,
provides oversight. They have engaged Deloitte & Touche LLP to audit our
consolidated financial statements, on which they have issued an unqualified
opinion.

Our commitment to providing timely, accurate and understandable information to
investors encompasses:

Communicating expectations to employees. Every employee - from senior management
on down - is trained on the Company's "Worldwide Business Conduct Manual," which
sets forth the Company's commitment to conduct its business affairs with high
ethical standards. Every employee is held personally accountable for compliance
and is provided several means of reporting any concerns about violations of the
Worldwide Business Conduct Manual. The Worldwide Business Conduct Manual is
available on our website at www.pg.com.

Maintaining a strong internal control environment. Our system of internal
controls includes written policies and procedures, segregation of duties and the
careful selection and development of employees. The system is designed to
provide reasonable assurance that transactions are executed as authorized and
appropriately recorded, that assets are safeguarded and that accounting records
are sufficiently reliable to permit the preparation of financial statements
conforming in all material respects with accounting principles generally
accepted in the United States of America. We monitor these internal controls
through control self assessments by business unit management. In addition to
performing financial and compliance audits around the world, including
unannounced audits, our Global Internal Audit organization provides training and
continuously improves internal control processes. Appropriate actions are taken
by management to correct any identified control deficiencies.

Executing financial stewardship. We maintain specific programs and activities to
ensure that employees understand their fiduciary responsibilities to
shareholders. This ongoing effort encompasses financial discipline in strategic
and daily business decisions and brings particular focus to maintaining accurate
financial reporting and effective controls through process improvement, skill
development and oversight.

Exerting rigorous oversight of the business. We continuously review business
results and strategic choices. Our Global Leadership Council is actively
involved - from understanding strategies to reviewing key initiatives,
financial performance and control assessments. The intent is to ensure we remain
objective, identify potential issues, continuously challenge each other and
ensure recognition and rewards are appropriately aligned with results.

Engaging our Disclosure Committee. We maintain disclosure controls and
procedures designed to ensure that information required to be disclosed is
recorded, processed, summarized and reported timely and accurately. Our
Disclosure Committee is a group of senior-level executives responsible for
evaluating disclosure implications of significant business activities and
events. The Committee reports its findings to the CEO and CFO, providing an
effective process to evaluate our external disclosure obligations.

Encouraging strong and effective corporate governance from our Board of
Directors. We have an active, capable and diligent Board that meets the required
standards for independence, and we welcome the Board's oversight. Our Audit
Committee comprises independent directors with significant financial knowledge
and experience. We review significant accounting policies, financial reporting
and internal control matters with them and encourage their independent
discussions with external auditors. Our corporate governance guidelines, as well
as the charter of the Audit Committee and certain other committees of our Board,
are available on our website at www.pg.com.

P&G has a strong history of doing what's right. Our employees embrace our
Purpose, Values and Principles. We take responsibility for the quality and
accuracy of our financial reporting. We present this information proudly, with
the expectation that those who use it will understand our Company, recognize our
commitment to performance with integrity and share our confidence in P&G's
future.

/s/ A.G. Lafley                       /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

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal
control over financial reporting of The Procter & Gamble Company (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles in the United States of America.

We expect each employee to be accountable for ensuring strong internal controls.
This objective is reinforced through our Worldwide Business Conduct Manual,
which sets forth our commitment to conduct business with integrity and within
both the letter and the spirit of the law. Our internal control system, which is
supported with written policies and procedures, contains a Control Self
Assessment Program conducted annually by substantially all areas of the Company
and is audited by the internal audit function. Appropriate actions are taken by
management to correct any identified control deficiencies.

Because of its inherent limitations, any system of internal control over
financial reporting, no matter how well designed, may not prevent or detect
misstatements due to the possibility that a control can be circumvented or
overridden or that misstatements due to error or fraud may occur that are not
detected. Also, because of changes in conditions, internal control effectiveness
may vary over time.

Management assessed the effectiveness of the Company's internal control over
financial reporting as of June 30, 2005 using criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) and concluded that the Company maintained
effective internal control over financial reporting as of June 30, 2005 based
on these criteria.

Our internal control over financial reporting as of June 30, 2005, as well as
our assessment of the effectiveness of our internal control over financial
reporting as of June 30, 2005, have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in the report which is
included herein.

/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
August 9, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

[DELOITTE LOGO]

To the Board of Directors and Shareholders of
The Procter & Gamble Company

We have audited the accompanying consolidated balance sheets of The Procter &
Gamble Company and subsidiaries (the "Company") as of June 30, 2005 and 2004,
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the three years in the period ended June 30, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 2005 and
2004, and the results of its operations and cash flows for each of the three
years in the period ended June 30, 2005, in conformity with accounting
principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of June 30, 2005, based on the
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated August 9, 2005 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.

DELOITTE & TOUCHE LLP
Cincinnati, Ohio                                                  August 9, 2005



24  The Procter & Gamble Company and Subsidiaries

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

[DELOITTE LOGO]

To the Board of Directors and Shareholders of
The Procter & Gamble Company

We have audited management's assessment, included in Management's Report on
Internal Control Over Financial Reporting, that The Procter & Gamble Company and
subsidiaries (the "Company") maintained effective internal control over
financial reporting as of June 30, 2005, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of June 30, 2005, is fairly
stated, in all material respects, based on the criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2005, based on the criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended June 30, 2005 of the Company and our
report dated August 9, 2005 expressed an unqualified opinion on those financial
statements.

DELOITTE & TOUCHE LLP
Cincinnati, Ohio                                                  August 9, 2005



                                The Procter & Gamble Company and Subsidiaries 25

TABLE OF CONTENTS

                                               
MANAGEMENT'S DISCUSSION AND ANALYSIS
   Overview........................................ 25
   Results of Operations........................... 28
   Segment Results................................. 31
   Financial Condition............................. 34
   Significant Accounting Policies
         and Estimates............................. 37
   Other Information............................... 39

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
   Earnings........................................ 41
   Balance Sheets.................................. 42
   Shareholders' Equity............................ 44
   Cash Flows...................................... 45
   Notes to Consolidated Financial Statements...... 46



MANAGEMENT'S DISCUSSION AND ANALYSIS

The purpose of this discussion is to provide an understanding of P&G's financial
results and condition by focusing on changes in certain key measures from year
to year. Management's Discussion and Analysis (MD&A) is organized in the
following sections:

- -     Overview of the Company and summary of results for the fiscal year

- -     Results of operations

- -     Segment results

- -     Financial condition

- -     Significant accounting policies and estimates

- -     Other information

Throughout MD&A, we refer to measures used by management to evaluate performance
including unit volume growth, net outside sales and after-tax profit. We also
refer to organic sales growth (net sales growth excluding the impacts of
acquisitions, divestitures and foreign exchange), free cash flow and free cash
flow productivity, which are not defined under accounting principles generally
accepted in the United States of America (U.S. GAAP). The explanation of these
measures at the end of MD&A provides more details. Management also uses certain
market share estimates to evaluate performance relative to competition - despite
limitations on the availability and comparability of share information.
References to market share in MD&A are based on a combination of vendor-reported
consumption and market size data, as well as internal estimates.

OVERVIEW

P&G's business is focused on providing branded products of superior quality and
value to improve the lives of the world's consumers. We believe this will result
in leadership sales, profits and value creation, allowing employees,
shareholders and the communities in which we operate to prosper.

Procter & Gamble markets over 300 branded products in more than 160 countries.
We have operations in over 80 countries through our Market Development
Organization (MDO). The MDO includes dedicated retail customer, trade channel
and country-specific teams that work to build our brands in local markets. It
is organized along seven geographic areas: North America, Western Europe,
Northeast Asia, Latin America, Central and Eastern Europe/Middle East/Africa,
Greater China and ASEAN/Australasia/India. Throughout MD&A, we reference
business results in developing markets, which we define as the aggregate of
Latin America, Central and Eastern Europe/Middle East/Africa, Greater China and
ASEAN/Australasia/India.

Our products are sold primarily through mass merchandisers, grocery stores,
membership club stores and drug stores. We have also expanded our presence in
"high frequency stores," the neighborhood stores which serve many consumers in
developing markets.

We compete in multiple product categories and have three Global Business Units
(GBUs): P&G Beauty, P&G Family Health and P&G Household Care. We manage and
report business and financial results on this basis. Each GBU and the MDO is led
by a Vice Chair, all of whom report to the Chief Executive Officer. In July,
2005 we changed the names of the GBUs. Beauty Care was renamed P&G Beauty;
Health, Baby & Family Care changed to P&G Family Health; and Household Care was
renamed P&G Household Care. These changes have no impact on the composition or
historical results of the GBUs.

The following charts provide net sales and net earnings by GBU as a percentage
of total Company results, excluding net sales and earnings held in Corporate,
for the fiscal year ended June 30, 2005. Please see the discussion on Corporate
in the Segment Results discussion and Note 11 to the Consolidated Financial
Statements for more information.



26 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

2005 Net Sales
(by GBU)

[PIE CHART]

                          
P&G Beauty                   34%
P&G Family Health            34%
P&G Household Care           32%




2005 Net Earnings
(by GBU)

[PIE CHART]

                          
P&G Beauty                   37%
P&G Family Health            30%
P&G Household Care           33%




Strategic Focus

P&G is focused on strategies that we believe are right for the long-term health
of the Company and that will increase returns for our shareholders. The
Company's financial targets are (excluding the impacts of the pending Gillette
acquisition):

- -     Sales growth of 4% to 6% excluding the impact of changes in foreign
      exchange rates from year-over-year comparisons. On average, we expect
      approximately 2% of sales growth to come from market growth; 1% to 3% from
      the combination of market share growth, expansion to new geographies and
      new business creation; and the remaining 1% to come from smaller,
      "tack-on" acquisitions to access markets or complement current business
      portfolios.

- -     Diluted net earnings per share growth of 10% or better.

- -     Free cash flow productivity of 90% or greater (defined as the ratio of
      operating cash flow less capital expenditures divided by net earnings).

In order to achieve these targets, we focus on our core strengths of branding,
innovation, go-to-market capability and scale against the following growth
areas:

- -     Driving our core businesses of Baby Care, Fabric Care, Feminine Care and
      Hair Care into stronger global leadership positions.

- -     Growing our leading brands in our biggest markets with our largest
      customers.

- -     Investing in faster-growing businesses with higher gross margins that are
      less asset-intensive, primarily in the Beauty and Health Care businesses.

- -     Building on opportunities in select developing markets and with
      lower-income consumers.

Sustainability

To sustain consistent and reliable sales and earnings growth in line with our
financial targets, we have identified four key enablers:

- -     Building a diversified and balanced portfolio consisting of foundation
      businesses and higher growth businesses. Foundation businesses include
      many of our established product categories - Fabric Care, Home Care, Baby
      Care, Family Care, Snacks and Coffee. These businesses provide a base for
      steady growth, strong operating cash flows and an excellent training
      ground for future leaders. We are focused on expanding these categories
      through innovative products, offering our brands in more parts of the
      world and tailoring our products to meet the needs of more consumers
      (including lower-income consumers). To complement the steady growth of
      foundation businesses, we are expanding our portfolio of Beauty and Health
      brands. These businesses generally have higher gross margins and lower
      capital requirements than the balance of the Company's portfolio. Over the
      past several years, we have increased the size of our Beauty and Health
      businesses by growing base brands and through acquisitions, including
      Clairol in 2002 and Wella in 2004. Both of these acquisitions expanded our
      presence in the retail and professional hair care categories. In January
      of 2005, we announced our agreement to acquire The Gillette Company, which
      will further expand our portfolio of Beauty and Health brands. Gillette is
      a leader in several global product categories including blades and razors,
      oral care and batteries. Pending regulatory approval, we expect this
      acquisition to close in Fall of 2005. We expect our portfolio of Beauty
      and Health brands to continue to provide a disproportionate percentage of
      growth for the Company.

- -     Investing in innovation and capability to reach more of the world's
      consumers with quality, affordable products. This includes expanding our
      presence in markets and reaching more consumers where we are
      under-represented including lower-income and value-conscious consumers.

- -     Leveraging the Company's organizational structure to drive clear focus,
      accountability and improved go-to-market capability. We have an
      organizational structure that works together to leverage our knowledge and
      scale at the global level with a deep understanding of the consumer and
      customer at the local level.

- - The GBUs leverage their consumer understanding to develop the overall strategy
for our brands. They identify common consumer needs, develop new products and
build our brands through effective marketing innovations.

- - The MDO develops go-to-market plans at the local level, leveraging their
understanding of the local consumer and customer. The MDO is focused on winning
the "first moment of truth" - when a consumer stands in front of the shelf and
chooses a product from



                               The Procter & Gamble Company and  Subsidiaries 27

MANAGEMENT'S DISCUSSION AND ANALYSIS

      among many competitive offerings. The GBU is focused on winning the
      "second moment of truth" - when the consumer uses the product and
      evaluates how well the product meets his or her expectations.

      - Global Business Services (GBS) operates as the "back office" for the
      GBU and MDO organizations, providing world-class technology, processes and
      standard data tools to better understand the business and better serve
      consumers and customers. GBS personnel or highly efficient and effective
      third party partners provide these services.

- -     Focusing relentlessly to improve costs and generate cash. Each GBU is
      evaluated on their ability to support the Company's financial goals. This
      includes an evaluation of net sales growth, earnings growth and profit
      margin expansion. GBUs are also evaluated on their ability to generate
      cash, for example, by increasing capacity utilization and meeting capital
      spending targets.

Summary of 2005 Results

For the fiscal year ended June 30, 2005, we delivered our fourth consecutive
year of sales growth, earnings per share growth and free cash flow productivity
at or above our targets.

- -     Net sales increased 10%. Net sales increased 8% excluding the impact of
      foreign exchange - above our target of 4% to 6%. Organic sales, which
      excludes the impacts of acquisition, divestitures and foreign exchange,
      also increased 8%.

      - Every GBU delivered volume growth rates of high-single digits or
      greater. Within the MDO, every geographic region posted volume growth, led
      by developing markets up high-teens.

      - We increased our overall market share in categories representing
      approximately two-thirds of the Company's net sales. We increased market
      share in each of our core businesses of Baby Care, Fabric Care, Feminine
      Care and Hair Care.

- -     Diluted net earnings per share increased 15% due primarily to volume
      growth.

- -     Cash flow from operating activities was $8.72 billion. Free cash flow
      productivity was in-line with our target of 90%.

Market Overview and Challenges

Our market environment is highly competitive, with both global and local
competitors. In many of the markets and industry segments in which we sell our
products, we compete against other branded products, as well as retailer and
private-label brands. Additionally, many of the product segments in which we
compete are differentiated by price (referred to as premium, mid-tier and
value-tier products). Generally speaking, we compete with premium and mid-tier
products and are well positioned in the industry segments and markets in which
we operate - often holding a leadership or significant share position.

P&G Beauty. We compete in several categories of the beauty market including
Retail and Professional Hair Care, Skin Care, Feminine Care, Cosmetics, Fine
Fragrances and Personal Cleansing. The beauty markets in which we compete
comprise approximately $200 billion in global retail sales, resulting in our
overall share position of about 10%. We are the global market leader in Hair
Care, one of our core businesses, with approximately a 24% share of the global
market. We are also the global market leader in the Feminine Care category,
another core business, with approximately a 36% share of the market.
Billion-dollar brands in P&G Beauty include Pantene, Wella, Olay, Always and
Head & Shoulders.

P&G Family Health. In P&G Family Health, we compete in several distinct health
care product categories including Oral Care, Pharmaceuticals, Personal Health
and Pet Health and Nutrition. In Oral Care, there are several global competitors
in the market, of which we have the number two share position. Our
Pharmaceuticals business has approximately 33% of the global bisphosphonates
market for the treatment of osteoporosis under the Actonel brand. Actonel, along
with Crest and Iams, each have annual sales over one billion dollars.

Baby Care and Family Care compete primarily in the Diapers, Baby Wipes, Bath
Tissue and Kitchen Towel categories. Baby Care is one of our core businesses
with a global share of approximately 37% of the market behind the strength of
Pampers, with annual sales in excess of $6 billion. The markets in which we
compete generally include two to three global companies, as well as local
competitors and retailer brands. Family Care is predominantly a North American
business. The Bounty and Charmin brands, with approximately a 43% and 27% market
share in the United States, respectively, each have annual sales over one
billion dollars.

P&G Household Care. In P&G Household Care, the Fabric Care and Home Care
businesses operate in a global market containing numerous brands in each
geography. We generally have the number one or number two share position in the
markets in which we compete, with particular strength in North America and
Europe. Fabric Care is one of our core businesses and we are the global market
leader with approximately a 32% share. Home Care competes in the Dish Care,
Surface Care and Air Care product categories. Four of our billion-dollar brands
are part of the Fabric Care and Home Care businesses: Tide, Ariel, Downy and
Dawn.

In Snacks and Coffee, we compete primarily in two industry categories: Salted
Snacks and Coffee. In Salted Snacks, we compete against both global and local
companies. One global company dominates the category. In Coffee, we hold a
leadership position of the brands sold predominantly through grocery, mass
merchandise and club



28 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

membership stores in the U.S. Two of our billion-dollar brands are in Snacks and
Coffee - Pringles and Folgers.

Forward-Looking Statements

We discuss expectations regarding future performance, events and outcomes, such
as our business outlook and objectives, in annual and quarterly reports, press
releases and other written and oral communications. All statements, except for
historical and present factual information, are "forward-looking statements"
within the meaning of the "safe harbor" provisions of the Private Security
Litigation Reform Act, and are based on currently available competitive,
financial and economic data and our business plans. Forward-looking statements
are inherently uncertain, and investors must recognize that events could be
significantly different from our expectations.

Ability to Achieve Business Plans. We are a consumer products company and rely
on continued demand for our brands and products. To achieve business goals, we
must develop and sell products that appeal to consumers and retail trade
customers. Our continued success is dependent on leading-edge innovation, with
respect to both products and operations. This means we must be able to obtain
patents and respond to technological advances and patents granted to
competition. Our success is also dependent on effective sales, advertising and
marketing programs in an increasingly fragmented media environment. Our ability
to innovate and execute in these areas will determine the extent to which we are
able to grow existing sales and volume profitably despite high levels of
competitive activity, especially with respect to the product categories and
geographic markets (including developing markets) in which we have chosen to
focus. There continues to be competitive product and pricing pressures in the
environments in which we operate, as well as challenges in maintaining profit
margins. To address these challenges, we must respond to competitive factors,
including pricing, promotional incentives and trade terms for products. We must
manage each of these factors, as well as maintain mutually beneficial
relationships with our key customers, in order to effectively compete and
achieve our business plans. Since our goals include a growth component tied to
acquisitions, we must manage and integrate key acquisitions, such as the Wella
acquisition and the pending acquisition of The Gillette Company, including
obtaining the required regulatory approvals and achieving the cost and growth
synergies in accordance with stated goals.

Cost Pressures. Our costs are subject to fluctuations, particularly due to
changes in commodity prices, cost of labor, foreign exchange and interest rates.
Our costs in 2005 were impacted by sharply higher commodity costs and we expect
this trend to continue in 2006. Therefore, our success is dependent, in part, on
our continued ability to manage these fluctuations through pricing actions,
cost savings projects, sourcing decisions and certain hedging transactions. We
also must manage currency, especially in volatile countries, and debt, including
debt related to our announced plan to repurchase shares of Company common stock.
In the manufacturing and general overhead areas, we need to maintain key
manufacturing and supply arrangements, including sole supplier and sole
manufacturing plant arrangements. We must also implement, achieve and sustain
cost improvement plans, including our outsourcing projects.

Global Economic Conditions. Economic changes, terrorist activity and political
unrest may result in business interruption, inflation, deflation or decreased
demand for our products. Our success will depend in part on our ability to
manage continued global political and/or economic uncertainty, especially in our
significant geographical markets, as well as any political or economic
disruption due to terrorist and other hostile activities.

Regulatory Environment. Changes in laws, regulations and the related
interpretations may alter the environment in which we do business. This includes
changes in environmental, competitive and product-related laws, as well as
changes in accounting standards and taxation requirements. Accordingly, our
ability to manage regulatory, tax and legal matters and to resolve pending
matters within current estimates may impact our results.

RESULTS OF OPERATIONS

Volume and Net Sales

Unit volume in 2005 increased 8%. Each of our three GBUs delivered volume growth
rates of high-single digits or greater led by P&G Beauty, up 12%. Every one of
our geographic-based MDOs posted volume growth, led by developing markets with
high-teens volume growth. Organic volume, which excludes the impacts of
acquisitions and divestitures, also increased 8%. Additional volume from the
acquisition of Wella, which was acquired in September of 2003, was offset by the
divestiture of the Juice business in August of 2004. The increase in volume
versus the prior year was driven by:

- -     High single-digit growth of our "billion-dollar brand" portfolio, which
      represents approximately 60% of total Company volume;

- -     Growth in each of our top 16 countries, representing approximately 80% of
      total Company net sales;

- -     Market share growth in eight of our top 10 customers; and

- -     Continued strength in developing markets, particularly Greater China and
      Central and Eastern Europe/Middle East/Africa.

Net sales reached a record level of $56.74 billion, an increase of 10% versus
the prior year. Foreign exchange contributed 2% to net sales growth, primarily
driven by the strength of the Euro, British pound and Japanese yen. Higher
relative growth in developing markets, where the average unit sales price is
lower than the Company average, resulted in a negative mix impact of 1% on net
sales growth. Pricing added 1% to sales growth. Price increases in Family Care,
Pet Health and Nutrition, Pharmaceuticals, Coffee and in certain Fabric Care
markets were partially offset by price investments taken primarily in Europe to
address the growth of hard discounters and in response to competitive activity
in certain Fabric Care and Baby Care markets. Net sales excluding foreign



                                The Procter & Gamble Company and Subsidiaries 29

MANAGEMENT'S DISCUSSION AND ANALYSIS

exchange increased 8%, well above the Company's target. Organic sales, which
exclude the effects of acquisitions, divestitures and foreign exchange, also
increased 8%.

Net Sales
(in billions of dollars)

              
2003             43.4
2004             51.4
2005             56.7



[PIE CHART]

Geographic Sales Split
(FY 2005 Net Sales)

                      
North America            48%
Western Europe           24%
Northeast Asia            5%
Developing Geographies   23%



In 2004, unit volume increased 17%, with all GBUs and geographic regions
achieving unit volume growth. Excluding the impact of acquisitions and
divestitures, primarily Wella, unit volume for the Company increased 10%. Net
sales were $51.41 billion in 2004, an increase of 19% compared to 2003. Organic
sales increased 8%, well above the Company's target. Net sales increased behind
volume growth, including the addition of Wella, and a positive foreign exchange
impact of 4% due primarily to the strengthening of the Euro, British pound and
Canadian dollar. Product mix reduced sales growth by 1%, reflecting higher
growth in developing markets, including Greater China and Latin America, which
generally have an average unit sales price lower than the Company average.
Pricing adjustments reduced sales growth by 1% as we sharpened Family Care and
Coffee category pricing to remain competitive on shelf and reduced prices to
improve consumer value and stimulate growth in selected product categories,
including Fabric Care and Feminine Care.

Operating Costs

Gross margin in 2005 was 51.0%, a decrease of 20 basis points compared with the
prior year. Higher commodity costs reduced gross margin by over 100 basis
points. We were able to offset approximately half of this impact through the
scale benefits of volume growth, with additional offset coming from supply chain
savings and pricing. Price increases to recover commodity costs were taken in
Family Care, Pet Health and Nutrition, Coffee and certain Fabric Care markets.
Gross margin also contracted due to strong growth in developing markets. Gross
margin in developing markets is generally lower than the Company average.
Additionally, the sale of the Juice business in August of 2004 provided a
positive impact to gross margin, as the Juice business had a lower gross margin
than the Company average.

In 2004, gross margin was 51.2%, an increase of 220 basis points versus the
previous year. Charges for the restructuring program that was substantially
completed in 2003 accounted for 80 basis points of the improvement. Of the
remaining gross margin expansion, approximately 90 basis points were driven by
the scale benefit of increased volume and 40 basis points were due to the
addition of Wella, which has a higher gross margin than the balance of the
Company. Supply chain savings and favorable product mix benefits were offset by
the impact of higher commodity costs and pricing actions.

Gross Margin Progress
(% of sales)

               
2003              49.0
2004              51.2
2005              51.0





                                                      YEARS ENDED JUNE 30
                                               ----------------------------------
                                                      Basis          Basis
                                                      point          point
                                               2005   change  2004   change  2003
                                               ----   ------  ----   ------  ----
                                                              
Comparisons as a percentage of net sales
Gross margin                                   51.0%   (20)   51.2%    220   49.0%
Selling, general and administrative            31.7%   (40)   32.1%    120   30.9%
Operating margin                               19.3%    20    19.1%    100   18.1%
Earnings before income taxes                   18.4%    20    18.2%     80   17.4%
Effective tax rate                             30.5%   (20)   30.7%    (40)  31.1%
Net earnings                                   12.8%    20    12.6%     60   12.0%



30 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

Selling, General and Administrative expense (SG&A) in 2005 was 31.7% of net
sales, an improvement of 40 basis points compared to 2004. The basis point
reduction in SG&A was driven by lower marketing spending as a percentage of net
sales. Absolute spending for marketing investments was up year-over-year, but
decreased as a percentage of net sales behind scale leverage and the mix impact
of developing market growth. Marketing spending as a percentage of net sales is
lower in developing markets than the Company average. Marketing spending
increased to support product innovations including Olay Anti-Aging, Olay
Moisturinse, Olay Quench, Pantene Pro-Health, Tide with a Touch of Downy, Tide
Coldwater, Febreze Air Effects, Pantene Color Expressions, Pampers Feel 'n
Learn, Kandoo Toddler Wipes and Handsoap and the expansion of SK-II, Lenor and
Herbal Essences.

Overhead spending as a percentage of net sales was consistent with last year.
Scale efficiencies in the base business were offset by the mix impact of two
additional months of Wella in the current year and investments in selling
capability. Wella has a higher ratio of overhead spending to net sales than the
balance of the Company.

Minority interest expense as a percentage of net sales decreased reflecting the
Company's purchase of the remaining stake in its China venture, as well as the
completion of the Domination and Profit Transfer Agreement with Wella. Please
see the discussion of these transactions in Note 2 to the Consolidated Financial
Statements.

SG&A in 2004 was 32.1% of net sales, an increase of 120 basis points compared to
the previous year. The majority of the basis point increase was due to Wella,
reflecting a higher ratio of SG&A expense to net sales than the base business.
Reduced restructuring program charges in the prior year, that accounted for an
improvement of 90 basis points, were more than offset by increases in marketing
spending in 2004. Marketing investments were made behind product launches
including Prilosec OTC, Crest Whitestrips Premium and Olay Regenerist, as well
as continued support for the base business.

Selling, General and Administrative Expense
(% of sales)

               
2003              30.9
2004              32.1
2005              31.7



Non-Operating Items

Non-operating items primarily include interest expense, divestiture gains and
losses and interest and investment income. Interest expense increased 33% to
$834 million in 2005 due to higher debt balances to finance share repurchases,
as well as an increase in interest rates versus the prior year. In 2004,
interest expense increased $68 million to $629 million, primarily due to
additional debt to support the acquisition of Wella.

Other non-operating income was $346 million in 2005 compared to $152 million in
2004 and $238 million in 2003. The increase in 2005 was driven primarily by the
before-tax gain on the sale of the Juice business. The sale of the Juice
business was essentially neutral to overall earnings, as the non-operating gain
from the sale was largely offset by the loss of operating income. In 2004, other
non-operating income declined primarily due to higher gains from divestitures in
the base period.

The effective income tax rate was 30.5% in 2005 compared with 30.7% in 2004 and
31.1% in 2003. The fiscal 2005 effective tax rate includes a 280 basis point
impact for estimated taxes in anticipation of repatriating approximately $7.2
billion in special dividends from the Company's non-U.S. subsidiaries, pursuant
to the American Jobs Creation Act of 2004 (see Note 9 to Consolidated Financial
Statements). This charge was largely offset by a 230 basis point impact from the
reversal of tax provisions resulting from the successful resolution of tax
audits in certain countries. The effective tax rate also benefited from the
overall country mix of taxable income.

Net Earnings

In 2005, net earnings increased 12% to $7.26 billion. Earnings grew primarily
behind volume and cost reduction efforts, which more than offset the effects of
higher commodity costs and increased marketing spending in support of product
innovations and the base business. Net earnings margin increased 20 basis points
to 12.8% reflecting the scale benefits from higher volume and improvements due
to cost savings.

Net earnings in 2004 increased 25% over the prior year. Earnings growth was
primarily driven by increased volume and the completion of the Company's
Organization 2005 Restructuring Program. Improvements to earnings from gross
margin expansion were partially offset by increased marketing spending to
support product initiatives and base business growth. The acquisition of Wella
had no material impact on earnings in 2004. 2003 results include $538 million of
after-tax charges related to the Company's Organization 2005 Restructuring
Program, which represents approximately 10% of the 2004 earnings growth. These
charges covered enrollment reductions, manufacturing consolidations and
portfolio choices to scale back or discontinue under-performing businesses and
initiatives. The restructuring program was substantially completed in 2003.



                                The Procter & Gamble Company and Subsidiaries 31

MANAGEMENT'S DISCUSSION AND ANALYSIS

In 2005, diluted net earnings per share were $2.66, an increase of 15% compared
to the prior year. Our target is 10% or better earnings per share growth.
Diluted net earnings per share grew ahead of net earnings due to the Company's
share repurchase activity. Diluted net earnings per share were $2.32 in 2004 and
$1.85 in 2003. Diluted net earnings per share in 2003 included restructuring
program impacts of $0.19.

Diluted Net Earnings
(per common share)

               
2003              1.85
2004              2.32
2005              2.66




SEGMENT RESULTS

Results for the segments reflect information on the same basis we use for
internal management reporting and performance evaluation. These results exclude
certain costs included in the Consolidated Financial Statements (e.g., interest
expense, other financing costs, investing activities and certain restructuring
costs), which are reported in Corporate. Within the P&G Household Care GBU, we
provide data for the Fabric Care and Home Care, as well as the Snacks and Coffee
reportable segments. In P&G Family Health, we provide information on the Health
Care and the Baby Care and Family Care reportable segments.

As described in Note 11 to the Consolidated Financial Statements, we have
investments in certain companies over which we exert significant influence, but
do not control the financial and operating decisions and, therefore, do not
consolidate them ("unconsolidated entities"). Because certain of these
investments are managed as integral parts of the Company's business units, they
are accounted for as if they were consolidated subsidiaries for management and
segment reporting purposes. This means pre-tax earnings in the business units
include 100% of each pre-tax income statement component, with eliminations to
adjust such line items to U.S. GAAP included in Corporate. In determining
after-tax earnings in the business units, we eliminate the share of earnings
applicable to other ownership interests, in a manner similar to minority
interest, and apply the statutory tax rates. Adjustments to arrive at the
Company's effective tax rate are included in Corporate.

P&G Beauty

P&G Beauty unit volume increased 12% in 2005. Organic volume, which excludes the
impacts of acquisitions and divestitures, increased 8%. The difference between
total volume and organic volume is primarily Wella - the current year includes
two additional months of Wella acquisition volume compared to the base period.
P&G Beauty organic unit volume grew behind base business growth and several new
product initiatives including Olay Anti-Aging, Olay Quench hand and body
lotions, Olay Moisturinse in-shower body moisturizer, Pantene Pro-Health,
Pantene Color Expressions and Lacoste Touch of Pink. Unit volume growth was
broad-based with all major businesses in the segment contributing double-digit
increases. Hair Care increased by low-double digits behind the Pantene, Head &
Shoulders, Herbal Essences, Rejoice and Aussie brands. Our Hair Care business in
North America was negatively impacted by the discontinuation of several minor
brands and a difficult competitive environment. Hair Care global market share
was 24%, an increase of about one point compared to last year. In Skin Care,
volume increased double-digits behind the continued growth of the Olay brand.
Double-digit growth in the Feminine Care business continues to be driven by
product upgrades to the Always/Whisper brands and the successful introduction of
Naturella in Central and Eastern Europe. Our global market share in Feminine
Care was approximately 36%, an increase of about one percentage point compared
to last year.

Net sales increased 14% to $19.48 billion. Foreign exchange contributed 3% to
sales growth, while the mix impact of higher relative growth in developing
markets reduced sales by 1%. Net earnings increased 22% to $2.85 billion due to
volume growth and an after-tax margin improvement of 100



                                                       NET SALES DRIVERS VERSUS YEAR AGO
                                 ----------------------------------------------------------------------------
                                     Volume           Volume
                                      With            Without                                          Total
                                   Acquisitions     Acquisitions   Foreign                     Total   Impact
                                 and Divestitures and Divestitures Exchange  Price  Mix/Other  Impact  Ex-Fx
                                 ---------------- ---------------- --------  -----  ---------  ------  -----
                                                                                  
P&G BEAUTY                             12%               8%            3%      -%      -1%       14%    11%
P&G FAMILY HEALTH
     HEALTH CARE                       10%               8%            2%      1%      -2%       11%     9%
     BABY CARE AND FAMILY CARE          7%               7%            3%      1%       -%       11%     8%
P&G HOUSEHOLD CARE
     FABRIC CARE AND HOME CARE          9%               7%            2%      -%      -1%       10%     8%
     SNACKS AND COFFEE                  3%               3%            2%      4%      -1%        8%     6%
TOTAL COMPANY                           8%               8%            2%      1%      -1%       10%     8%



Sales percentage changes are approximations based on quantitative formulas that
are consistently applied.





32 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

basis points compared to the prior year. The margin increased primarily due to
the scale benefits of volume growth, cost reduction programs and the impacts of
the Company's increased ownership of the China operation and the Domination and
Profit Transfer Agreement with Wella. These margin benefits were partially
offset by marketing spending to support initiatives, including those discussed
above.

In 2004, P&G Beauty unit volume increased 37%. Excluding the impact of the Wella
acquisition, unit volume increased 10% behind broad-based growth in the Hair
Care, Personal Beauty Care and Feminine Care businesses. Net sales increased 40%
to $17.12 billion. Sales growth included a positive foreign exchange impact of
4%, partially offset by negative pricing of 1%. Pricing includes actions to
support the Hair Care, Colorants and Cosmetics businesses in North America and
the Feminine Care business in Western Europe. Overall, P&G Beauty market share
increased, as sales growth out-paced market growth in key categories including
Skin Care, Feminine Care and Hair Care. Net earnings increased 20% to $2.33
billion. Volume benefits, including the addition of Wella, and lower material
costs were partially offset by marketing investments to support product
initiatives and the base business. Earnings margin decreased due to the impact
of the higher SG&A expense ratio for Wella. The Wella acquisition was accretive
to P&G Beauty earnings and had no material impact on Company earnings after
including interest expense, which is included in Corporate. In 2003, P&G Beauty
net sales were $12.22 billion and net earnings were $1.94 billion.

P&G Family Health

Health Care. Health Care unit volume in 2005 increased 10% behind double-digit
growth of Prilosec OTC, Actonel and developing markets. Oral Care posted
mid-single digit volume growth globally despite a challenging competitive
environment. Developing market volume for Oral Care was up double-digits, while
developed market volume decreased due primarily to a contraction of the U.S.
tooth whitening market. Net sales increased 11% to $7.79 billion aided by a
positive 2% foreign exchange impact. Pricing in Pet Health and Nutrition and
Pharmaceuticals added 1% to sales, while product mix reduced sales by 2% due to
the shift of Macrobid branded sales to generic sales and higher relative growth
in developing markets.

Health Care's net earnings were $1.00 billion, an increase of 8% against a base
period where earnings increased 36%. Earnings increased primarily behind volume
growth. After-tax earnings margin declined about 40 basis points year-over-year
due, in part, to product mix impacts of lower volume in Macrobid and Crest
Whitestrips, both of which have higher margins than the balance of the Health
Care business. Earnings were also negatively impacted by a higher royalty
expense rate for Prilosec OTC, higher commodity costs and marketing investments
in support of initiatives.

In 2004, Health Care unit volume increased 18%. All categories grew volume, with
double-digit gains in the Pharmaceutical, Personal Health Care and Oral Care
businesses, as well as solid growth in Pet Health and Nutrition. Net sales
increased 21% to $6.99 billion. Foreign exchange increased sales 3%. Net
earnings increased 36% to $925 million primarily driven by sales growth behind
initiatives and margin expansion due to product mix, manufacturing cost savings
and lower overhead spending as a percentage of sales. Mix-driven margin
expansion was negatively impacted by increased marketing spending to support
initiatives and the base business. In 2003, Health Care net sales were $5.80
billion and net earnings were $678 million.

Baby Care and Family Care. Baby Care and Family Care unit volume in 2005
increased 7%. Baby Care's unit volume increased upper single-digits behind a
continued stream of innovation including Feel 'n Learn training pants in North
America, Baby Dry fit upgrade and Baby Stages of Development upgrades in
Western Europe and the expansion of Pampers Kandoo. Family Care volume increased
mid-single digits driven by product, packaging and format initiatives in North
America on both the Bounty and Charmin brands. Net sales increased 11% to $11.89
billion, including a positive 3% impact from foreign exchange. Pricing added 1%
to sales growth driven primarily by a price increase in North America Family
Care to recover higher commodity costs, partially offset by targeted pricing
investments in Western Europe in response to competitive activity. Baby Care's
global share increased by one point to 37%, with continued share progress in
both North America and Western Europe. Family Care shares in major markets were
up modestly compared to the prior year period.

Net earnings increased 28% to $1.27 billion behind volume gains and an increase
in after-tax earnings margin of 140 basis points to 10.6%. The margin increase
was driven by the scale benefits of volume, pricing in North America Family
Care and manufacturing cost savings projects, partly offset by higher commodity
costs and marketing investments in support of initiatives.

In 2004, Baby Care and Family Care unit volume increased 6%. Baby Care unit
volume increased double-digits led by gains in Western Europe and developing
markets. Family Care unit volume increased by mid-single digits. Net sales
increased 8% to $10.72 billion, including a positive 4% impact due to foreign
exchange. Sales were negatively impacted by pricing of 1%, primarily due to
increased competitive promotional activity in North America Family Care. Mix
reduced sales by 1% due primarily to higher relative Baby Care growth in
developing markets, where unit sales prices are generally lower than the
business average. Baby Care and Family Care net earnings were $990 million in
2004, an increase of 13% compared to 2003. Baby Care delivered




                                The Procter & Gamble Company and Subsidiaries 33

MANAGEMENT'S DISCUSSION AND ANALYSIS

profit growth from higher volume and product cost savings. Family Care earnings
declined slightly due to increases in commodity costs (both pulp and natural
gas) and increased spending to keep prices competitive in a difficult market
environment.

P&G Household Care

Fabric Care and Home Care. Unit volume increased by 9% in Fabric Care and Home
Care, with both businesses delivering upper-single digit growth. Acquisitions in
Europe and Latin America contributed 2% to volume growth versus the prior year.
Unit volume increased behind strong initiative activity, expansion of the
portfolio to serve more consumers and continued growth in developing markets.
Volume increased behind the continued success of Lenor, Febreze Air Effects,
Swiffer Duster and Gain, as well as the launches of Tide Coldwater, Downy Simple
Pleasures and Mr. Clean Magic Reach. Developing markets grew volume by
double-digits, led by the continued success of Tide in Greater China. Net sales
increased 10% to $15.26 billion. Foreign exchange added 2% to sales growth. The
mix impact of higher relative growth in developing markets reduced sales by 1%.
Global market share for the Fabric Care business was up slightly compared to the
previous year to 32%. Global market share for Home Care also increased modestly
to 20%. In Air Care, Febreze earned a 14% share of the instant air freshener
market behind the successful launch of Febreze Air Effects.

Net earnings were $2.13 billion, a decrease of 2% compared to the prior year.
After-tax earnings margin decreased 180 basis points due primarily to higher
commodity costs, which more than offset the scale benefits of volume growth and
pricing actions in certain markets. Additionally, after-tax margin in 2005 was
lower due to the mix effect of higher growth rates in developing markets, where
the margins are lower than in developed markets. We expect continued margin
pressure in 2006 from higher commodity costs and growth in developing markets.

In 2004, Fabric Care and Home Care unit volume increased 9% behind growth on
established brands such as Tide, Ariel, Gain and Ace and the success of
initiatives including Mr. Clean Magic Eraser, Mr. Clean AutoDry, Swiffer Duster,
Gain Fabric Enhancer and the expansion of Febreze. Net sales increased 10%, to
$13.87 billion. Sales growth includes a positive 3% foreign exchange impact.
Negative pricing of 1% was primarily driven by actions to maintain competitive
shelf pricing in key geographies, including North America and Western Europe.
Mix reduced sales by 1% driven primarily by double-digit growth in developing
markets. Net earnings in 2004 increased 7% to $2.19 billion. Net earnings margin
was down slightly compared to 2003 due to the mix effect of disproportionate
growth outside of the U.S. (as we expanded our business in certain geographies
including China, India and Eastern Europe) and marketing investments behind new
product initiatives. Startup costs for increased liquid detergent capacity in
North America to support new product initiative activity and investments in
supply chain optimization also contributed to the lower net earnings margin.

Snacks and Coffee. Snacks and Coffee unit volume increased 3% compared to the
prior year. Pringles volume grew behind expanded distribution and merchandizing
of customized flavors and Pringles Prints in North America. Coffee volume
increased behind custom Folgers dark roasts. Folgers now has a market share in
the U.S. of approximately 32%. Net sales increased 8% to $3.14 billion. Pricing
increased sales 4% due primarily to actions on Folgers to recover higher
commodity costs. Foreign exchange had a positive 2% effect on sales growth,
while product mix reduced sales by 1%. Net earnings increased 21% to $417
million behind higher volume, pricing to recover commodity costs and lower
merchandising spending versus the prior year. After-tax earnings margin
increased 145 basis points to 13.3%.

In 2004, unit volume in Snacks and Coffee increased 6%. Net sales were $2.91
billion, an increase of 9% compared to 2003. Foreign exchange added 3% to sales
growth. Product mix increased sales by 1% primarily behind higher relative
growth of Folgers, which has a higher unit sales rate than the segment average.
Pricing reduced sales by 1% reflecting high promotional spending in the Coffee
category. Snacks and Coffee net earnings in 2004 were $344 million, an increase
of 18%, as volume and base business savings more than offset higher commodity
costs.

Corporate

Corporate includes certain operating and non-operating activities that are not
reflected in the results used internally to measure and evaluate the GBUs, 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, certain restructuring costs and the elimination
of individual revenues and expenses generated by companies over which we exert
significant influence, but do not control. Operating elements held in Corporate
also include certain employee benefit costs and other general corporate items.
The non-operating items held in Corporate primarily include financing and
investing activities. Additionally, Corporate includes the historical results of
certain divested businesses, including the Juice business, which was divested in
August of 2004. Corporate assets primarily include cash, investment securities
and goodwill.

Corporate net sales primarily reflect the adjustment to eliminate the sales of
unconsolidated entities included in business unit results. Net sales reported in
Corporate include the results of divested businesses (e.g., Juice). In 2005,
Corporate net earnings declined due to higher interest expense, partially offset
by the gain from the Juice business divestiture. The improvement to Corporate
earnings in 2004 was driven primarily by a favorable base period comparison, as
the prior year included restructuring program charges. This improvement was


34 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

partially offset by higher interest charges associated with Wella, hedging
impacts and current year charges for projects to maintain a competitive cost
structure.

FINANCIAL CONDITION

We believe our financial condition continues to be of high quality, as
evidenced by our ability to generate substantial cash from operations and ready
access to capital markets at competitive rates.

Operating cash flow provides the primary source of funds to finance operating
needs and capital expenditures. Excess operating cash is used first to fund
shareholder dividends. Other discretionary uses include share repurchases and
"tack-on" acquisitions to complement our portfolio of brands and geographies. As
necessary, we may supplement operating cash flow with debt to fund these
activities. The overall cash position of the Company reflects our strong
business results and a global cash management strategy that takes into account
liquidity management, economic factors and tax considerations.

Operating Activities

In 2005, operating cash flow was $8.72 billion compared to $9.36 billion in
2004. The benefit of higher net earnings in the current year was more than
offset by changes in working capital. We define working capital as the
combination of inventory, accounts receivable and accounts payable. Total
inventory days on hand increased by two days in 2005 reflecting the impacts of
higher commodity costs and the Company's efforts to rebuild inventory levels in
product categories that could not sufficiently meet customer demand. Receivable
days sales outstanding improved by two days, resulting in a slight improvement
to operating cash flow. Accounts payable decreased three days. In addition to
the increase in working capital, operating cash was reduced by tax payments
related to the settlement of prior year audits.

In 2004, operating cash flow was $9.36 billion compared to $8.70 billion in
2003, representing an increase of 8%. Higher net earnings were the primary
driver of the increase in operating cash flow. Operating cash flow growth
trailed earnings growth due to an increase in accounts receivable, cash payments
for accrued restructuring program charges and a dividend received from a joint
venture in 2003.

We view free cash flow as an important measure because it is one factor
impacting the amount of cash available for dividends and discretionary
investment. It is defined as operating cash flow less capital expenditures and
is one of the measures used to evaluate senior management and determine their
at-risk compensation. In 2005, free cash flow was $6.54 billion compared to
$7.34 billion in 2004. In addition to lower operating cash flow, free cash flow
declined year-over-year due to higher capital expenditures. Capital expenditures
in 2005 were higher than in 2004, but still below our target of capital spending
at or below 4% of net sales.

In 2004, free cash flow was $7.34 billion compared to $7.22 billion in 2003.
Free cash flow in 2004 reflected increased operating cash flow, partially
offset by increased capital expenditures, although spending was in-line with our
target of capital spending at or below 4% of sales. Capital spending in 2003 was
well below historical levels and the Company's target.

Free cash flow productivity, defined as the ratio of free cash flow to net
earnings, was 90% in 2005, in-line with the Company's target. Free cash flow
productivity was 113% in 2004.

[BAR GRAPH]

Free Cash Flow and Free Cash Flow Productivity
(in billions of dollars, and as % of net earnings)

Investing Activities

Investing activities in the current year used $2.34 billion of cash compared to
$10.14 billion in the prior year, which included the cash used for the
acquisition of Wella.

Acquisitions. Acquisitions (net of cash acquired) used $572 million of cash in
the current year which includes acquisitions of a Pharmaceuticals business in
Spain, Fabric Care businesses in Europe and Latin America and increased
ownership in our Glad venture with The Clorox Company. In 2004, net cash used
for acquisitions was $7.48 billion, driven by the acquisition of Wella and the
purchase of the remaining stake in our China venture from Hutchison Whampoa
China Ltd. (Hutchison). The initial Wella acquisition in September 2003 was
approximately $5.10 billion for an 81% interest, funded by a combination of debt
and cash. In June 2004, the Company and Wella completed a Domination and Profit
Transfer Agreement, which provided us full operating control and rights to 100%
of future operating results. In exchange, we must pay the remaining Wella
shareholders a guaranteed annual dividend payments. Alternatively, the Wella
shareholders may elect to tender the shares for a fixed price. The obligation
associated with the Domination and



                                The Procter & Gamble Company and Subsidiaries 35

MANAGEMENT'S DISCUSSION AND ANALYSIS

Profit Transfer Agreement was $1.11 billion and has been recognized as a current
liability. The portion of the acquisition related to the Domination and Profit
Transfer Agreement represents a non-cash transaction. Future payments related to
the principal portion of the annual dividend arrangement or acquisition of
shares tendered will be reflected as investing activities, consistent with the
underlying transaction.

The gross cash outlay for Hutchison in 2004 was $2.00 billion, which also
included the settlement of minority interest and certain other liabilities, for
a net cost of $1.85 billion. The acquisition was funded by debt. We also
completed certain smaller acquisitions with an aggregate cost of $384 million in
2004, including Glide dental floss and Fabric Care brands in Western Europe,
Latin America and the Middle East. Net cash used for acquisitions was $61
million in 2003.

Capital Spending. Capital spending efficiency continues to be a critical
component of the Company's overall cash management strategy. Capital
expenditures in 2005 were $2.18 billion compared to $2.02 billion in 2004 and
$1.48 billion in 2003. Capital spending in 2005 was 3.8% of net sales - slightly
lower than the comparable prior year period as a percentage of net sales and
below our target ratio. Over the past several years, we have made systemic
interventions to improve capital spending efficiencies and asset utilization.
While the Company's goal is to maintain capital expenditures at or below 4% of
sales on an ongoing basis, there may be exceptional years when specific business
circumstances, such as capacity additions, may lead to higher spending.

[LINE GRAPH]

Capital Spending
(% of sales)

Proceeds from Asset Sales. Proceeds from asset sales increased primarily due to
the divestiture of the Juice business in August of 2004.

Financing Activities

Dividend Payments. Our first discretionary use of cash is dividend payments.
Dividends per common share grew 11% to $1.03 per share in 2005. This increase
represents the 49th consecutive fiscal year the Company has increased its
common share dividend. The Company has been paying common share dividends each
year, without interruption, since incorporation in 1890. Total dividend payments
to both common and preferred shareholders were $2.73 billion, $2.54 billion and
$2.25 billion in 2005, 2004 and 2003, respectively.

Dividends
(per common share)

[BAR GRAPH]

        
2001       $0.70
2002       $0.76
2003       $0.82
2004       $0.93
2005       $1.03



Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate
after evaluating a number of factors, including cash flow expectations, cash
requirements for ongoing operations, investment plans (including acquisitions
and share repurchase activities) and the overall cost of capital. Total debt
increased by $3.49 billion in 2005 to $24.33 billion. The increase was primarily
due to additional debt to finance share repurchases announced concurrently with
our planned acquisition of The Gillette Company.

In 2004, total debt increased by $7.19 billion to $20.84 billion. The increase
was primarily due to the acquisitions of Wella and the Hutchison minority
interest, along with discretionary share repurchases.

Liquidity. As discussed previously, our primary source of liquidity is cash
generated from operations. We believe internally-generated cash flows adequately
support business operations, capital expenditures and shareholder dividends, as
well as a level of discretionary investments (e.g., for tack-on acquisitions).

We are able to supplement our short-term liquidity, if necessary, with broad
access to capital markets and $2.00 billion in bank credit facilities. Broad
access to financing includes commercial paper programs in multiple markets at
favorable rates given our strong credit ratings (including separate U.S. dollar
and Euro multi-currency programs). We maintain two bank credit facilities: a
$1.00 billion, five-year facility which matures in July 2007 and a $1.00
billion, five-year facility which matures in July 2009. We have never drawn
against either facility and have no plans to do so in the foreseeable future.

36 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

These credit facilities do not have cross-default or ratings triggers, nor do
they have material adverse events clauses, except at the time of signing. While
not considered material to the overall financial condition of the Company, there
is a covenant in the credit facilities stating the ratio of net debt to earnings
before interest expense, income taxes, depreciation and amortization cannot
exceed four at the time of a draw on the facility. As of June 30, 2005, we are
comfortably below this level, with a ratio of approximately 1.2.

Additionally, we secured a $3.40 billion bridge facility to fund the share
buyback plan announced concurrently with the Company's planned acquisition of
The Gillette Company. As discussed in Note 2 to the Consolidated Financial
Statements, we entered into an agreement to acquire The Gillette Company on
January 27, 2005. In connection with this transaction, we also announced a share
buyback plan under which we will acquire up to $22 billion of Company common
shares. As of June 30, 2005, $3.00 billion in shares were acquired under this
plan, financed by the bridge facility.

On July 27, 2005, we signed a $24 billion three-year credit facility with a
syndicate of banks to replace the current $3.40 billion bridge facility. The
credit facility will be available for general corporate purposes with the
expectation that the majority of the funds will be used to fund the share
repurchase program. We expect the share buyback program to be largely complete
by June 30, 2006. As part of the share repurchase program, we may also purchase
shares of The Gillette Company prior to the close to facilitate completion of
the transaction (dependent on market conditions and regulatory approval). We do
not anticipate any significant impacts to the Company's overall liquidity as a
result of the acquisition or share buyback program. This credit facility carries
a variable interest rate. Interest on the facility will be managed within our
overall interest rate management policies described in Note 6 to the
Consolidated Financial Statements.

In addition to these credit facilities, long-term borrowing available under our
current shelf registration statement was $7.01 billion at June 30, 2005.

The Company's Moody's and Standard & Poor's (S&P) short-term credit ratings are
P-1 and A-1+, respectively. Our Moody's and S&P long-term credit ratings are Aa3
and AA- with a negative outlook, respectively. These ratings were recently
confirmed following the Company's announcement of the agreement to acquire
Gillette and the stock buyback plan.

Treasury Purchases. During the past year, we substantially increased our level
of share repurchases. Total share repurchases in 2005 were $5.03 billion, of
which $3.00 billion were made as part of our aforementioned share repurchase
plan. As discussed previously, we expect to largely complete the share purchases
under this plan by June 30, 2006. In 2004, treasury share purchases totaled
$4.07 billion compared to $1.24 billion in 2003. Lower share purchases in 2003
reflected the need to preserve capital ahead of the Wella acquisition.

Guarantees and Other Off-Balance Sheet Arrangements. We do not have guarantees
or other off-balance sheet financing arrangements, including variable interest
entities, that we believe could have a material impact on financial condition or
liquidity.

Contractual Commitments. The table below provides information on our contractual
commitments as of June 30, 2005 (in millions).



                                                           Less Than  1 - 3   3 - 5   After 5
                                                   Total     1 Year   Years   Years    Years
                                                  -------  ---------  ------  ------  -------
                                                                       
Recorded liabilities
Total debt                                        $23,927  $  11,414  $2,009  $2,763  $ 7,741
Capital leases                                        327         50     232      36        9
Wella Domination and Profit Transfer Agreement      1,087      1,087       -       -        -
                                                  -------  ---------  ------  ------  -------
Other
Interest payments relating to long-term debt        8,929        794   1,281   1,029    5,825
Operating leases                                      977        215     288     215      259
Minimum pension funding(1)                            643        241     402       -        -
Purchase obligations(2)                             6,739      2,663   1,665   1,178    1,233
                                                  -------  ---------  ------  ------  -------
TOTAL CONTRACTUAL COMMITMENTS                      42,629     16,464   5,877   5,221   15,067
                                                  -------  ---------  ------  ------  -------


(1)   Represents future pension payments to comply with local funding
      requirements. The projected payments beyond fiscal year 2008 are not
      currently determinable.

(2)   Primarily reflects future contractual payments under various take-or-pay
      arrangements entered into as part of the normal course of business.
      Commitments made under take-or-pay obligations represent future purchases
      in line with expected usage to obtain favorable pricing. Approximately 70%
      relates to service contracts for information technology, human resources
      management and facilities management activities that were outsourced in
      recent years. While the amounts listed represent contractual obligations,
      we do not believe it is likely that the full contractual amount would be
      paid if the underlying contracts were canceled prior to maturity. In such
      cases, we generally are able to negotiate new contracts or cancellation
      penalties, resulting in a reduced payment. The amounts do not include
      obligations related to other contractual purchase obligations that are not
      take-or-pay arrangements. Such contractual purchase obligations are
      primarily purchase orders at fair value that are part of normal operations
      and are reflected in historical operating cash flow trends. We do not
      believe such purchase obligations will adversely affect our liquidity
      position.


                                The Procter & Gamble Company and Subsidiaries 37

MANAGEMENT'S DISCUSSION AND ANALYSIS

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with U.S. GAAP, there are
certain accounting policies that are particularly important. These include
revenue recognition, income taxes, certain employee benefits and goodwill and
intangible assets. We believe these accounting policies, and others set forth in
Note 1 to the Consolidated Financial Statements, should be reviewed as they are
integral to understanding the results of operations and financial condition of
the Company. In some cases, these policies simply represent required accounting.
In others, they may represent a choice between acceptable accounting methods or
may require substantial judgment or estimation in their application.

Due to the nature of our business, these estimates generally are not considered
highly uncertain at the time of estimation, meaning they are not expected to
result in a change that would materially affect our results of operations or
financial condition in any given year.

The Company has discussed the selection of significant accounting policies and
the effect of estimates with the Audit Committee of the Company's Board of
Directors.

Revenue Recognition

Most of our revenue transactions represent sales of inventory, and we recognize
revenue when title, ownership and risk of loss transfer to the customer, which
generally is on the date of shipment. A provision for payment discounts and
product return allowances is recorded as a reduction of sales within the same
period that the revenue is recognized. We offer sales incentives through various
programs, consisting primarily of customer pricing allowances, merchandising
funds and consumer coupons. The cost of these programs is recorded as a
reduction of sales. Given the nature of our business, revenue recognition
practices do not contain estimates that materially affect results of operations.

Income Taxes

Our annual tax rate is determined based on our income, statutory tax rates and
the tax impacts of items treated differently for tax purposes than for financial
reporting purposes. Tax law requires certain items to be included in the tax
return at different times than the items are reflected in the financial
statements. As a result, our annual tax rate reflected in our financial
statements is different than reported on our tax return (our cash tax rates).
Some of these differences are permanent, such as expenses that are not
deductible in our tax return, and some differences are temporary, reversing over
time, such as depreciation expense. These temporary differences create deferred
tax assets and liabilities.

Deferred tax assets generally represent items that can be used as a tax
deduction or credit in future years for which we have already recorded the tax
benefit in our income statement. Deferred tax liabilities generally represent
tax expense recognized in our financial statements for which payment has been
deferred, or expenditures which we have already taken a deduction for in our tax
return but have not yet been recognized in our financial statements.

Inherent in determining our annual tax rate are judgments regarding business
plans, planning opportunities and expectations about future outcomes.
Realization of certain deferred tax assets is dependent upon generating
sufficient taxable income in the appropriate jurisdiction prior to the
expiration of the carry-forward periods. Although realization is not assured,
management believes it is more likely than not that our deferred tax assets, net
of valuation allowances, will be realized.

Changes in existing tax laws, tax rates and their related interpretations may
also affect our ability to successfully manage the impacts of regulatory matters
around the world. We establish reserves for tax positions that management
believes are supportable, but are potentially subject to successful challenge by
the applicable taxing authority. We review these in light of the changing facts
and circumstances, such as the progress of tax audits, and adjust them when
significant changes in risk warrant it. We have a number of audits in process in
various jurisdictions. Although the results of these audits are uncertain, based
on currently available information, we believe that the ultimate outcomes will
not have a material adverse effect on the Company's results of operations,
financial condition or cash flows.

Our accounting 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 tax legislation, geographic mix of earnings,
completion of tax audits or earnings repatriation plans could have an impact on
our estimates and effective tax rate.

Employee Benefits

We sponsor various post-employment benefits throughout the world. These include
pension plans, both defined contribution plans and defined benefit plans, and
other post-employment benefit (OPEB) plans, consisting primarily of health care
and life insurance for retirees. For accounting purposes, the defined benefit
and OPEB plans require assumptions to estimate the projected and accumulated
benefit obligations, including the following: discount rate; expected salary
increases; certain employee-related factors, such as turnover, retirement



38 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

age and mortality; expected return on assets; and health care cost trend rates.
These and other assumptions affect the annual expense recognized for these
plans. Our assumptions reflect our historical experiences and management's best
judgment regarding future expectations. In accordance with U.S. GAAP, the net
amount by which actual results differ from our assumptions is deferred. If this
net deferred amount exceeds 10% of the greater of plan assets or liabilities, a
portion of the deferred amount is included in expense for the following year.
The cost or benefit of plan changes, such as increasing or decreasing benefits
for prior employee service (prior service cost), is deferred and included in
expense on a straight-line basis over the average remaining service period of
the employees expected to receive benefits.

The expected return on plan assets assumption is important, since many of our
defined benefit plans and our primary OPEB plan are funded. The process for
setting the expected rates of return is described in Note 8 to the Consolidated
Financial Statements. For 2005, the average return on assets assumption for
pension plan assets is 7.2%. A change in the rate of return of 1% would impact
annual benefit expense by approximately $17 million after tax. For 2005, the
return on assets assumption for OPEB assets is 9.5%. A 1% change in the rate of
return would impact annual benefit expense by approximately $24 million after
tax.

Since pension and OPEB liabilities are measured on a discounted basis, the
discount rate is a significant assumption. Discount rates used for our U.S.
defined benefit and OPEB plans are based on a yield curve constructed from a
portfolio of high quality bonds for which the timing and amount of cash outflows
approximate the estimated payouts of the plan. For our international plans, the
discount rates are set by benchmarking against investment grade corporate bonds
rated AA or better. The average discount rate on the defined benefit pension
plans of 4.5% represents a weighted average of local rates in countries where
such plans exist. A 0.5% change in the discount rate would impact annual
after-tax benefit expense by less than $35 million. The rate on the OPEB plan
of 5.1% reflects the higher interest rates generally available in the U.S.,
which is where a majority of the plan participants receive benefits. A 0.5%
change in the discount rate would impact annual after-tax OPEB expense by less
than $20 million.

Certain defined contribution pension and OPEB benefits in the U.S. are funded
by the Employee Stock Ownership Plan (ESOP), as discussed in Note 8 to the
Consolidated Financial Statements.

We also have employee stock option plans which are accounted for under the
intrinsic value recognition and measurement provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As stock options have been issued with exercise prices
equal to the market value of the underlying shares on the grant date, no
compensation expense was recognized. Notes 1 and 7 to the Consolidated Financial
Statements provide supplemental information, including pro forma earnings and
earnings per share, as if the Company had accounted for options based on the
fair value method prescribed by Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." The estimate of fair
value requires a number of assumptions, including estimated option life and
future volatility of the underlying stock price. Changes in these assumptions
could significantly impact the estimated fair value of the stock options.

Effective July 1, 2005, we are adopting the Financial Accounting Standards Board
(FASB) SFAS No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123(R)). This
Statement revises SFAS No. 123 by eliminating the option to account for employee
stock options under APB No. 25 and generally requires companies to recognize the
cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards (the "fair-value-based"
method). We plan to adopt SFAS 123(R) using the modified retrospective method,
whereby all prior periods will be adjusted to give effect to the
fair-value-based method of accounting for awards granted in fiscal years
beginning on or after July 1, 1995. The impact of adopting SFAS 123(R) will be
consistent with the pro forma disclosure presented in Note 1 to the Consolidated
Financial Statements.

Goodwill and Intangible Assets

The Company seeks to deliver value from innovation by building brands and
businesses. In many cases, brands are created internally, and the costs are
expensed as incurred. In other cases, brands and businesses may be acquired,
which generally results in intangible assets recognized in the financial
statements. These intangibles may represent indefinite-lived assets (e.g.,
certain trademarks or brands), definite-lived intangibles (e.g., patents) or
residual goodwill. Of these, only the costs of definite-lived intangibles are
amortized to expense over their estimated life. The classification of
intangibles and the determination of the appropriate life requires substantial
judgment. Our history demonstrates that many of the Company's brands have very
long lives and our objective is to generally maintain them indefinitely. For
accounting purposes, we evaluate a number of factors to determine whether an
indefinite life is appropriate, including the competitive environment, market
share, brand history, operating plan and the macroeconomic environment of the
countries in which the brand is sold. If it is determined that an intangible
does not have an indefinite life, our policy is to amortize the balance over
the expected useful life, which generally ranges from 5 to 20 years.



                                The Procter & Gamble Company and Subsidiaries 39

MANAGEMENT'S DISCUSSION AND ANALYSIS

Our impairment testing for goodwill is performed separately from our impairment
testing of indefinite-lived intangibles. We test goodwill for impairment, at
least annually, by reviewing the book value compared to the fair value at the
reporting unit level. We test individual indefinite-lived intangibles at least
annually by reviewing the individual book values compared to the fair value.
Considerable management judgment is necessary to evaluate the impact of
operating and macroeconomic changes and to estimate future cash flows to measure
fair value. Assumptions used in the Company's impairment evaluations, such as
forecasted growth rates and cost of capital, are consistent with internal
projections and operating plans. When certain events or changes in operating
conditions occur, we review the life of intangible assets. The value of goodwill
and intangible assets from recently-acquired businesses are derived from the
current macroeconomic environment and therefore, are more susceptible to a
short-term adverse economic change that could require an impairment charge. We
did not recognize any material impairment charges for goodwill or intangible
assets during the years presented.

OTHER INFORMATION

Hedging and Derivative Financial Instruments

As a multinational company with diverse product offerings, we are exposed to
market risks such as changes in interest rates, currency exchange rates and
commodity prices. To manage the volatility related to these exposures, we
evaluate our exposures on a global basis to take advantage of the direct netting
opportunities and currency, interest rate and commodity correlations that exist
within the portfolio. For the remaining exposures, we enter into various
derivative transactions in accordance with the Company's hedging policies that
are designed to offset, in-part or in-whole, changes in the underlying exposures
being hedged. We do not hold or issue derivative financial instruments for
speculative trading purposes. Note 6 to the Consolidated Financial Statements
includes a detailed discussion of our accounting policies for financial
instruments.

Derivative positions are monitored using techniques including market valuation,
sensitivity analysis and value-at-risk modeling. The tests for interest rate and
currency rate exposures discussed below are based on a Monte Carlo simulation
value-at-risk model using a one year horizon and a 95% confidence level. The
model incorporates the impact of correlation (the degree to which exposures move
together over time) and diversification (from holding multiple currency,
commodity 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, 2005. In cases where
data is unavailable in RiskMetrics(TM), a reasonable proxy is included.

Our market risk exposures relative to interest and currency rates, as discussed
below, have not changed materially versus the previous reporting period. In
addition, we are not aware of any facts or circumstances that would
significantly impact such exposures in the near-term.

Interest Rate Exposure. Interest rate swaps are used to hedge exposures to
interest rate movement on underlying debt obligations. Certain interest rate
swaps denominated in foreign currencies are designated to hedge exposures to
currency exchange rate movements on our investments in foreign operations. These
currency interest rate swaps are designated as hedges of the Company's foreign
net investments.

Based on our overall interest rate exposure as of and during the year ended June
30, 2005, including derivative and other instruments sensitive to interest
rates, we do not believe a near-term change in interest rates, at a 95%
confidence level based on historical interest rate movements, would materially
affect our financial statements.

Currency Rate Exposure. Because we manufacture and sell products in a number of
countries throughout the world, we are exposed to the impact on revenue and
expenses of movements in currency exchange rates. The primary purpose of our
currency hedging activities is to reduce the risk that our financial position
will be adversely affected by short-term changes in exchange rates. Corporate
policy prescribes the range of allowable hedging activity. We primarily use
forward contracts and options with maturities of less than 18 months.

In addition, we enter into certain currency swaps with maturities of up to five
years to hedge our exposure to exchange rate movements on intercompany financing
transactions. We also use purchased currency options with maturities of
generally less than 18 months and forward contracts to hedge against the effect
of exchange rate fluctuations on intercompany royalties and to offset a portion
of the effect of exchange rate fluctuations on income from international
operations.

Based on our overall currency rate exposure as of and during the year ended June
30, 2005, including derivative and other instruments sensitive to currency
movements, we do not believe a near-term change in currency rates, at a 95%
confidence level based on historical currency rate movements, would materially
affect our financial statements.

Commodity Price Exposure. We use raw materials that are subject to price
volatility caused by weather, supply conditions, political and economic
variables and other unpredictable factors. In addition to fixed price contracts,
we use futures, options and swap contracts to manage the volatility related to
the above exposures. Commodity hedging activity is not considered material to
our financial statements.



40 The Procter & Gamble Company and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS

Restructuring Program

In 1999, concurrent with a reorganization of our operations into product-based
GBUs, we initiated a multi-year Organization 2005 Restructuring Program. Total
restructuring program charges were $538 million after tax in 2003. The program
was substantially complete at the end of June 2003 with a remaining reserve of
$335 million. Substantially all of the liability was settled through cash
payments by June 30, 2004.

The Company continues to undertake projects to maintain a competitive cost
structure, including manufacturing consolidations and work force
rationalization, as part of its normal operations. We expect to recognize
between $150 million to $200 million after tax per year in charges for these
types of projects. Spending in both 2005 and 2004 was consistent and within the
range described above.

Measures Not Defined By U.S GAAP

Our discussion of financial results includes several "non-GAAP" financial
measures. We believe these measures provide our investors with additional
information about our underlying results and trends, as well as insight to some
of the metrics used to evaluate management. When used in MD&A, we have provided
the comparable GAAP measure in the discussion. These measures include:

Organic Sales Growth. Organic sales growth measures sales growth excluding the
impacts of acquisitions, divestitures and foreign exchange from year-over-year
comparisons. The Company believes this provides investors with a more complete
understanding of underlying results and trends by providing sales growth on a
consistent basis.

Free Cash Flow. Free cash flow is defined as operating cash flow less capital
spending. The Company views free cash flow as an important measure because it
is one factor in determining the amount of cash available for dividends and
discretionary investment. Free cash flow is also one of the measures used to
evaluate senior management and is a factor in determining their at-risk
compensation.

Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio
of free cash flow to net earnings. The Company's target is to generate free cash
flow at or above 90% of net earnings. Free cash flow productivity is one of the
measures used to evaluate senior management.


                                The Procter & Gamble Company and Subsidiaries 41

CONSOLIDATED STATEMENTS OF EARNINGS



                                                   Years Ended June 30
                                              -----------------------------
Amounts in millions except per share amounts   2005        2004       2003
- --------------------------------------------  -------    -------    -------
                                                           
Net Sales                                     $56,741    $51,407    $43,377
Cost of products sold                          27,804     25,076     22,141
Selling, general and administrative expense    18,010     16,504     13,383
                                              -------    -------    -------
Operating Income                               10,927      9,827      7,853
                                              -------    -------    -------
Interest expense                                  834        629        561
Other non-operating income, net                   346        152        238
                                              -------    -------    -------
Earnings Before Income Taxes                   10,439      9,350      7,530
                                              -------    -------    -------

Income taxes                                    3,182      2,869      2,344
                                              -------    -------    -------
NET EARNINGS                                  $ 7,257    $ 6,481    $ 5,186
                                              -------    -------    -------

BASIC NET EARNINGS PER COMMON SHARE           $  2.83    $  2.46    $  1.95
DILUTED NET EARNINGS PER COMMON SHARE         $  2.66    $  2.32    $  1.85
DIVIDENDS PER COMMON SHARE                    $  1.03    $  0.93    $  0.82
                                              -------    -------    -------


See accompanying Notes to Consolidated Financial Statements



42 The Procter & Gamble Company and Subsidiaries

CONSOLIDATED BALANCE SHEETS
ASSETS



                                                         June 30
                                                   --------------------
Amounts in millions                                  2005        2004
- ------------------------------------------         --------    --------
                                                         
Current Assets
Cash and cash equivalents                          $  6,389    $  4,232
Investment securities                                 1,744       1,660
Accounts receivable                                   4,185       4,062
Inventories
     Materials and supplies                           1,424       1,191
     Work in process                                    350         340
     Finished goods                                   3,232       2,869
                                                   --------    --------
     Total inventories                                5,006       4,400
                                                   --------    --------
Deferred income taxes                                 1,081         958
Prepaid expenses and other current assets             1,924       1,803
                                                   --------    --------
TOTAL CURRENT ASSETS                                 20,329      17,115
                                                   --------    --------

Property, Plant and Equipment
     Buildings                                        5,292       5,206
     Machinery and equipment                         20,397      19,456
     Land                                               636         642
                                                   --------    --------
                                                     26,325      25,304
     Accumulated depreciation                       (11,993)    (11,196)
                                                   --------    --------
NET PROPERTY, PLANT AND EQUIPMENT                    14,332      14,108
                                                   --------    --------

Goodwill and Other Intangible Assets
     Goodwill                                        19,816      19,610
     Trademarks and other intangible assets, net      4,347       4,290
                                                   --------    --------
NET GOODWILL AND OTHER INTANGIBLE ASSETS             24,163      23,900
                                                   --------    --------

Other Non-Current Assets                              2,703       1,925
                                                   --------    --------
TOTAL ASSETS                                       $ 61,527    $ 57,048
                                                   --------    --------


See accompanying Notes to Consolidated Financial Statements



                               The Procter & Gamble Company and Subsidiaries 43

CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY



                                                                       June 30
                                                                 --------------------
Amounts in millions                                                2005        2004
- --------------------------------------------------------------   --------    --------
                                                                       
Current Liabilities
Accounts payable                                                 $  3,802    $  3,617
Accrued and other liabilities                                       7,531       7,689
Taxes payable                                                       2,265       2,554
Debt due within one year                                           11,441       8,287
                                                                 --------    --------
TOTAL CURRENT LIABILITIES                                          25,039      22,147
                                                                 --------    --------

Long-Term Debt                                                     12,887      12,554
Deferred Income Taxes                                               2,894       2,261
Other Non-Current Liabilities                                       3,230       2,808
                                                                 --------    --------
TOTAL LIABILITIES                                                  44,050      39,770
                                                                 --------    --------
Shareholders' Equity
Convertible Class A preferred stock, stated value $1 per share      1,483       1,526
     (600 shares authorized)
Non-Voting Class B preferred stock, stated value $1 per share           -           -
     (200 shares authorized)
Common stock, stated value $1 per share
     (10,000 shares authorized; shares outstanding: 2005 -
         2,472.9, 2004 - 2,543.8)                                   2,473       2,544
Additional paid-in capital                                          3,142       2,425
Reserve for ESOP debt retirement                                   (1,259)     (1,283)
Accumulated other comprehensive income                             (1,566)     (1,545)
Retained earnings                                                  13,204      13,611
                                                                 --------    --------
TOTAL SHAREHOLDERS' EQUITY                                         17,477      17,278
                                                                 --------    --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                       $ 61,527    $ 57,048
                                                                 --------    --------


See accompanying Notes to Consolidated Financial Statements



44 The Procter & Gamble Company and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



                                                                                                      Accumulated
                                           Common                        Additional      Reserve for     Other
Dollars in millions/                       Shares     Common  Preferred   Paid-In         ESOP Debt   Comprehensive  Retained
Shares in thousands                      Outstanding  Stock     Stock     Capital        Retirement      Income      Earnings
- ---------------------------------------- -----------  ------  ---------  ----------      -----------  -------------  --------
                                                                                                
BALANCE JUNE 30, 2002                      2,601,540  $2,602  $   1,634  $    1,189      $    (1,339) $      (2,360) $ 11,980
                                         -----------  ------  ---------  ----------      -----------  -------------  --------
Net earnings                                                                                                            5,186
Other comprehensive income:
  Financial statement translation                                                                               804
  Net investment hedges, net of $251 tax                                                                       (418)
  Other, net of tax benefits                                                                                    (32)

  Total comprehensive income

Dividends to shareholders:
  Common                                                                                                               (2,121)
  Preferred, net of tax benefits                                                                                         (125)
Treasury purchases                           (28,276)    (28)                    20(1)                                 (1,228)
Employee plan issuances                       14,312      14                    377
Preferred stock conversions                    6,819       6        (54)         48
ESOP debt guarantee reduction                                                                     31
                                         -----------  ------  ---------  ----------      -----------  -------------  --------
Balance June 30, 2003                      2,594,395   2,594      1,580       1,634           (1,308)        (2,006)   13,692
                                         -----------  ------  ---------  ----------      -----------  -------------  --------
Net earnings                                                                                                            6,481
Other comprehensive income:
  Financial statement translation                                                                               750
  Net investment hedges, net of $207 tax                                                                       (348)
  Other, net of tax benefits                                                                                     59

  Total comprehensive income

Dividends to shareholders:
  Common                                                                                                               (2,408)
  Preferred, net of tax benefits                                                                                         (131)
Treasury purchases                           (79,893)    (80)                    33                                    (4,023)
Employee plan issuances                       22,678      23                    711
Preferred stock conversions                    6,658       7        (54)         47
ESOP debt guarantee reduction                                                                     25
                                         -----------  ------  ---------  ----------      -----------  -------------  --------
Balance June 30, 2004                      2,543,838   2,544      1,526       2,425           (1,283)        (1,545)   13,611
                                         -----------  ------  ---------  ----------      -----------  -------------  --------
Net earnings                                                                                                            7,257
Other comprehensive income:
  Financial statement translation                                                                               118
  Net investment hedges, net of $81 tax                                                                         135
  Other, net of tax benefits                                                                                   (274)

  Total comprehensive income

Dividends to shareholders:
  Common                                                                                                               (2,595)
  Preferred, net of tax benefits                                                                                         (136)
Treasury purchases                           (93,308)    (93)                                                          (4,933)
Employee plan issuances                       17,524      17                    679
Preferred stock conversions                    4,880       5        (43)         38
ESOP debt guarantee reduction                                                                     24
                                         -----------  ------  ---------  ----------      -----------  -------------  --------
Balance June 30, 2005                      2,472,934  $2,473  $   1,483  $    3,142      $    (1,259) $      (1,566) $ 13,204
                                         -----------  ------  ---------  ----------      -----------  -------------  --------


                                                         Total
Dollars in millions/                                 Comprehensive
Shares in thousands                         Total        Income
- ----------------------------------------  ---------  -------------
                                               
BALANCE JUNE 30, 2002                     $  13,706
                                          ---------
Net earnings                                  5,186        $ 5,186
Other comprehensive income:
  Financial statement translation               804            804
  Net investment hedges, net of $251 tax       (418)          (418)
  Other, net of tax benefits                    (32)           (32)
                                                           -------
  Total comprehensive income                               $ 5,540
                                                           -------
Dividends to shareholders:
  Common                                     (2,121)
  Preferred, net of tax benefits               (125)
Treasury purchases                           (1,236)
Employee plan issuances                         391
Preferred stock conversions                       -
ESOP debt guarantee reduction                    31
                                          ---------
Balance June 30, 2003                        16,186
                                          ---------
Net earnings                                  6,481        $ 6,481
Other comprehensive income:
  Financial statement translation               750            750
  Net investment hedges, net of $207 tax       (348)          (348)
  Other, net of tax benefits                     59             59
                                                           -------
  Total comprehensive income                               $ 6,942
                                                           -------
Dividends to shareholders:
  Common                                     (2,408)
  Preferred, net of tax benefits               (131)
Treasury purchases                           (4,070)
Employee plan issuances                         734
Preferred stock conversions                       -
ESOP debt guarantee reduction                    25
                                          ---------
Balance June 30, 2004                        17,278
                                          ---------
Net earnings                                  7,257        $ 7,257
Other comprehensive income:
  Financial statement translation               118            118
  Net investment hedges, net of $81 tax         135            135
  Other, net of tax benefits                   (274)          (274)
                                                           -------
  Total comprehensive income                               $ 7,236
                                                           -------
Dividends to shareholders:
  Common                                     (2,595)
  Preferred, net of tax benefits               (136)
Treasury purchases                           (5,026)
Employee plan issuances                         696
Preferred stock conversions                       -
ESOP debt guarantee reduction                    24
                                          ---------
Balance June 30, 2005                     $  17,477
                                          ---------


(1) Premium on equity put options totaled $6 for 2003.

See accompanying Notes to Consolidated Financial Statements



                               The Procter & Gamble Company and Subsidiaries 45

CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                      Years ended June 30
                                                                -------------------------------
Amounts in millions                                              2005        2004        2003
- ----------------------------------------------------------     --------    --------    --------
                                                                              
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                   $  4,232    $  5,428    $  2,799
                                                               --------    --------    --------
Operating Activities
Net earnings                                                      7,257       6,481       5,186
Depreciation and amortization                                     1,884       1,733       1,703
Deferred income taxes                                               650         415          63
Change in accounts receivable                                       (86)       (159)        163
Change in inventories                                              (644)         56         (56)
Change in accounts payable, accrued and other liabilities          (128)        625         936
Change in other operating assets and liabilities                   (498)        (88)        178
Other                                                               287         299         527
                                                               --------    --------    --------
TOTAL OPERATING ACTIVITIES                                        8,722       9,362       8,700
                                                               --------    --------    --------
Investing Activities
Capital expenditures                                             (2,181)     (2,024)     (1,482)
Proceeds from asset sales                                           517         230         143
Acquisitions                                                       (572)     (7,476)        (61)
Change in investment securities                                    (100)       (874)         37
                                                               --------    --------    --------
TOTAL INVESTING ACTIVITIES                                       (2,336)    (10,144)     (1,363)
                                                               --------    --------    --------
Financing Activities
Dividends to shareholders                                        (2,731)     (2,539)     (2,246)
Change in short-term debt                                         2,016       4,911      (2,052)
Additions to long-term debt                                       3,108       1,963       1,230
Reductions of long-term debt                                     (2,013)     (1,188)     (1,060)
Proceeds from the exercise of stock options                         478         555         269
Treasury purchases                                               (5,026)     (4,070)     (1,236)
                                                               --------    --------    --------
TOTAL FINANCING ACTIVITIES                                       (4,168)       (368)     (5,095)
                                                               --------    --------    --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents        (61)        (46)        387
                                                               --------    --------    --------
CHANGE IN CASH AND CASH EQUIVALENTS                               2,157      (1,196)      2,629
                                                               --------    --------    --------
CASH AND CASH EQUIVALENTS, END OF YEAR                         $  6,389    $  4,232    $  5,428
                                                               --------    --------    --------
Supplemental Disclosure

Cash payments for:
     Interest                                                  $    783    $    630    $    538
     Income taxes                                                 2,644       1,634       1,703
Non-cash capital leases acquired by assuming debt                    68         127           -
                                                               --------    --------    --------


See accompanying Notes to Consolidated Financial Statements


46 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Procter & Gamble Company's (the "Company," "we" or "us") business is focused
on providing consumer branded products of superior quality and value. We market
over 300 branded products in more than 160 countries around the world. Our
products are sold primarily through retail operations including mass
merchandisers, grocery stores, membership club stores, drug stores and
high-frequency stores.

Basis of Presentation

The Consolidated Financial Statements include The Procter & Gamble Company and
its controlled subsidiaries. Intercompany transactions are eliminated in
consolidation. Investments in certain companies over which we exert significant
influence, but do not control the financial and operating decisions, are
accounted for as equity method investments.

Use of Estimates

Preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (U.S. GAAP) requires
management to make estimates and assumptions that affect the amounts reported in
the Consolidated Financial Statements and accompanying disclosures. These
estimates are based on management's best knowledge of current events and actions
the Company may undertake in the future. Estimates are used in accounting for,
among other items, consumer and trade promotion accruals, pensions,
post-employment benefits, stock options, useful lives for depreciation and
amortization, future cash flows associated with impairment testing for goodwill
and long-lived assets, deferred tax assets, potential income tax assessments and
contingencies. Actual results may ultimately differ from estimates, although
management does not believe such differences would materially affect the
financial statements in any individual year.

Revenue Recognition

Sales are recognized when revenue is realized or realizable and has been earned.
Most revenue transactions represent sales of inventory. The revenue recorded
includes shipping and handling costs, which generally are included in the list
price to the customer. Our policy is to recognize revenue when title to the
product, ownership and risk of loss transfer to the customer, which generally is
on the date of shipment. A provision for payment discounts and product return
allowances is recorded as a reduction of sales in the same period that the
revenue is recognized.

Trade promotions, consisting primarily of customer pricing allowances,
merchandising funds and consumer coupons, are offered through various programs
to customers and consumers. Sales are recorded net of trade promotion spending,
which is recognized as incurred, generally at the time of the sale. Most of
these arrangements have terms of approximately one year. Accruals for expected
payouts under these programs are included as accrued marketing and promotion in
the accrued and other liabilities line item in the Consolidated Balance Sheets.

Cost of Products Sold

Cost of products sold primarily comprises direct materials and supplies consumed
in the manufacture of product, as well as manufacturing labor, depreciation
expense and direct overhead expense necessary to acquire and convert the
purchased materials and supplies into finished product. Cost of products sold
also includes the cost to distribute products to customers, inbound freight
costs, internal transfer costs, warehousing costs and other shipping and
handling activity. Shipping and handling costs invoiced to customers are
included in net sales.

Selling, General and Administrative Expense

Selling, general and administrative expense is primarily comprised of marketing
expenses, including the cost of media, advertising and related costs; selling
expenses; research and development costs; administrative and other indirect
overhead costs; depreciation and amortization expense on non-manufacturing
assets; and other miscellaneous operating items. Research and development costs
are charged to expense as incurred and were $1,940 in 2005, $1,802 in 2004 and
$1,665 in 2003. Advertising costs are charged to expense as incurred. Worldwide
television, print, radio and internet advertising expenses were $5,917 in 2005,
$5,504 in 2004 and $4,373 in 2003.

Restructuring Program

In 1999, concurrent with a reorganization of our operations into product-based
Global Business Units, we initiated a multi-year Organization 2005 Restructuring
Program. Costs included enrollment reductions, manufacturing consolidations and
portfolio choices to scale back or discontinue under-performing businesses and
initiatives. Total restructuring program charges were $751 in 2003, including
$351 in separations related to approximately 5,000 people, $190 in asset
write-downs and $87 in accelerated depreciation related to long-lived assets
that were taken out of service prior to the end of their normal service period.

At June 30, 2003, the program was substantially complete with a remaining
reserve of $335. Substantially all of this liability was settled through cash
payments by June 30, 2004.

We continue to undertake projects substantially smaller in scope to maintain a
competitive cost structure, including manufacturing streamlining and work force
rationalization, as part of our normal operations.

Other Non-Operating Income, Net

Other non-operating income, net primarily includes divestiture gains and losses
and interest and investment income.

Millions of dollars except per share amounts or otherwise specified.



                                The Procter & Gamble Company and Subsidiaries 47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Currency Translation

Financial statements of operating subsidiaries outside the United States of
America (U.S.) generally are measured using the local currency as the functional
currency. Adjustments to translate those statements into U.S. dollars are
recorded in other comprehensive income. For subsidiaries operating in highly
inflationary economies, the U.S. dollar is the functional currency.
Remeasurement adjustments for financial statements in highly inflationary
economies and other transactional exchange gains and losses are reflected in
earnings.

Cash Flow Presentation

The Statement of Cash Flows is prepared using the indirect method, which
reconciles net earnings to cash flow from operating activities. These
adjustments include the removal of timing differences between the occurrence of
operating receipts and payments and their recognition in net earnings. The
adjustments also remove from operating activities cash flows arising from
investing and financing activities, which are presented separately from
operating activities. Cash flows from foreign currency transactions and
operations are translated at an average exchange rate for the period. Cash flows
from hedging activities are included in the same category as the items being
hedged. Cash flows from derivative instruments designated as net investment
hedges are classified as financing activities. Cash flows from other
derivative instruments used to manage interest, commodity or currency exposures
are classified as operating activities. Cash paid for acquisitions is classified
as investing activities.

Cash Equivalents

Highly liquid investments with remaining stated maturities of three months or
less when purchased are considered cash equivalents and recorded at cost.

Investments

Investment securities consist of auction rate securities that approximate fair
value and readily-marketable debt and equity securities that are classified as
trading with unrealized gains or losses charged to earnings.

Other investments that are not controlled and over which we do not have the
ability to exercise significant influence are accounted for under the cost
method.

Inventory Valuation

Inventories are valued at cost, which is not in excess of current market prices.
Product-related inventories are primarily maintained on the first-in, first-out
method. Minor amounts of product inventories, including certain cosmetics and
commodities, are maintained on the last-in, first-out method. The cost of spare
part inventories is maintained using the average cost method.

Goodwill and Other Intangible Assets

The cost of intangible assets with determinable useful lives is amortized to
reflect the pattern of economic benefits consumed, principally on a
straight-line basis over the estimated periods benefited. Goodwill and
indefinite-lived intangibles, primarily brand names and trademarks, are not
amortized, but are evaluated annually for impairment. Our impairment testing for
goodwill is performed separately from our impairment testing of individual
indefinite-lived intangibles. The annual evaluation for impairment of goodwill
and indefinite-lived intangibles is based on valuation models that incorporate
internal projections of expected future cash flows and operating plans. We
evaluate a number of factors to determine whether an indefinite life is
appropriate, including the competitive environment, market share, brand history,
operating plan and the macroeconomic environment of the countries in which the
brands are sold. Where certain events or changes in operating conditions occur,
indefinite-lived intangibles may be adjusted to a determinable life and an
impairment assessment may be performed.

Due to the nature of our business, there are a number of brand intangibles that
have been determined to have indefinite lives. If it is determined that a brand
intangible does not have an indefinite life, our policy is to amortize the
intangible asset over the expected useful life. Patents, technology and other
intangibles with contractual terms are amortized over their respective
contractual lives. Other non-contractual intangible assets with determinable
lives are amortized over periods generally ranging from 5 to 20 years. Where
certain events or changes in operating conditions occur, lives on intangible
assets with determinable lives may be adjusted and an impairment assessment may
be performed on the recoverability of the carrying amounts.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost reduced by accumulated
depreciation. Depreciation expense is recognized over the assets' estimated
useful lives using the straight-line method. Machinery and equipment includes
office furniture and equipment (15-year life), computer equipment and
capitalized software (3 to 5-year lives) and manufacturing equipment (3 to
20-year lives). Buildings are depreciated over an estimated useful life of 40
years. Estimated useful lives are periodically reviewed and, where appropriate,
changes are made prospectively. Where certain events or changes in operating
conditions occur, asset lives may be adjusted and an impairment assessment may
be performed on the recoverability of the carrying amounts.

Fair Values of Financial Instruments

Certain financial instruments are required to be recorded at fair value. The
estimated fair values of such financial instruments, including certain debt
instruments, investment securities and derivatives, have been determined using
market information and valuation methodologies, primarily discounted cash flow
analysis. These estimates require

             Million of dollars except per share amounts or otherwise specified.



48 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

considerable judgment in interpreting market data and changes in assumptions or
estimation methods could significantly affect the fair value estimates. However,
we do not believe any such changes would have a material impact on our financial
condition or results of operations. Other financial instruments, including cash
equivalents, other investments and short-term debt, are recorded at cost, which
approximates fair value. The fair values of long-term debt and derivative
instruments are disclosed in Note 5 and Note 6, respectively.

Stock-Based Compensation

The Company has employee stock option plans, which are described more fully in
Note 7. We account for 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 was recognized.

Had compensation expense for the plans been determined based on the fair value
of the options on the grant date, consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation," our net earnings and earnings per common share would
have been as follows:



                                         Years ended June 30
                                -----------------------------------
                                  2005        2004 (1)      2003
                                ---------    ---------    ---------
                                                 
NET EARNINGS
     As reported                $   7,257    $   6,481    $   5,186
     Pro forma adjustments           (334)        (325)        (398)
     PRO FORMA                      6,923        6,156        4,788
                                ---------    ---------    ---------
NET EARNINGS PER COMMON SHARE
Basic
     As reported                $    2.83    $    2.46    $    1.95
     Pro forma adjustments          (0.13)       (0.12)       (0.15)
     PRO FORMA                       2.70         2.34         1.80
                                ---------    ---------    ---------
Diluted
     As reported                     2.66         2.32         1.85
     Pro forma adjustments          (0.13)       (0.12)       (0.15)
     PRO FORMA                       2.53         2.20         1.70
                                ---------    ---------    ---------


(1) During 2004, the timing of the annual grant was moved from September to
    February resulting in lower expense, as the associated pro forma expense is
    amortized over the three-year vesting period.

New Pronouncements and Reclassifications

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123(R)). This Statement
revises SFAS No. 123 by eliminating the option to account for employee stock
options under APB No. 25 and generally requires companies to recognize the cost
of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards (the "fair-value-based" method). We
are adopting SFAS 123(R) effective July 1, 2005 using the modified retrospective
method. All prior periods will be adjusted to give effect to the
fair-value-based method of accounting for awards granted in fiscal years
beginning on or after July 1, 1995. The impact of adopting SFAS 123(R) will be
consistent with the impact in the pro forma disclosure presented above.

No other new accounting pronouncement issued or effective during the fiscal year
has had or is expected to have a material impact on the consolidated financial
statements. Certain reclassifications of prior years' amounts have been made to
conform to the current year presentation.

NOTE 2 ACQUISITIONS

Gillette Acquisition

On January 27, 2005, we entered into an agreement to acquire The Gillette
Company. The agreement, which has been approved by the boards of directors and
the shareholders of both companies, provides for a stock-for-stock exchange in
which 0.975 shares of The Procter & Gamble Company common stock would be issued
and exchanged, on a tax-free basis, for each share of The Gillette Company.
Under the purchase method of accounting, the total consideration would be
approximately $54 billion, determined using the average Company stock prices
beginning two days before and ending two days after January 28, 2005, the date
the acquisition was announced.

The Gillette Company is a leader in several global product categories including
blades and razors, oral care and batteries. Total sales for Gillette during its
most recent year ended December 31, 2004 were $10.5 billion.

The acquisition is subject to approval by certain regulatory authorities. We
believe that the transaction will close in Fall 2005.

In connection with this acquisition, we also announced a share buyback plan
under which we will acquire up to $22 billion of Company common shares. Through
June 30, 2005, we repurchased $3.00 billion under this plan, financed by a
bridge credit facility. On July 27, 2005, we entered into a $24 billion
three-year credit facility with a syndicate of banks. This facility replaced the
bridge credit facility. Proceeds will be used for general corporate purposes
with the expectation that the majority of the funds will be used as part of the
share repurchase program. As part of the share repurchase program, we may also
purchase shares of The Gillette Company prior to close to facilitate completion
of the transaction (dependent on market conditions and regulatory approval).
This facility is initially secured by a pledge of certain of the Company shares
acquired under the share buyback plan. This credit

Millions of dollars except per share amounts or otherwise specified.



                                The Procter & Gamble Company and Subsidiaries 49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

facility carries a variable interest rate. Interest on the facility will be
managed within our overall interest rate management policies described in Note
6.

Wella Acquisition

On September 2, 2003, we acquired a controlling interest in Wella. Through a
stock purchase agreement with the majority shareholders of Wella and a tender
offer made on the remaining shares, we acquired a total of 81% of Wella's
outstanding shares, including 99% of Wella's outstanding voting class shares. In
June 2004, the Company and Wella entered into a Domination and Profit Transfer
Agreement (the Domination Agreement) pursuant to which we are entitled to
exercise full operating control and receive 100% of the future earnings of
Wella. As consideration for the Domination Agreement, we will pay the holders of
the remaining outstanding shares of Wella a guaranteed perpetual annual dividend
payment. Alternatively, the remaining Wella shareholders may elect to tender
their shares to us for an agreed price. The fair value of the total guaranteed
annual dividend payments was $1.11 billion, which approximates the cost if all
remaining shares were tendered. Because the Domination Agreement transfers
operational and economic control of the remaining outstanding shares to the
Company, it has been accounted for as an acquisition of the remaining shares,
with a liability recorded equal to the fair value of the guaranteed payments.
Because of the tender feature, the liability is recorded as a current liability
in the accrued and other liabilities line of the Consolidated Balance Sheets.
Payments made under the guaranteed annual dividend and tender provisions are
allocated between interest expense and a reduction of the liability, as
appropriate. The total purchase price for Wella, including acquisition costs,
was $6.27 billion based on exchange rates at the acquisition dates. It was
funded with a combination of cash, debt and the liability recorded under the
Domination Agreement.

The acquisition of Wella, with over $3 billion in annual net sales, gives us
access to the professional hair care category plus greater scale and scope in
hair care, hair colorants, cosmetics and fragrance products, while providing
potential for significant synergies. The operating results of the Wella
business are reported in our P&G Beauty Global Business Unit beginning September
2, 2003.

The following table provides pro forma results of operations for the years ended
June 30, 2004 and 2003, as if Wella had been acquired as of the beginning of
each fiscal year presented. Pro forma information for 2005 is not provided as
the results of Wella are included in our results for the entire year. The pro
forma results include certain adjustments, including adjustments to convert
Wella's historical financial information from International Financial Reporting
Standards (IFRS) into U.S. GAAP, estimated interest impacts from funding of the
acquisition and estimated amortization of definite-lived intangible assets.
However, pro forma results do not include any cost savings or other effects of
the integration of Wella. Accordingly, such amounts are not necessarily
indicative of the results that would have occurred if the acquisition had
occurred on the dates indicated.



                                        Years ended June 30
                                        -------------------
Pro forma results                         2004       2003
- -------------------------------------   -------     -------
                                              
Net Sales                               $51,958     $46,751
Net Earnings                              6,402       5,222
Diluted Net Earnings per Common Share   $  2.29     $  1.86
                                        -------     -------


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

                             
Current assets                  $1,797
Property, plant and equipment      407
Goodwill                         5,941
Intangible assets                1,671
Other non-current assets           157
                                ------
TOTAL ASSETS ACQUIRED            9,973
                                ------

Current liabilities              2,099
Non-current liabilities          1,601
                                ------
TOTAL LIABILITIES ASSUMED        3,700
                                ------
NET ASSETS ACQUIRED              6,273
                                ------



The Wella acquisition resulted in $5.94 billion in goodwill, all of which was
allocated to the P&G Beauty Global Business Unit. The following table presents
the intangible assets acquired.



                                                  Weighted
                                                Average life
                                                ------------
                                             
Intangible Assets with
  Determinable Lives
Trademarks                            $  267         9
Professional customer relationships      196        15
Patents and technology                    10         5
Other                                     46        23
                                      ------       ---
                                         519

Trademarks with
   Indefinite Lives                    1,152
                                      ------
TOTAL INTANGIBLE ASSETS                1,671
                                      ------


China Venture

On June 18, 2004, we purchased the remaining 20% stake in our China venture from
our partner, Hutchison Whampoa China Ltd. (Hutchison), giving us full ownership
in our operations in China. The net purchase price was $1.85 billion, which is
the purchase price of $2.00 billion net of minority interest and related
obligations that were eliminated as a result of the transaction. The acquisition
was funded by debt. The fair value of the incremental individual assets and
liabilities acquired approximates current book value. Accordingly, the purchase
price was recorded as goodwill, which was allocated to multiple businesses.

            Millions of dollars except per share amounts or otherwise specified.



50 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other minor business purchases and intangible asset acquisitions totaled $572,
$384 and $61 in 2005, 2004 and 2003, respectively.

NOTE 3 GOODWILL AND INTANGIBLE ASSETS

The change in the net carrying amount of goodwill for the years ended June 30,
2005 and 2004 by business was as follows:



                                                   2005        2004
                                                 --------    --------
                                                       
Total P&G Beauty, beginning of year              $ 14,457    $  6,600
       Acquisitions                                    70       7,277
       Translation and other                           53         580
                                                 --------    --------
   END OF YEAR                                     14,580      14,457
                                                 --------    --------
   Health Care, beginning of year                   3,315       2,908
       Acquisitions                                    60         386
       Translation and other                            3          21
                                                 --------    --------
   END OF YEAR                                      3,378       3,315
                                                 --------    --------
   Baby Care and Family Care, beginning of year       941         884
       Acquisitions                                     1          19
       Translation and other                           13          38
                                                 --------    --------
   END OF YEAR                                        955         941
                                                 --------    --------
Total P&G Family Health, beginning of year          4,256       3,792
       Acquisitions                                    61         405
       Translation and other                           16          59
                                                 --------    --------
   END OF YEAR                                      4,333       4,256
                                                 --------    --------
   Fabric Care and Home Care,
       beginning of year                              614         460
       Acquisitions                                    28         148
       Translation and other                            2           6
                                                 --------    --------
   END OF YEAR                                        644         614
                                                 --------    --------
   Snacks and Coffee, beginning of year               283         280
       Divestitures                                   (25)          -
       Translation and other                            1           3
                                                 --------    --------
   END OF YEAR                                        259         283
                                                 --------    --------
Total P&G Household Care,
       beginning of year                              897         740
       Acquisitions and divestitures                    3         148
       Translation and other                            3           9
                                                 --------    --------
   END OF YEAR                                        903         897
                                                 --------    --------
Goodwill, Net, beginning of year                   19,610      11,132
       Acquisitions and divestitures                  134       7,830
       Translation and other                           72         648
                                                 --------    --------
   END OF YEAR                                     19,816      19,610
                                                 --------    --------


Identifiable intangible assets as of June 30, 2005 and 2004 were comprised of:



                                June 30, 2005                     June 30, 2004
                         -----------------------------     -----------------------------
                         Gross Carrying   Accumulated      Gross Carrying   Accumulated
                             Amount       Amortization         Amount       Amortization
                         --------------   ------------     --------------   ------------
                                                                
Intangible Assets with
   Determinable Lives
Trademarks                   $1,144         $  239             $1,012          $  155
Patents and technology          419            236                518             250
Other                           552            235                554             165
                             ------         ------             ------          ------
                              2,115            710              2,084             570
                             ------         ------             ------          ------
Trademarks With
   Indefinite Lives           2,942              -              2,776               -
                             ------         ------             ------          ------
                              5,057            710              4,860             570
                             ------         ------             ------          ------


The amortization of intangible assets for the years ended June 30, 2005, 2004
and 2003 was $198, $165 and $100, respectively. Estimated amortization expense
over the next five years is as follows: 2006-$203; 2007-$171; 2008-$159;
2009-$149 and 2010-$144. Such estimates do not reflect the impact of future
foreign exchange rate changes and the Gillette acquisition.

NOTE 4 SUPPLEMENTAL FINANCIAL INFORMATION

Selected components of current and non-current liabilities were as follows:



                                                 June 30
                                             ----------------
                                              2005      2004
                                             ------    ------
                                                 
Accrued And Other Current Liabilities
Marketing and promotion                      $1,912    $1,876
Liability under Wella Domination Agreement    1,087     1,106
Compensation expenses                         1,045     1,049
Other                                         3,487     3,658
                                             ------    ------
                                              7,531     7,689
                                             ------    ------

Other Non-Current Liabilities
Pension benefits                             $2,096    $1,798
Other postretirement benefits                   149       142
Other                                           985       868
                                             ------    ------
                                              3,230     2,808
                                             ------    ------


Millions of dollars except per share amounts or otherwise specified.



                                The Procter & Gamble Company and Subsidiaries 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 SHORT-TERM AND LONG-TERM DEBT



                                         June 30
                                    ------------------
                                      2005       2004
                                    -------    -------
                                         
Short-Term Debt
USD commercial paper                $ 5,513    $ 6,059
Non-USD commercial paper                 18        149
Current portion of long-term debt     2,606      1,518
Bridge credit facility                3,010          -
Other                                   294        561
                                    -------    -------
                                     11,441      8,287
                                    -------    -------


The weighted average short-term interest rates were 3.5% and 1.5% as of June 30,
2005 and 2004, respectively, including the effects of related interest rate
swaps discussed in Note 6.



                                                 June 30
                                            -----------------
                                             2005       2004
                                            ------     ------
                                                 
Long-Term Debt
5.75% EUR note due September, 2005           1,814      1,827
1.50% JPY note due December, 2005              499        503
3.50% CHF note due February, 2006              234        240
5.40% EUR note due August, 2006                363        365
4.75% USD 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        500
3.50% USD note due December, 2008              650        650
6.88% USD note due September, 2009           1,000      1,000
2.00% JPY note due June, 2010                  454        458
Floating rate USD note due October, 2010     1,500          -
4.95% USD note due August, 2014                900          -
4.85% USD note due December, 2015              700        700
9.36% ESOP debentures due 2007-2021(1)       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               904        906
5.25% GBP note due January, 2033               362        363
5.50% USD note due February, 2034              500        500
5.80% USD note due August, 2034                600          -
Debt assumed under capital leases              273        252
All other long-term debt                     1,240      2,808
Current portion of long-term debt           (2,606)    (1,518)
                                            ------     ------
                                            12,887     12,554
                                            ------     ------


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

(1) Debt issued by the ESOP is guaranteed by the Company and must be recorded as
    debt of the Company as discussed in Note 8.

Long-term weighted average interest rates were 3.2% and 4.0% as of June 30, 2005
and 2004, respectively, including the effects of related interest rate swaps and
net investment hedges discussed in Note 6.

The fair value of the long-term debt was $13,904 and $13,168 at June 30, 2005
and 2004, respectively. Long-term debt maturities during the next five years
are as follows: 2006-$2,606; 2007-$1,440; 2008-$816; 2009-$1,154 and
2010-$1,734.

NOTE 6 RISK MANAGEMENT ACTIVITIES

As a multinational company with diverse product offerings, we are exposed to
market risks, such as changes in interest rates, currency exchange rates and
commodity pricing. To manage the volatility related to these exposures, we
evaluate exposures on a consolidated basis to take advantage of logical exposure
netting and correlation. For the remaining exposures, we enter into various
derivative transactions. Such derivative transactions, which are executed in
accordance with our policies in areas such as counterparty exposure and hedging
practices, are accounted for under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended and interpreted. We do not hold
or issue derivative financial instruments for speculative trading purposes.

At inception, we formally designate and document the qualifying financial
instrument as a hedge of an underlying exposure. We formally assess, 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

We have established strict counterparty credit guidelines and normally enter
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 our financial instrument contracts generally is limited to the
amounts, if any, by which the counterparty's obligations exceed our obligations
to the counterparty. We do not expect to incur material credit losses on our
risk management or other financial instruments.

            Millions of dollars except per share amounts or otherwise specified.


52 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest Rate Management

Our policy is to manage interest cost using a mixture of fixed-rate and
variable-rate debt. To manage this risk in a cost efficient manner, we enter
into interest rate swaps in which we agree to exchange with the counterparty, 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 and cash flow hedges. For fair value hedges, the
changes in the fair value of both the hedging instruments and the underlying
debt obligations are immediately recognized in interest expense as equal and
offsetting gains and losses. The fair value of these fair value hedges was a net
asset of $17 and $45 at June 30, 2005 and 2004, respectively. All existing fair
value hedges are 100% effective. As a result, there is no impact to earnings due
to hedge ineffectiveness. For cash flow hedges, the effective portion of the
changes in fair value is reported in other comprehensive income and reclassified
into interest expense over the life of the underlying debt. The fair value of
these cash flow hedges was an asset of $3 at June 30, 2005. There were no such
interest rate cash flow hedges at June 30, 2004.

Foreign Currency Management

We manufacture and sell our products in a number of countries throughout the
world and, as a result, are exposed to movements in foreign currency exchange
rates. The purpose of our foreign currency hedging program is to reduce the risk
caused by short-term changes in exchange rates.

We primarily utilize forward contracts and options with maturities of less than
18 months and currency swaps with maturities up to 5 years. These instruments
are intended to offset the effect of exchange rate fluctuations on forecasted
sales, inventory purchases, intercompany royalties and intercompany loans
denominated in foreign currencies and are therefore accounted for as cash flow
hedges. The fair value of these instruments at June 30, 2005 and 2004 was $47
and $47 in assets and $131 and $140 in liabilities, respectively. The effective
portion of the changes in fair value for these instruments is reported in other
comprehensive income and reclassified into earnings in the same financial
statement line item and in the same period or periods during which the hedged
transactions affect earnings. The ineffective portion, which is not material for
any year presented, is immediately recognized in earnings.

Certain instruments used to manage foreign exchange risk do not meet the
requirements for hedge accounting treatment. In these cases, the change in value
of the instruments is designed to offset the foreign currency impact of
intercompany financing transactions, income from international operations and
other balance sheet revaluations. The fair value of these instruments at June
30, 2005 and 2004 was $57 and $71 in assets and $108 and $26 in liabilities,
respectively. The change in value of these instruments is immediately recognized
in earnings. The net impact of such instruments, included in selling, general
and administrative expense, was $18, $80 and $264 of gains in 2005, 2004 and
2003, respectively, which substantially offset foreign currency transaction and
translation losses of the exposures being hedged.

Net Investment Hedging

We hedge certain of our net investment positions in major foreign subsidiaries.
To accomplish this, we either borrow directly in foreign currency and designate
a portion of foreign currency debt as a hedge of net investments in foreign
subsidiaries or enter into foreign currency swaps that are designated as hedges
of our related foreign net investments. Under SFAS No. 133, changes in the fair
value of these instruments are immediately recognized in other comprehensive
income, to offset the change in the value of the net investment being hedged.
Currency effects of these hedges reflected in other comprehensive income were a
$135 after-tax gain, a $348 after-tax loss and a $418 after-tax loss in 2005,
2004 and 2003, respectively. Accumulated net balances were a $451 and $586
after-tax loss in 2005 and 2004, respectively.

Commodity Price Management

Raw materials 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, we use
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 other
comprehensive income and reclassified into cost of products sold in the same
period or periods during which the hedged transactions affect earnings.
Qualifying cash flow hedges currently recorded in other comprehensive income
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 our financial
statements for any of the years presented.

NOTE 7 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.

Millions of dollars except per share amounts or otherwise specified.



                                The Procter & Gamble Company and Subsidiaries 53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Diluted net earnings per common share are calculated to give effect to stock
options and assuming conversion of preferred stock (see Note 8).

Net earnings and common shares balances used to calculate basic and diluted net
earnings per share were as follows:



                                                      Years ended June 30
                                                -----------------------------
                                                  2005       2004       2003
                                                -------    -------    -------
                                                             
NET EARNINGS                                    $ 7,257    $ 6,481    $ 5,186
Preferred dividends, net of tax benefit            (136)      (131)      (125)
                                                -------    -------    -------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS     7,121      6,350      5,061
                                                -------    -------    -------
Preferred dividends, net of tax benefit             136        131        125
Preferred dividend impact on funding of ESOP         (1)        (4)        (9)
                                                -------    -------    -------
DILUTED NET EARNINGS                              7,256      6,477      5,177
                                                -------    -------    -------




                                                     Years ended June 30
                                                -----------------------------
Shares in millions                               2005       2004       2003
- --------------------------------------------    -------    -------    -------
                                                             
Basic weighted average
   common shares outstanding                    2,515.6    2,580.1    2,593.2
Effect of dilutive securities
   Conversion of preferred shares(1)              158.3      164.0      170.2
   Exercise of stock options and
   other unvested equity awards(2)                 52.3       46.0       39.2
                                                -------    -------    -------
DILUTED WEIGHTED
   AVERAGE COMMON
   SHARES OUTSTANDING                           2,726.2    2,790.1    2,802.6
                                                -------    -------    -------


- -----------------
(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 debt through 2021.

(2)   Approximately 1 million in 2005, 38 million in 2004 and 66 million in 2003
      of the Company's outstanding stock options were not included in the
      diluted net earnings per share calculation because to do so would have
      been antidilutive (i.e., the exercise price exceeded market value).

Stock-Based Compensation

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

Had the provision of SFAS No. 123 expensing been applied, our net earnings and
earnings per common share would have been impacted as summarized in the
discussion of our stock-based compensation accounting policy in Note 1. In
calculating the impact for options granted, we have estimated the fair value of
each grant using the Black-Scholes option-pricing model for grants issued
through December 31, 2004. Effective January 1, 2005, we utilize a binomial
lattice-based model for the valuation of stock option grants. The utilization of
the binomial lattice-based model did not have a significant impact on the
valuation of stock options as compared to the Black-Scholes model. Assumptions
utilized in the model, which are evaluated and revised, as necessary, to reflect
market conditions and experience, were as follows:



                               Years ended June 30
                           --------------------------
Options Granted            2005       2004       2003
- ----------------------     ----       ----       ----
                                        
Interest rate               4.4%       3.8%       3.9%
Dividend yield              1.9%       1.8%       1.8%
Expected volatility          20%        20%        20%
Expected life in years        9          8          8
                            ---        ---        ---


The following table summarizes stock option activity during 2005, 2004 and 2003:



                                                      June 30
                                         --------------------------------
Options in Thousands                       2005        2004        2003
- ---------------------------------        --------    --------    --------
                                                        
Outstanding, beginning of year            276,293     259,598     240,326
Granted                                    29,100      40,866      35,759
Exercised                                 (17,207)    (22,307)    (13,904)
Canceled                                   (1,003)     (1,864)     (2,583)
                                         --------    --------    --------
OUTSTANDING, END OF YEAR                  287,183     276,293     259,598
                                         --------    --------    --------

Exercisable                               182,488     151,828     118,202
Available for grant                       136,525     165,399     203,593

Average price
   Outstanding, beginning of year        $  38.85    $  35.75    $  33.34
   Granted                                  53.75       51.06       45.68
   Exercised                                26.46       24.88       19.35
   Outstanding, end of year                 41.07       38.85       35.75
   Exercisable, end of  year                36.05       35.39       35.44
Weighted average fair value
   of options granted
   during the year                          14.34       12.50       10.99
                                         --------    --------    --------


            Millions of dollars except per share amounts or otherwise specified.


54 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock options outstanding at June 30, 2005 were in the following exercise price
ranges:



                                 Outstanding Options
                       -------------------------------------------
                                                     Weighted Avg.
                          Number                       Remaining
                       Outstanding   Weighted Avg.    Contractual
Range of Prices        (Thousands)   Exercise Price  Life in Years
- ----------------       -----------   --------------  -------------
                                            
$20.29 to 31.02           70,363         $29.09           7.1
 31.25 to 34.84           47,237          34.29          10.9
 35.10 to 46.24           80,063          43.74           6.0
 48.73 to 56.52           89,520          51.69           9.1


Stock options exercisable at June 30, 2005 were in the following exercise price
ranges:



                            Exercisable Options
                       ----------------------------
                          Number        Weighted
                       Exercisable      Average
Range of Prices        (Thousands)   Exercise Price
- ----------------       -----------   --------------
                               
$20.29 to 31.02          69,895          $29.08
 31.25 to 34.84          46,312           34.28
 35.10 to 46.24          43,717           42.15
 48.73 to 56.52          22,564           49.49


NOTE 8 POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN

The Company offers various postretirement benefits to its employees.

Defined Contribution Retirement Plans

The most prevalent employee pension plans offered are defined contribution
plans, which cover substantially all employees in the U.S., as well as employees
in certain other countries. These plans are fully funded. We generally make
contributions to participants based on individual base salaries and years of
service. In the U.S., the contribution is set annually. Total contributions have
approximated 15% of total participants' annual wages and salaries for 2005, 2004
and 2003.

The Company maintains The Procter & Gamble Profit Sharing Trust (Trust) and
Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the
U.S. defined contribution plan, as well as other retiree benefits. Operating
details of the ESOP are provided at the end of this Note. The fair value of the
ESOP Series A shares reduces our cash contribution required to fund the U.S.
defined contribution plan. Defined contribution expense, which approximates
our cash contribution to the plan that is funded in the subsequent year, was
$203, $274 and $286 in 2005, 2004 and 2003, respectively.

Defined Benefit Retirement Plans and Other Retiree Benefits

Certain other employees, primarily outside the U.S., are covered by local
defined benefit pension plans as well as other retiree benefit plans.

The Company also provides certain other retiree benefits, primarily health care
and life insurance, for substantially all U.S. employees who become eligible for
these benefits when they meet minimum age and service requirements. Generally,
the health care plans require cost sharing with retirees and pay a stated
percentage of expenses, reduced by deductibles and other coverages. These
benefits primarily are funded by ESOP Series B shares, as well as certain other
assets contributed by the Company.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003
introduced a Medicare prescription-drug benefit beginning in 2006 as well as a
federal subsidy to sponsors of retiree health care plans that provide a benefit
at least "actuarially equivalent" to the Medicare benefit. The impact of this
Act was included in the June 30, 2004 measurement process for other retiree
benefit plans. The Act did not have a material impact to the net periodic
retiree medical benefit cost or to expected benefit payments.

Obligation and Funded Status. We use a June 30 measurement date for our defined
benefit retirement plans and other retiree benefit plans. The following
provides a reconciliation of benefit obligations, plan assets and funded status
of these plans:

Millions of dollars except per share amounts or otherwise specified.



                                The Procter & Gamble Company and Subsidiaries 55

Notes to Consolidated Financial Statements



                                                                        Years ended June 30
                                                     --------------------------------------------------
                                                     Pension Benefits (2)    Other Retiree Benefits (3)
                                                     --------------------    --------------------------
                                                       2005         2004       2005               2004
                                                     -------    ---------    -------            -------
                                                                                    
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year (1)          $ 4,616      $ 3,543    $ 2,400            $ 2,914
Service cost                                             162          157         67                 89
Interest cost                                            241          204        146                172
Participants' contributions                               18           14         33                 31
Amendments                                                45           50          -               (258)
Actuarial loss (gain)                                    807            5        566               (460)
Acquisitions (divestitures)                               (7)         590          -                  7
Curtailments and settlements                               -          (39)         -                 (8)
Special termination benefits                               -           12          2                 41
Currency translation                                     (35)         288          9                  5
Benefit payments                                        (221)        (208)      (144)              (133)
                                                     -------    ---------    -------            -------
BENEFIT OBLIGATION AT END OF YEAR (1)                  5,626        4,616      3,079              2,400
                                                     -------    ---------    -------            -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year       $ 2,263      $ 1,558    $ 2,843            $ 2,277
Actual return on plan assets                             201          194        (44)               651
Acquisitions (divestitures)                                -          185          -                  -
Employer contributions                                   310          412         11                 18
Participants' contributions                               18           14         33                 31
Settlements                                                -          (21)         -                  -
Currency translation                                       1          129          1                 (1)
Benefit payments                                        (221)        (208)      (144)              (133)
                                                     -------    ---------    -------            -------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR               2,572        2,263      2,700              2,843
                                                     -------    ---------    -------            -------
FUNDED STATUS                                         (3,054)      (2,353)      (379)               443
                                                     -------    ---------    -------            -------


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

(2)   Predominantly non-U.S.-based defined benefit retirement plans.

(3)   Predominantly U.S.-based other postretirement benefit plans.



                                                               Years ended June 30
                                                  --------------------------------------------
                                                   Pension Benefits     Other Retiree Benefits
                                                  ------------------    ----------------------
                                                    2005       2004       2005           2004
                                                  -------    -------    -------        -------
                                                                           
CALCULATION OF NET AMOUNT RECOGNIZED
Funded status at end of year                      $(3,054)   $(2,353)   $  (379)       $   443
Unrecognized net actuarial loss (gain)              1,641        902        606           (344)
Unrecognized transition amount                          9         12          -              -
Unrecognized prior service cost                        81         38       (242)          (259)
                                                  -------    -------    -------        -------
NET AMOUNT RECOGNIZED                              (1,323)    (1,401)       (15)          (160)
                                                  -------    -------    -------        -------

CLASSIFICATION OF NET AMOUNT RECOGNIZED
Prepaid benefit cost                              $   207    $   253    $   138        $     1
Accrued benefit cost                               (2,180)    (1,872)      (153)          (161)
Intangible asset                                      123         75          -              -
Accumulated other comprehensive income                527        143          -              -
                                                  -------    -------    -------        -------
NET AMOUNT RECOGNIZED                              (1,323)    (1,401)       (15)          (160)
                                                  -------    -------    -------        -------


The underfunding of pension benefits is primarily a function of the different
funding incentives that exist outside of the U.S. In certain countries where we
have major operations, there are no legal requirements or financial incentives
provided to companies to pre-fund pension obligations. In these instances,
benefit payments are typically paid directly from the Company's cash as they
become due.

            Millions of dollars except per share amounts or otherwise specified.


56 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accumulated benefit obligation for all defined benefit retirement plans
was $4,610 and $3,822 at June 30, 2005 and June 30, 2004, respectively. Plans
with accumulated benefit obligations in excess of plan assets and plans with
projected benefit obligations in excess of plan assets as of June 30, consist
of the following:



                                                 Years ended June 30
                                 --------------------------------------------------
                                   Accumulated Benefit        Projected Benefit
                                 Obligation Exceeds Fair    Obligation Exceeds Fair
                                  Value of Plan Assets       Value of Plan Assets
                                 -----------------------    -----------------------
                                  2005             2004      2005            2004
                                 -------         -------    -------         -------
                                                                
Projected benefit obligation     $ 3,567         $ 2,809    $ 5,442         $ 4,059
Accumulated benefit obligation     3,018           2,396      4,441           3,320
Fair value of plan assets            876             638      2,382           1,676


Net Periodic Benefit Cost. Components of the net periodic benefit cost were as
follows:



                                                       Years ended June 30
                                         --------------------------------------------------
                                            Pension Benefits        Other Retiree Benefits
                                         --------------------------------------------------
                                          2005     2004     2003     2005     2004     2003
                                         -----    -----    -----    -----    -----    -----
                                                                    
Service cost                             $ 162    $ 157    $ 124    $  67    $  89    $  62
Interest cost                              241      204      173      146      172      150
Expected return on plan assets            (185)    (153)    (127)    (333)    (329)    (333)
Amortization of deferred amounts             6        3        4      (22)      (1)      (1)
Curtailment and settlement loss (gain)      13        -        5        -        -        -
Recognized net actuarial loss (gain)        31       28       13        1        1      (27)
                                         -----    -----    -----    -----    -----    -----
GROSS BENEFIT COST                         268      239      192     (141)     (68)    (149)
                                         -----    -----    -----    -----    -----    -----
Dividends on ESOP preferred stock            -        -        -      (73)     (73)     (74)
                                         -----    -----    -----    -----    -----    -----
NET PERIODIC BENEFIT COST (CREDIT)         268      239      192     (214)    (141)    (223)
                                         -----    -----    -----    -----    -----    -----


Assumptions. We determine our actuarial assumptions on an annual basis. These
assumptions are weighted to reflect each country that may have an impact on the
cost of providing retirement benefits. The weighted-average assumptions for the
defined benefit and other retiree benefit calculations, as well as assumed
health care trend rates are as follows:



                                                                              Years ended June 30
                                                                ---------------------------------------------
                                                                Pension Benefits       Other Retiree Benefits
                                                                ----------------       ----------------------
Actuarial assumptions                                           2005        2004       2005             2004
- -----------------------------------------------------------     ----        ----       ----             ----
                                                                                            
ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATIONS (1)
Discount rate                                                    4.5%        5.2%       5.1%             6.1%
Rate of compensation increase                                    2.8%        3.1%         -                -
                                                                ----        ----       ----             ----
ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST (2)
Discount rate                                                    5.2%        5.1%       6.1%             5.8%
Expected return on plan assets                                   7.2%        7.4%       9.5%             9.5%
Rate of compensation increase                                    3.1%        3.0%         -                -
                                                                ----        ----       ----             ----
ASSUMED HEALTH CARE COST TREND RATES
Health care cost trend rates assumed for next year (3)             -           -        9.6%             9.7%
Rate that the health care cost trend rate is assumed to
decline to (ultimate trend rate)                                   -           -        5.1%             5.1%
Year that the rate reaches the ultimate trend rate                 -           -       2011             2010


- ---------------------
(1)   Determined as of end of year.

(2)   Determined as of beginning of year.

(3)   Rate is applied to current plan costs net of Medicare; estimated initial
      rate for "gross eligible charges" (charges inclusive of Medicare) is 7.7%
      for 2005 and 2004.

Several factors are considered in developing the estimate for the long-term
expected rate of return on plan assets. For the defined benefit plans, these
include historical rates of return of broad equity and bond indices and
projected long-term rates of return from pension investment consultants. The
expected long-term rates of return for plan assets are 8%-9% for equities and
5%-6% bonds. The rate of return on other retiree benefit plan assets, comprised
primarily of Company stock, is based on the long-term projected return of 9.5%
and reflects the historical pattern

Millions of dollars except per share amounts or otherwise specified.


                                The Procter & Gamble Company and Subsidiaries 57

Notes to Consolidated Financial Statements

of favorable returns on the Company's stock relative to broader market indices
(e.g., S&P 500).

Assumed health care cost trend rates could have a significant effect on the
amounts reported for the other retiree benefit plans. A 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       $  38            $ (31)
Effect on postretirement benefit obligation                     480             (387)


Plan Assets. Our target asset allocation for the year ending June 30, 2006 and
actual asset allocation by asset category as of June 30, 2005, and 2004, are as
follows:



                                 Target Allocation
                         --------------------------------
                                             Other Retiree
                         Pension Benefits       Benefits
                         ----------------    -------------
Asset Category                2006               2006
- ---------------------    ----------------    -------------
                                       
Equity securities (1)           58%                99%
Debt securities                 38%                 1%
Real estate                      4%                 -%
                              ----               ----
TOTAL                          100%               100%
                              ----               ----




                            Plan Asset Allocation at June 30
                       -------------------------------------------
                       Pension Benefits    Other Retireee Benefits
                       ----------------    -----------------------
Asset Category         2005        2004    2005               2004
- ---------------------  ----        ----    ----               ----
                                                  
Equity securities (1)    64%         64%     99%                99%
Debt securities          33%         32%      1%                 1%
Real estate               3%          4%      -%                 -%
                       ----        ----    ----               ----
TOTAL                   100%        100%    100%               100%
                       ----        ----    ----               ----


- -----------------------
(1)   Equity securities for other retiree plan assets include Company stock, net
      of Series B ESOP debt (see Note 5), of $2,604 and $2,744, as of June 30,
      2005 and 2004, respectively.

Our investment objective for defined benefit plan assets is to meet the plans'
benefit obligations, while minimizing the potential for future required Company
plan contributions. The investment strategies focus on asset class
diversification, liquidity to meet benefit payments and an appropriate balance
of long-term investment return and risk. Target ranges for asset allocations are
determined by matching the actuarial projections of the plan's future
liabilities and benefit payments with expected long-term rates of return on the
assets, taking into account investment return volatility and correlations across
asset classes. Plan assets are diversified across several investment managers
and are generally invested in liquid funds that are selected to track broad
market equity and bond indices. Investment risk is carefully controlled with
plan assets rebalanced to target allocations on a periodic basis and continual
monitoring of investment managers performance relative to the investment
guidelines established with each investment manager.

Cash Flows. Management's best estimate of our cash requirements for the defined
benefit plans and other retiree benefit plans for the year ending June 30,
2006 is $241 and $18, respectively. For the defined benefit plans, this is
comprised of expected benefit payments of $83, which are paid directly to
participants of unfunded plans from employer assets, as well as expected
contributions to funded plans of $158. For other retiree benefit plans, this is
comprised of expected contributions that will be used directly for benefit
payments. Expected contributions are dependent on many variables, including the
variability of the market value of the plan assets as compared to the benefit
obligation and other market or regulatory conditions. In addition, we take into
consideration our business investment opportunities and resulting cash
requirements. Accordingly, actual funding may differ significantly from current
estimates.

Total benefit payments expected to be paid to participants, which include
payments funded from the Company's assets, as discussed above, as well as
payments paid from the plans are as follows:



                                   Years ended June 30
                             --------------------------------
                                                Other Retiree
                             Pension Benefits     Benefits
                             ----------------   -------------
                                          
EXPECTED BENEFIT PAYMENTS
2006                            $   191             $    152
2007                                209                  164
2008                                226                  177
2009                                243                  188
2010                                255                  198
2011-2015                         1,489                1,150


Employee Stock Ownership Plan

The Company maintains the ESOP to provide funding for certain employee benefits
discussed in the preceding paragraphs.

The ESOP borrowed $1.00 billion in 1989 and the proceeds were used to purchase
Series A ESOP Convertible Class A Preferred Stock to fund a portion of the
defined contribution retirement plan in the U.S. Principal and interest
requirements were paid by the Trust from dividends on the preferred shares and
from advances from the Company. The final payment for the original borrowing of
$1.00 billion was made in 2004 and the remaining debt of the ESOP consists of
amounts owed to the Company. Each share is convertible at the option of the
holder into one share of the Company's common stock. The dividend for the
current year was $1.03 per share. The liquidation value is $6.82 per share.

            Millions of dollars except per share amounts or otherwise specified.


58 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 1991, the ESOP borrowed an additional $1.00 billion. The proceeds were used
to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion
of retiree health care benefits. These shares are considered plan assets, net
of the associated debt, of the Other Retiree Benefits plan discussed above.
Debt service requirements are funded by preferred stock dividends and cash
contributions 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 dividend
for the current year was $1.05 per share. The liquidation value is $12.96 per
share.

As permitted by Statement of Position (SOP) 93-6, "Employers Accounting for
Employee Stock Ownership Plans," we have elected, where applicable, to continue
our practices, which are based on SOP 76-3, "Accounting Practices for Certain
Employee Stock Ownership Plans." ESOP debt, which is guaranteed by the Company,
is recorded as debt (see Note 5). 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. Advances to the ESOP are
recorded as an increase in the Reserve for ESOP Debt Retirement. 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.

As required by SOP 76-3, the preferred shares of the ESOP are allocated based on
debt service requirements, net of advances made by the Company to the Trust. The
number of preferred shares outstanding at June 30, was as follows:



                               June 30
                      --------------------------
Shares in Thousands    2005      2004      2003
- -------------------   ------    ------    ------
                                 
Allocated             61,904    62,511    64,492
Unallocated           25,623    28,296    31,534
                      ------    ------    ------
TOTAL SERIES A        87,527    90,807    96,026
                      ------    ------    ------

Allocated             21,989    21,399    20,648
Unallocated           46,338    48,528    50,718
                      ------    ------    ------
TOTAL SERIES B        68,327    69,927    71,366
                      ------    ------    ------


For purposes of calculating diluted net earnings per common share, the preferred
shares held by the ESOP are considered converted from inception. Diluted net
earnings are calculated assuming that all preferred shares are converted to
common, and therefore are adjusted to reflect the incremental ESOP funding that
would be required due to the difference in dividend rate between preferred and
common shares (see Note 7).

NOTE 9 INCOME TAXES

Under SFAS No. 109, "Accounting for Income Taxes," income taxes are recognized
for the amount of taxes payable for the current year and for the impact of
deferred tax liabilities and assets, which represent future tax consequences of
events that have been recognized differently in the financial statements than
for tax purposes. Deferred tax assets and liabilities are established using the
enacted statutory tax rates and are adjusted for changes in such rates in the
period of change.

Earnings before income taxes consisted of the following:



                     Years ended June 30
                -----------------------------
                  2005       2004       2003
                -------    -------    -------
                             
United States   $ 6,543    $ 6,023    $ 4,920
International     3,896      3,327      2,610
                -------    -------    -------
                 10,439      9,350      7,530
                -------    -------    -------


Management judgment is required in determining tax provisions and evaluating tax
positions. Management believes its tax positions and related provisions
reflected in the consolidated financial statements are fully supportable. We
establish reserves for additional income taxes that may be challenged by local
authorities and may not be fully sustained, despite our belief that the
underlying tax positions are fully supportable. In such cases, the reserves for
additional taxes are based on management's best estimate of the ultimate
outcome. These reserves are reviewed on an ongoing basis and are adjusted in
light of changing facts and circumstances, including progress on tax audits,
changes in interpretations of tax laws, developments in case law and closing of
statutes of limitations. Our tax provision includes the impact of recording
reserves and any changes thereto. We have a number of tax audits in process and
have open tax years with various significant taxing jurisdictions that range
primarily from 1993 to 2005. Although the results of current tax audits and
adjustments from other tax positions related to open tax years have not been
finalized, we believe based on currently available information that the ultimate
outcomes will not have a material adverse effect on our financial position,
results of operations or cash flows.

Millions of dollars except per share amounts or otherwise specified.


                                The Procter & Gamble Company and Subsidiaries 59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The income tax provision consisted of the following:



                               Years ended June 30
                          -----------------------------
                            2005       2004       2003
                          -------    -------    -------
                                       
CURRENT TAX EXPENSE
  U.S. Federal            $ 1,491    $ 1,508    $ 1,595
  International               898        830        588
  U.S. State and Local        143        116         98
                          -------    -------    -------
                            2,532      2,454      2,281
                          -------    -------    -------

DEFERRED TAX EXPENSE
  U.S. Federal                294        348        125
  International and other     356         67        (62)
                          -------    -------    -------
                              650        415         63
                          -------    -------    -------
TOTAL TAX EXPENSE           3,182      2,869      2,344
                          -------    -------    -------


A reconciliation of the U.S. federal statutory income tax rate to our
actual income tax rate is provided below:



                                                 Years ended June 30
                                             ---------------------------
                                             2005       2004       2003
                                             ----       ----       ----
                                                          
U.S. Federal statutory income tax rate       35.0%      35.0%      35.0%
Country mix impacts of foreign operations    -4.9%      -4.1%      -3.0%
AJCA repatriation tax charge                  2.8%         -          -
Income tax reserve reversals                 -2.3%         -       -1.4%
Other                                        -0.1%      -0.2%       0.5%
                                             ----       ----       ----
EFFECTIVE INCOME TAX RATE                    30.5%      30.7%      31.1%
                                             ----       ----       ----


Taxes impacted shareholders' equity with credits of $275 and $351 for the years
ended June 30, 2005 and 2004, respectively. These primarily relate to the tax
effects of net investment hedges and the minimum pension liability and tax
benefits from the exercise of stock options.

The American Jobs Creation Act of 2004 (the "AJCA") permits U.S. corporations to
repatriate earnings of foreign subsidiaries at a one-time favorable effective
federal statutory tax rate of 5.25% as compared to the highest corporate tax
rate of 35%. We plan to repatriate approximately $7.2 billion in earnings
previously considered indefinitely invested. The income tax expense associated
with this repatriation is $295 for the year ended June 30, 2005.

We have undistributed earnings of foreign subsidiaries of approximately $10.3
billion at June 30, 2005, 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. The amount of
unremitted earnings for which no tax has been provided decreased in 2005 due to
our repatriation plan under the AJCA.

Deferred income tax assets and liabilities were comprised of the following:



                                                                         June 30
                                                                   ------------------
                                                                     2005       2004
                                                                   -------    -------
                                                                        
DEFERRED TAX ASSETS
  Unrealized loss on financial and foreign exchange transactions   $   503    $   436
  Loss and other carryforwards                                         406        365
  Advance payments                                                     257        226
  Pension and postretirement benefits                                  295         95
  Accrued marketing and promotion expense                              137         81
  Fixed assets                                                         127        134
  Other                                                                900        986
  Valuation allowances                                                (386)      (342)
                                                                   -------    -------
TOTAL                                                                2,239      1,981
                                                                   -------    -------
DEFERRED TAX LIABILITIES
  Fixed assets                                                      (1,487)    (1,437)
  Goodwill and other intangible assets                              (1,396)    (1,281)
  AJCA repatriation                                                   (303)         -
  Other                                                               (597)      (352)
                                                                   -------    -------
TOTAL                                                               (3,783)    (3,070)
                                                                   -------    -------


Net operating loss carryforwards were $1,418 and $1,398 at June 30, 2005 and
June 30, 2004, respectively. If unused, $505 will expire between 2006 and 2025.
The remainder, totaling $913 at June 30, 2005, may be carried forward
indefinitely.

NOTE 10 COMMITMENTS AND CONTINGENCIES

Guarantees

In conjunction with certain transactions, primarily divestitures, we may provide
routine indemnifications (e.g., retention of previously existing environmental,
tax and employee liabilities) whose terms range in duration and often are not
explicitly defined. Generally, the maximum obligation under such
indemnifications is not explicitly stated and, as a result, the overall amount
of these obligations cannot be reasonably estimated. Other than obligations
recorded as liabilities at the time of divestiture, we have not made significant
payments for these indemnifications. We believe that if we were to incur a loss
in any of these matters, the loss would not have a material effect on our
financial position, results of operations or cash flows.

In certain situations, we guarantee loans for suppliers and customers. The total
amount of guarantees issued under such arrangements is not material.

            Millions of dollars except per share amounts or otherwise specified.


60 The Procter & Gamble Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing arrangements, including variable
interest entities, under FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities," that have a material impact on our financial statements.

Purchase Commitments

We have 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 our materials and processes, certain supply
contracts contain penalty provisions for early termination. We do not expect to
incur penalty payments under these provisions that would materially affect our
financial condition, cash flows or results of operations in any individual year.

Operating Leases

We lease certain property and equipment for varying periods. Future minimum
rental commitments under noncancelable operating leases are as follows: 2006 -
$215; 2007 - $162; 2008 - $126; 2009 - $114; 2010 - $101; and $259 thereafter.

Litigation

We are 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. We are also subject to contingencies pursuant to
environmental laws and regulations that in the future may require us to take
action to correct the effects on the environment of prior manufacturing and
waste disposal practices. Accrued environmental liabilities were not material.

While considerable uncertainty exists, in the opinion of management and our
counsel, the ultimate resolution of the various lawsuits and claims will not
materially affect our financial condition, cash flows or results of
operations.

NOTE 11 SEGMENT INFORMATION

We are organized under three Global Business Units as follows:

- -     P&G Beauty includes retail and professional hair care, skin care, feminine
      care, cosmetics, fine fragrances and personal cleansing.

- -     P&G Family Health includes the Health Care and Baby Care and Family Care
      businesses. Health Care includes oral care, personal health care,
      pharmaceuticals and pet health and nutrition. Baby Care and Family Care
      includes diapers, baby wipes, bath tissue and kitchen towels.

- -     P&G Household Care includes the Fabric Care and Home Care and Snacks and
      Coffee businesses. Fabric Care and Home Care includes laundry detergents,
      dish care, fabric enhancers, surface care and air care. Snacks and Coffee
      includes coffee, snacks and commercial products.

Under U.S. GAAP, we have five reportable segments: P&G Beauty; Health Care; Baby
Care and Family Care; Fabric Care and Home Care; and Snacks and Coffee. The
accounting policies of the businesses 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 businesses using estimated local statutory rates; the recording of fixed
assets at historical exchange rates in certain high inflation economies; and
the treatment of certain unconsolidated investees. Certain unconsolidated
investees are managed as integral parts of our business units for management
reporting purposes. Accordingly, these partially owned operations are reflected
as consolidated subsidiaries in business results, with 100% recognition of the
individual income statement line items through before-tax earnings. Eliminations
to adjust these line items to U.S. GAAP are included in Corporate. In
determining after-tax earnings for the businesses, we eliminate the share of
earnings applicable to other ownership interests, in a manner similar to
minority interest, and apply statutory tax rates. Adjustments to arrive at our
effective tax rate are included in Corporate.

Corporate includes certain operating and non-operating activities that are not
reflected in the operating results used internally to measure and evaluate the
businesses, 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 we exert
significant influence, but do not control. Operating elements also comprise
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,
including the Juice business, which was divested in August of 2004. Corporate
assets primarily include cash, investment securities and goodwill.

We had net sales in the U.S. of $25,342, $23,688 and $21,853 for the years ended
June 30, 2005, 2004 and 2003, respectively. Assets in the U.S. totaled $25,399
and $23,687 as of June 30, 2005 and 2004, respectively.

Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for
16%, 17% and 18% of consolidated net sales in 2005, 2004 and 2003, respectively.

Millions of dollars except per share amounts or otherwise specified.


                                The Procter & Gamble Company and Subsidiaries 61

Notes to Consolidated Financial Statements



                                                                               Depreciation
                                                       Before-Tax     Net          and        Total       Capital
                                             Net Sales Earnings     Earnings   Amortization  Assets     Expenditures
                                     ----   ---------  ----------   --------   ------------  -------    ------------
                                                                                   
Total P&G Beauty                     2005   $ 19,483    $  4,099    $  2,851       $  528    $ 11,340      $  525
                                     2004     17,122       3,551       2,333          491      11,407         433
                                     2003     12,221       2,849       1,938          395       7,149         343

  Health Care                        2005      7,786       1,505       1,002          225       3,256         170
                                     2004      6,991       1,398         925          200       3,093         164
                                     2003      5,796         997         678          194       3,066         144

  Baby Care and Family Care          2005     11,890       2,030       1,265          587       7,426         694
                                     2004     10,718       1,625         990          555       7,285         714
                                     2003      9,933       1,443         873          563       7,050         548

Total P&G Family Health              2005     19,676       3,535       2,267          812      10,682         864
                                     2004     17,709       3,023       1,915          755      10,378         878
                                     2003     15,729       2,440       1,551          757      10,116         692

  Fabric Care and Home Care          2005     15,262       3,185       2,132          384       6,706         643
                                     2004     13,868       3,280       2,186          346       5,739         538
                                     2003     12,560       3,073       2,047          339       5,276         357

  Snacks and Coffee                  2005      3,140         650         417          105       1,616          88
                                     2004      2,908         528         344           98       1,557         124
                                     2003      2,671         437         291          102       1,749         114

Total P&G Household Care             2005     18,402       3,835       2,549          489       8,322         731
                                     2004     16,776       3,808       2,530          444       7,296         662
                                     2003     15,231       3,510       2,338          441       7,025         471

Corporate                            2005       (820)     (1,030)       (410)          55      31,183          61
                                     2004       (200)     (1,032)       (297)          43      27,967          51
                                     2003        196      (1,269)       (641)         110      19,416         (24)
                                     ----   --------    --------    --------       ------    --------      ------
Total                                2005     56,741      10,439       7,257        1,884      61,527       2,181
                                     2004     51,407       9,350       6,481        1,733      57,048       2,024
                                     2003     43,377       7,530       5,186        1,703      43,706       1,482
                                     ----   --------    --------    --------       ------    --------      ------


NOTE 12 QUARTERLY RESULTS (UNAUDITED)



                                                                 Quarters Ended
                                                  ----------------------------------
                                                  Sept 30  Dec 31   Mar 31   Jun 30   Total Year
                                                  -------  -------  -------  -------  ----------
                                                                    
Net Sales                              2004-2005  $13,744  $14,452  $14,287  $14,258  $   56,741
                                       2003-2004   12,195   13,221   13,029   12,962      51,407

Operating Income                       2004-2005    2,870    3,070    2,688    2,299      10,927
                                       2003-2004    2,643    2,742    2,303    2,139       9,827

Net Earnings(1)                        2004-2005    2,001    2,039    1,720    1,497       7,257
                                       2003-2004    1,761    1,818    1,528    1,374       6,481

Diluted Net Earnings Per Common Share  2004-2005     0.73     0.74     0.63     0.56        2.66
                                       2003-2004     0.63     0.65     0.55     0.50        2.32


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

(1) The June 30, 2005 quarter includes a $295 tax provision related to foreign
    earnings to be repatriated under AJCA, partially offset by a reversal of a
    tax provision initially recorded in the March 31, 2005 quarter for
    anticipated dividends from foreign subsidiaries that were subsequently
    Incorporated into our AJCA repatriation plans.

            Millions of dollars except per share amounts or otherwise specified.

62

P&G'S LEADERSHIP TEAM IS THE MOST DIVERSE, EXPERIENCED GROUP OF LEADERS IN THE
COMPANY'S HISTORY. Half of the corporate officers, and more than half of the
presidents, are from outside the United States. Almost all of the presidents
have managed businesses in at least two major regions of the world. Most have
handled multiple businesses in developing and developed regions. So we are far
more knowledgeable about how to serve diverse consumers and how to operate in
different markets, industries, and cultures.

                                                                  -  A.G. Lafley

                              [WORLD MAP GRAPHIC]

P&G CORPORATE OFFICERS HAVE MORE THAN 1100 YEARS OF BUSINESS EXPERIENCE,
COLLECTIVELY.

                            [MEN AND WOMEN GRAPHIC]

ALMOST 40% OF P&G MANAGERS ARE WOMEN.

CORPORATE OFFICERS

Corporate

A.G. LAFLEY
Chairman of the Board, President and Chief Executive; 28 years of experience,
including nearly five years outside the USA, and assignments in Beauty and
Household Care. Place of Birth: USA

RICHARD L. ANTOINE
Global Human Resources Officer; 36 years of experience, including more than
three years outside the USA, and assignments in all categories in which P&G
currently does business, as well as Product Supply and Human Resources. Place of
Birth: USA

G. GILBERT CLOYD
Chief Technology Officer; 31 years of experience, including more than three
years outside the USA, and assignments in Corporate, Professional and Regulatory
Services, Research and Development, and Health Care. Place of Birth: USA

CLAYTON C. DALEY, JR.
Chief Financial Officer; 31 years of financial experience, and assignments in
Family Care, Baby Care Corporate Planning, Fabric and Home Care, Comptroller
U.S. Operations, Comptroller - International, and Treasurer. Place of Birth: USA

R. KEITH HARRISON, JR.(1)
Global Product Supply Officer; 35 years of experience, including more than 10
years outside the USA, and assignments in Line and Product Supply in all
categories in which P&G currently does business. Place of Birth: USA

JAMES J. JOHNSON
Chief Legal Officer; 32 years of P&G Legal experience. Place of Birth: USA

MARIANO MARTIN(1)
Global Customer Business Development Officer; 29 years of experience, including
23 years outside the USA, and assignments in Sales, Marketing, and Purchases.
Place of Birth: Spain

CHARLOTTE R. OTTO
Global External Relations Officer; 29 years of experience, and assignments in
Beauty and Family Care, New Products, and Public Affairs. Place of Birth: USA

FILIPPO PASSERINI(1)
Chief Information and Global Services Officer; 24 years of experience, including
more than 17 years outside the USA, and assignments in Management Systems,
Beauty Care, and Market Operations. Place of Birth: Italy

NABIL Y. SAKKAB
Senior Vice President - Corporate Research and Development; 31 years of
experience, including more than 10 years outside the USA, and assignments in
Household and Health Care. Place of Birth: Palestine

JAMES R. STENGEL
Global Marketing Officer; 22 years of experience, including more than five
years outside the USA, and assignments in Household, Beauty, and Baby Care.
Place of Birth: USA

JOHN P. GOODWIN
Treasurer; 15 years of experience, including more than 11 years outside the USA,
and assignments in Household Care, Investor Relations, and Shareholder Services.
Place of Birth: UK

VALARIE L. SHEPPARD
Vice President and Comptroller; 19 years of experience, including four years
outside the USA, and assignments in Household and Beauty Care and Mergers and
Acquisitions. Place of Birth: USA

STEVEN W. JEMISON
Secretary and Associate General Counsel; 24 years of P&G Legal experience,
including more than two years outside the USA. Place of Birth: USA

CHARLES V. BERGH
President on Special Assignment - Gillette Blades and Razors (pending close); 22
years of experience, including more than six years outside the USA, and
assignments in Household Care. Place of Birth: USA

MICHAEL E. KEHOE(2)
President on Special Assignment; 27 years of experience, including more than 18
years outside the USA, and assignments in Household, Family, Health, and Beauty
Care. Place of Birth: Canada

JOHN K. JENSEN(3)
Vice President on Special Assignment; 32 years of P&G financial experience.
Place of Birth: USA



                                                                              63

P&G Beauty

SUSAN E. ARNOLD
Vice Chairman - P&G Beauty; 25 years of experience, including more than two
years outside the USA, and assignments in Beauty and Household Care. Place of
Birth: USA

HEINER GURTLER(4)
Group President - Global Prestige and Professional Care; 15 years of
international Beauty Care experience. Place of Birth: Germany

PAOLO DE CESARE
President - Global Skin Care, Personal Cleansing and Deodorants; 22 years of
international experience, and assignments in Household, Health, and Beauty Care.
Place of Birth: Italy

CHRISTOPHER DE LAPUENTE
President - Global Hair Care; 22 years of international experience, and
assignments in Household, Beauty, Baby, and Family Care. Place of Birth: UK

CARSTEN FISCHER
President - Global Professional Care; 20 years of international Beauty Care
experience. Place of Birth: Germany

MELANIE HEALEY
President - Global Feminine Care; 15 years of experience, including more than 11
years outside the USA, and assignments in Beauty, Household, Health, and Baby
Care. Place of Birth: Brazil

HARTWIG LANGER
President - Global Prestige Products; 24 years of international experience, and
assignments in Household, Family, and Beauty Care. Place of Birth: Germany

MARC S. PRITCHARD
President - Global Cosmetics and Hair Colorants; 23 years of experience, and
assignments in Baby, Beauty, and Health Care, as well as Corporate Planning.
Place of Birth: USA

P&G Family Health

R. KERRY CLARK
Vice Chairman of the Board - P&G Family Health; 31 years of experience,
including more than 13 years outside the USA, and assignments in Household,
Beauty, and Baby Care and the Market Development Organization. Place of Birth:
Canada

JEFFREY P. ANSELL
President - Global Pet Health and Nutrition; 24 years of experience, including
more than three years outside the USA, and assignments in Household and Baby
Care. Place of Birth: USA

MARK A. COLLAR
President - Global Pharmaceuticals & Personal Health; 30 years of experience,
and assignments in Health and Beauty Care and New Business Development. Place of
Birth: USA

CHARLES E. PIERCE
President - Global Oral Care; 25 years of experience, and assignments in
Household and Family Care and Commercial Products. Place of Birth: USA

MARTIN RIANT
President - Global Baby and Adult Care; 25 years of experience, including more
than 22 years outside the USA, and assignments in Household and Beauty Care.
Place of Birth: UK

DAVID S. TAYLOR
President - Global Family Care; 25 years of experience, including more than five
years outside the USA, and assignments in Baby, Beauty, and Family Care. Place
of Birth: USA

P&G Household Care

BRUCE L. BYRNES
Vice Chairman of the Board - P&G Household Care; 35 years of experience,
including more than five years outside the USA, and assignments in all
categories in which P&G currently does business. Place of Birth: USA

DIMITRI PANAYOTOPOULOS
Group President - Global Fabric Care; 28 years of international experience, and
assignments as Country and General Manager Egypt, General Manager China and
Asia, President Greater China and Central & Eastern Europe, Middle East and
Africa. Place of Birth: Tanzania

FABRIZIO FREDA
President - Global Snacks; 23 years of international experience, and assignments
in Household, Family, and Beauty Care. Place of Birth: Italy

JORGE S. MESQUITA
President - Global Home Care; 21 years of experience, including more than 15
years outside the USA, and assignments in Health, Beauty, Family, and Household
Care. Place of Birth: Mozambique

RICHARD G. PEASE
Senior Vice President - Human Resources, Global Household Care; 31 years of
Human Resources experience, including more than 15 years outside the USA,
including assignments in Beauty, Baby, and Family Care. Place of Birth: Canada

Global Operations

ROBERT A. MCDONALD
Vice Chairman - Global Operations; 25 years of experience, including more than
15 years outside the USA, and assignments in all categories in which P&G
currently does business. Place of Birth: USA

WERNER GEISSLER
Group President - Central & Eastern Europe, Middle East and Africa; 26 years of
international experience, and assignments in Baby, Household, Beauty, and Family
Care. Place of Birth: Germany

LAURENT L. PHILIPPE
Group President - Western Europe; 28 years of international experience, and
assignments in Baby, Family, and Household Care. Place of Birth: France

ROBERT A. STEELE
Group President - North America; 29 years of experience, and assignments in
Household Care and the North America Market Development Organization. Place of
Birth: USA

RAVI CHATURVEDI
President - Northeast Asia; 22 years of experience, including nearly 20 years
outside the USA, and assignments in Household, Health, and Beauty Care. Place of
Birth: India

DEBORAH A. HENRETTA
President - ASEAN, Australasia and India; 20 years of experience, and
assignments in Household and Baby Care. Place of Birth: USA

DANIELLA RICCARDI
President - Greater China; 25 years of international experience, and assignments
in Household Care. Place of Birth: Italy

JORGE A. URIBE
President - Latin America; 24 years of international experience, including
assignments in Household Care, Customer Business Development, and Marketing.
Place of Birth: Colombia

1 Also reports to Robert A. McDonald: Vice Chairman -
Global Operations.

2 Retires January 2, 2006, after more than 27 years of
service.

3 Retires October 1, 2005, after more than 32 years of service.

4 Elected Group President on Special Assignment effective October 1, 2005.
Retires June 30, 2006.

64


BOARD OF DIRECTORS

NORMAN R. AUGUSTINE
Retired Chairman and Chief Executive Officer, Lockheed Martin Corporation
(aerospace, electronics, telecommunications and information management). Also a
Director of Black and Decker Corporation and ConocoPhillips.
Chairman: Compensation and Leadership Development Committee.
Member: Executive Committee; Innovation and Technology Committee.
Director since 1989. Age 70.

BRUCE L. BYRNES
Vice Chairman of the Board - P&G Household Care. Also a Director of Cincinnati
Bell Inc.
Director since 2002. Age 57.

R. KERRY CLARK
Vice Chairman of the Board - P&G Family Health. Also a Director of Textron Inc.
Director since 2002. Age 53.

SCOTT D. COOK
Chairman of the Executive Committee of the Board, Intuit Inc. (a software and
web services firm). Also a Director of Intuit Inc. and eBay Inc.
Member: Compensation and Leadership Development Committee; Innovation and
Technology Committee.
Director since 2000. Age 53.

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). Also a Director of Alcoa Inc., National City
Corporation and Imperial Chemical Industries plc.
Chairman: Finance Committee.
Member: Compensation and Leadership Development Committee; Executive Committee.
Director since 1993. Age 67.

A.G. LAFLEY
Chairman of the Board, President and Chief Executive. Also a Director of General
Electric Company.
Chairman: Executive Committee.
Director since 2000. Age 58.

CHARLES R. LEE
Retired Chairman of the Board and Co-Chief Executive Officer, Verizon
Communications (telecommunication services). Also a Director of The DIRECTV
Group, Inc., Marathon Oil Corporation, United Technologies Corporation and US
Steel Corporation.
Member: Audit Committee; Compensation and Leadership Development Committee;
Governance and Public Responsibility Committee.
Director since 1994. Age 65.

LYNN M. MARTIN
Former Professor, J.L. Kellogg Graduate School of Management, Northwestern
University and Chair of the Council for The Advancement of Women and Advisor to
the firm of Deloitte & Touche LLP for Deloitte's internal human resources and
minority advancement matters. Also a Director of SBC Communications, Inc., Ryder
System, Inc., Dreyfus Funds and Constellation Energy Group.
Member: Finance Committee.
Director since 1994. Age 65.

W. JAMES MCNERNEY, JR.
Chairman of the Board, President and Chief Executive Officer, The Boeing
Company (aerospace, commercial jetliners and military defense systems). Also a
Director of The Boeing Company.
Member: Audit Committee; Finance Committee; Governance and Public Responsibility
Committee.
Director since 2003. Age 56.

JOHNATHAN A. RODGERS
President and Chief Executive Officer, TV One, LLC (media and communications).
Member: Innovation and Technology Committee.
Director since 2001. Age 59.

JOHN F. SMITH, JR.
Chairman of the Board, Delta Air Lines, Inc. and retired Chairman of the Board
and CEO, General Motors Corporation (automobile and related businesses). Also a
Director of Delta Air Lines, Inc. and Swiss Reinsurance Company.
Chairman: Audit Committee.
Member: Governance and Public Responsibility Committee.
Director since 1995. Age 67.

RALPH SNYDERMAN, M.D.
Chancellor Emeritus, James B. Duke Professor of Medicine at Duke University.
Also a Director of Axonyx Inc. and Cardiome Pharma Corporation.
Chairman: Innovation and Technology Committee.
Member: Finance Committee.
Director since 1995. Age 65.

ROBERT D. STOREY
Retired partner in the law firm of Thompson Hine, L.L.P., Cleveland, Ohio. Also
a Director of Verizon Communications.
Chairman: Governance and Public Responsibility Committee.
Member: Finance Committee.
Director since 1988. Age 69.

MARGARET C. WHITMAN
President and Chief Executive Officer, eBay Inc. (a global online marketplace
for the sale of goods and services). Also a Director of eBay Inc., Gap, Inc.,
and Dreamworks Animation SKG, Inc.
Member: Compensation and Leadership Development Committee; Governance and Public
Responsibility Committee.
Director since 2003. Age 49.

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. Also a Director of Alcoa Inc. and Union Pacific
Corporation.
Member: Finance Committee; Governance and Public Responsibility Committee.
Director since 2001. Age 53.


The Board of Directors has six committees:

o     Audit Committee

o     Compensation and Leadership Development Committee

o     Executive Committee

o     Finance Committee

o     Governance and Public Responsibility Committee

o     Innovation and Technology Committee

                                                                              65

SHAREHOLDER INFORMATION

IF...

 - You need online access or help with 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


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 USA and Canada)

 - Automated service available after USA business hours


CONTACT P&G - 24 HOURS A DAY

 - Visit us online at pg.com/investing, where you can get stock purchase
   information, transaction forms, Company annual reports and webcasts

 - E-mail us at shareholders.im@pg.com

 - Call for financial information at 1-800-764-7483 (call 1-513-945-9990
   outside the USA and Canada)

CORPORATE SUSTAINABILITY REPORT

Sustainable development is a simple idea: ensuring a better quality of life for
everyone, now and for generations to come. P&G embraces sustainable development
as a potential business opportunity, as well as a corporate responsibility. For
more information, please find our Corporate Sustainability Report at pg.com/sr.

THE GLOBAL PHILANTHROPY AND 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
Philanthropy and Contributions Report to learn more about our commitment to help
children in need Live, Learn and Thrive at pg.com/contributionsreport.

Common Stock Price and Dividends



                                                Price Range
                           -----------------------------------------------------
                           2004 - 2005   2004 - 2005   2003 - 2004   2003 - 2004
Quarter Ended                     HIGH           LOW          High           Low
- --------------------------------------------------------------------------------
                                                         
September 30               $     56.95   $     51.50   $     46.72   $     43.26
December 31                      57.40         50.53         49.97         46.41
March 31                         57.04         51.16         53.61         48.89
June 30                          56.79         52.37         56.34         51.64




                                                              Dividends
                                                       -------------------------
Quarter Ended                                          2004 - 2005   2003 - 2004
- --------------------------------------------------------------------------------
                                                               
September 30                                           $     0.250   $     0.228
December 31                                                  0.250         0.228
March 31                                                     0.250         0.228
June 30                                                      0.280         0.250


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 Bank of New York Trust Company, N.A.
Corporate Trust Division
525 Vine Street, Suite 900
Cincinnati, OH 45202

EXCHANGE LISTING
New York, Paris

SHAREHOLDERS OF COMMON STOCK
There were approximately 1,608,000 common stock shareowners, including
shareholders of record, participants in the Shareholder Investment Program,
participants in P&G stock ownership plans, and beneficial owners with accounts
at banks and brokerage firms, as of July 29, 2005.

FORM 10-K
Shareholders may obtain a copy of P&G's 2005 report to the Securities and
Exchange Commission on Form 10-K by going to www.pg.com/investing or by calling
1-800-764-7483. This information is also available at no charge by sending a
request to Shareholder Services at the address listed above.

The most recent certifications by our Chief Executive and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as
exhibits to our Form 10-K for the fiscal year ended June 30, 2005. We have also
filed with the New York Stock Exchange the most recent Annual CEO certification
as required by Section 303A.12(a) of the New York Stock Exchange Listed Company
Manual.

ANNUAL MEETING
The next annual meeting of shareholders will be held on Tuesday, October 11,
2005. 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.

66

P&G AT A GLANCE



                                                                                                                   Net Sales
                                                                                                                   by GBU(1)
Global                                                                                                           (in billions)
Business Unit       Detail                        Key Brands
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
P&G Beauty        Cosmetics, Deodorant, Feminine  Pantene, Always, Whisper, Olay, Head & Shoulders,
                                                  Tampax, Herbal Essences,                                          $ 19.5

                  Care, Fine Fragrances, Hair     Nice `n Easy, Natural Instincts, Wella, Koleston,
                                                  Wellaflex, Shockwaves,

                  Care, Hair Colorants, Personal  Cover Girl, SK-II, Rejoice, Hugo Boss, Max Factor,
                                                  Old Spice, Safeguard,

                  Cleansing, Professional Hair    Secret, Lines Feminine Care, Zest, Lacoste, Vidal
                                                  Sassoon, Ivory, Aussie, Evax,

                  Care, Skin Care                 Camay, Infusium 23, Naturella, Ausonia, Noxzema,
                                                  Infasil, Laura Biagiotti, Sure
- ------------------------------------------------------------------------------------------------------------------------------------
P&G Family
Health            Baby Care, Family Care, Oral    Pampers, Charmin, Crest, Bounty, Iams, Eukanuba,
                                                  Actonel, Vicks, Prilosec OTC,                                       19.7

                  Care, Personal Health Care,     Luvs, Asacol, Kandoo, Dodot, Puffs, Tempo, Metamucil,
                                                  Fixodent, PUR, Scope,

                  Pet Health and Nutrition,       Pepto-Bismol, ThermaCare, Didronel, Kukident, Blend-a-Med

                  Pharmaceuticals
- ------------------------------------------------------------------------------------------------------------------------------------
P&G Household
Care              Coffee, Commercial Products     Tide, Ariel, Downy, Lenor, Pringles, Folgers, Dawn,
                                                  Fairy, Joy, Gain, Ace, Swiffer,                                     18.4

                  Group, Fabric Care, Home Care,  Mr. Clean, Febreze, Dash, Bold, Cascade, Cheer, Bounce,
                                                  Millstone, Bonux,

                  Snacks                          Linidor, Daz, Era, Flash, Dreft, Vizir, Salvo, Viakal,
                                                  Myth, Alomatik
- ------------------------------------------------------------------------------------------------------------------------------------


(PIE CHART)

2005 NET SALES
(by GBU)

34%  P&G Beauty
34%  P&G Family Health
32%  P&G Household Care

RECOGNITION

P&G is the only company to appear on seven Fortune magazine company lists in
2004, including:

- -     Best Companies to Work For

- -     Most Admired

- -     Best Companies for Minorities

- -     MBA's Top Employers

P&G ranks among the top companies for Executive Women (National Association for
Female Executives), African Americans (Family Digest magazine), Working Mothers
(Working Mother magazine), and Best Corporate Citizens (Business Ethics
magazine).

Supplier diversity is a fundamental business strategy at P&G. In 2005, P&G spent
nearly $1.5 billion with minority- and women-owned businesses. P&G is the
largest consumer products company in the Billion Dollar Roundtable, a forum of
14 corporations that spend more than $1 billion annually with diverse suppliers.

10-YEAR FINANCIAL SUMMARY (UNAUDITED)



Amounts in millions
except per share amounts             2005     2004       2003      2002      2001
- ----------------------------------------------------------------------------------
                                                           
Net Sales                         $56,741   $51,407   $43,377   $40,238   $39,244
Gross Margin                       28,937    26,331    21,236    19,249    17,142
Operating Income                   10,927     9,827     7,853     6,678     4,736
Net Earnings                        7,257     6,481     5,186     4,352     2,922
Net Earnings Margin                  12.8%     12.6%     12.0%     10.8%      7.4%
- ----------------------------------------------------------------------------------
Basic Net Earnings per Common
Share                             $  2.83   $  2.46   $  1.95   $  1.63   $  1.08
Diluted Net Earnings per
Common Share                         2.66      2.32      1.85      1.54      1.03
Dividends per Common Share           1.03      0.93      0.82      0.76      0.70
- ----------------------------------------------------------------------------------
Research and Development
Expense                             1,940     1,802     1,665     1,601     1,769
Advertising Expense                 5,917     5,504     4,373     3,773     3,612
Total Assets                       61,527    57,048    43,706    40,776    34,387
Capital Expenditures                2,181     2,024     1,482     1,679     2,486
Long-Term Debt                     12,887    12,554    11,475    11,201     9,792
Shareholders' Equity               17,477    17,278    16,186    13,706    12,010
Restructuring Program Charges(2)  $     -   $     -   $   751   $   958    $1,850
- ----------------------------------------------------------------------------------


(1) Offset by $0.8 billion of net sales generated by companies for which P&G
exerts significant influence but does not consolidate, and other miscellaneous
activities.

(2) Organization 2005 restructuring program charges, on an after-tax basis,
totaled $538, $706, $1,475, $688 and $285 for 2003, 2002, 2001, 2000 and 1999
respectively.

Two billion times a day, P&G brands touch the lives of people around the world.
P&G actions are rooted in the principles of personal integrity, respect for the
individual, and doing what's right for the long term.



Amounts in millions
except per share amounts                2000             1999             1998             1997             1996
- ------------------------------------------------------------------------------------------------------------------
                                                                                         
Net Sales                           $ 39,951         $ 38,125         $ 37,154         $ 35,764         $ 35,284
Gross Margin                          18,437           17,098           16,258           15,254           14,346
Operating Income                       5,954            6,253            6,055            5,488            4,815
Net Earnings                           3,542            3,763            3,780            3,415            3,046
Net Earnings Margin                      8.9%             9.9%            10.2%             9.5%             8.6%
- ------------------------------------------------------------------------------------------------------------------
Basic Net Earnings per Common
Share                               $   1.30         $   1.38         $   1.37         $   1.22         $   1.07
Diluted Net Earnings per
Common Share                            1.23             1.29             1.28             1.14             1.00
Dividends per Common Share              0.64             0.57             0.51             0.45             0.40
- ------------------------------------------------------------------------------------------------------------------
Research and Development
Expense                                1,899            1,726            1,546            1,469            1,399
Advertising Expense                    3,793            3,639            3,801            3,574            3,374
Total Assets                          34,366           32,192           31,042           27,598           27,762
Capital Expenditures                   3,018            2,828            2,559            2,129            2,179
Long-Term Debt                         9,012            6,265            5,774            4,159            4,678
Shareholders' Equity                  12,287           12,058           12,236           12,046           11,722
Restructuring Program Charges(2)    $    814         $    481         $      -         $      -         $      -
- ------------------------------------------------------------------------------------------------------------------


SOCIAL RESPONSIBILITY AND PHILANTHROPY

                        (LIVE, LEARN AND THRIVE GRAPHIC)

P&G is stepping up to help children in need around the world Live, Learn and
Thrive.

P&G has always been committed to improving lives in communities where we live
and work. We want to make an even greater difference by sharpening the focus of
P&G philanthropy on children. The aim of P&G Live, Learn and Thrive is to help
children in need ages 0 - 13 live by ensuring a healthy start; by providing them
with places, tools, and programs that enhance their ability to learn; and by
helping them develop skills for life so they can thrive.

Focusing on children is critically important. Millions of children worldwide
live in heartbreaking conditions. Through local programs in P&G communities and
our corporate signature program - Children's Safe Drinking Water - P&G Live,
Learn and Thrive provides opportunities for children around the world.

                     (PHOTO OF TWO CHILDREN DRINKING WATER)

P&G is currently providing PUR Purifier of Water to relief agencies so they can
provide drinking water in emergencies.

EX-21

                                  EXHIBIT (21)

                  THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
                  ---------------------------------------------
                         Subsidiaries of the Registrant
                         ------------------------------

AG fur Aetherische Oele [Switzerland]
Alejandro Llauro E. Hijos S.A.I.C. [Argentina]
Anjali (HK) Corporation Limited [Hong Kong]
An-Pro Company [Ohio]
Aquarium Acquisition Corporation [Delaware]
Arab Orient Holding [Lebanon]
Atkinsons of London Ltd. [U.K.]
B&C International Co. (BVI) Ltd. [British Virgin Islands]
B.E.A.U.T.Y Hair Shop GmbH [Germany]
Belcosa Distribuidora de Cosmeticos Ltda. [Brazil]
Belfam Industria Cosmetic S.A. [Brazil]
Belmed Ltda. [Bolivia]
Betrix Cosmetic GmbH [Germany]
Blaugold-Wella-Versicherungsvermittlungs GmbH [Germany]
Blendax Unterstutzungskasse GmbH [Germany]
Buscher GmbH [Germany]
Clairol Brasil Higiene e Cosmeticos Ltda [Brazil]
CAMADA Grundstucks-GmbH & Co. OHG [Germany]
Capella GmbH [Russia]
Carlos BT [Hungary]
CE Verwaltungs GmbH [Germany]
Celtic Insurance Company Limited [Bermuda]
Chemlog LLC [Ohio]
Chemo Laboratories Manufacturing Sdn. Bhd. [Malaysia]
Clairol (China) Ltd. [China]
Clairol Limited [U.K.]
Clivia Publicidade Ltda. [Brazil]
Colfax Laboratories (India) Ltd. [India]
Colonia Distribution GmbH [Germany]
Compania Procter & Gamble Mexico, S. de R.L. de C.V. [Mexico]
Compania Quimica S.A. [Argentina]
Computehair Ltd. [U.K.]
Comunivers sa [Morocco]
CONTAKTE GmbH, Friseur Management Centrum [Germany]
Corporativo Procter & Gamble, S. de R.L. de C.V. [Mexico]
Corpydes S.A. de C.V. [Mexico]
Corvatsch Trust reg. [Liechtenstein]
CosMedica C. A. [Venezuela]
Cosmetic Products Pty. Ltd. [Australia]
Cosmetic Suppliers Pty., Ltd. [Australia]
Cosmital S.A. [Switzerland]
Cosmochem Chemische Vertriebsges. mbH [Germany]
Cosmonor Distribuidora de Cosmeticos Ltda. [Brazil]
Cosmopolitan Cosmetics (Fragrances and Cosmetics) Ltd. [Taiwan]
Cosmopolitan Cosmetics (Pty) Ltd. [South Africa]
Cosmopolitan Cosmetics AG [Switzerland]
Cosmopolitan Cosmetics Austria Ges.m.b.H. [Austria]

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



                                  EXHIBIT (21)

                  THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
                  ---------------------------------------------
                         Subsidiaries of the Registrant
                         ------------------------------

Cosmopolitan Cosmetics B.V. [Netherlands]
Cosmopolitan Cosmetics China Ltd. [Hong Kong]
Cosmopolitan Cosmetics GmbH [Germany]
Cosmopolitan Cosmetics K.K. [Japan]
Cosmopolitan Cosmetics Korea Co., Ltd [Republic of Korea]
Cosmopolitan Cosmetics LLC [Russia]
Cosmopolitan Cosmetics Ltd. [Hong Kong]
Cosmopolitan Cosmetics N.V./S.A. [Belgium]
Cosmopolitan Cosmetics Polska Sp.z.o.o. [Poland]
Cosmopolitan Cosmetics Prestige GmbH [Germany]
Cosmopolitan Cosmetics Pte. Ltd. [Singapore]
Cosmopolitan Cosmetics Pty Ltd [Australia]
Cosmopolitan Cosmetics S.A. [Argentina]
Cosmopolitan Cosmetics S.A. [France]
Cosmopolitan Cosmetics S.A. [Portugal]
Cosmopolitan Cosmetics S.P.A. [Italy]
Cosmopolitan Cosmetics s.r.o. [Czech Republic]
Cosmopolitan Cosmetics Scandinavia A/S [Denmark]
Cosmopolitan Cosmetics U.K. [U.K.]
Cosmopolitan Cosmetics, S.A. [Spain]
Cosmopolitan Cosmetics, S.A. de C.V. [Mexico]
Cosmopolitan Cosmetics, s.r.o. [Slovakia]
Cosmoresearch Co. Ltd. [Japan]
Cosmpolitan Cosmetics KFT [Hungary]
Crest Toothpaste Inc. [Canada]
Detergent Products A.G. [Switzerland]
Deutsche Procter & Gamble Unternehmensbeteiligungs GmbH [Germany]
Dicosma Distribuidora de Cosmeticos Ltda. [Brazil]
Dictus Grundstucks-Verwaltungsges. mbH & Co. KG [Germany]
District Pet Imaging, LLC [Ohio]
Eastern European Supply Company [Ukraine]
Eau de Cologne- & Parfumerie-Fabrik Glockengasse No. 4711 gegenuber der
Pferdepost von Ferd. Mulhens GmbH [Germany]
Ecopan Inc. [Panama]
Elysee BT [Hungary]
Emil Kiessling GmbH [Germany]
Escada Cosmetics Ltd [Republic of Korea]
Essanelle Hair Group AG [Germany]
Eurocos Cosmetic GmbH [Germany]
Eurocos Ltd [U.K.]
EURO-Juice G.m.b.H. Import und Vertrieb [Germany]
European Beauty Products (U.K.) Limited [U.K.]
FBV Friseurbetriebe-Verwaltungsgesellschaft mbH [Germany]
FBV Service GmbH & Co. Beteiligungs-OHG [Germany]
FBV Service GmbH & Co. Holding OHG [Germany]
Ferraris BT [Hungary]
FINCO DO BRASIL FOMENTO COMERCIAL Ltda. [Brazil]
FINCO HOLDINGS (BVI) Inc. [British Virgin Islands]

[ ] 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
                         ------------------------------

Fine Beauty Care (Pte) Ltd. [Namibia]
FINPAR-Finco do Brasil Participacoes Ltda. [Brazil]
Finusa S.A. [Argentina]
FKB Friseur- und Kosmetik-Bedarf GmbH [Germany]
Foreign Company "Procter & Gamble" [Belarus]
Fountain Square Music Publishing Co., Inc. [Ohio]
FPG Oleochemicals Sdn. Bhd. [Malaysia]
Frank BT [Hungary]
Frisor Klier GmbH [Germany]
Fruehling Cosmetics Co. Ltd. [Thailand]
Gala Cosmetics International Limited [U.K.]
Gala Marketing [Ukraine]
Gala of London Limited [U.K.]
Giorgio Beverly Hills, Inc. [Delaware]
Global Business Services de Costa Rica Limitada [Costa Rica]
Graham Webb International [Delaware]
Gresham Cosmetics Pty Ltd [Australia]
GS Friseurversand GmbH [Germany]
Handelmaatschappij van Ravensberg B.V. [Netherlands]
Herman Lepsoe A/S [Norway]
Herve Leger Parfums GmbH [Germany]
Humatro Corporation [Delaware]
Hyginett KFT [Hungary]
Iams Argentina S.A. [Argentina]
Iams Australia/New Zealand Pty. Ltd. [Australia]
Iams Chile Limitada [Chile]
Iams do Brasil Comercial, Exportadora e Importadora Ltda. [Brazil]
Iams Europe B.V. [Netherlands]
Iams Global, Inc. [Ohio]
Iams Japan K.K. [Japan]
Iams Mexico, S. de R.L. de C.V. [Mexico]
Iams New Zealand Limited [New Zealand]
Iams Pet Food International N.V. [Netherlands]
Iams Pet Imaging, Inc. [Ohio]
Iams Pet Imaging, LLC [Ohio]
Iams S. Africa Pty. [S. Africa]
Iams Servicios, S. de R.L. de C.V. [Mexico}
Iams U.K. Limited [U.K.]
Industrias Modernas, S.A. [Guatemala]
Inmobiliaria Procter & Gamble de Venezuela, S.C.S. [Venezuela]
Inmobiliaria Procter & Gamble de Venezuela, S.R.L. Venezuela]
Intercosmetic BVBA [Belgium]
Interkosmetik Gesellschaft m.b.H. [Austria]
Intpropco S.A. [Switzerland]
Inversiones Industrias Mammi, S.C.A. [Venezuela]
Inversiones Industrias Mammi-1, S.R.L. [Venezuela]
Inversiones Procter & Gamble de Venezuela, S.C.A. [Venezuela]
Inversiones Procter & Gamble de Venezuela-1, S.R.L. [Venezuela]

[ ] 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
                         ------------------------------

Inverta Verwaltungsgesellschaft mbH [Germany]
Ipse Beteiligungsgesellschaft mbH [Germany]
Johann Maria Farina & Cie. zur Stadt Rom e.K. [Germany]
Johann Maria Farina Dr. E. Meitzen am Dom zu Coln e.K. [Germany]
Johann Maria Farina gegenuber dem Neumarkt e.K. [Germany]
Junge + Michaelis GmbH [Germany]
Junger&Gebhardt Verwaltungs-GmbH [Germany]
Juvian Fabric Care Corporation [Ohio]
Kadabell GmbH & Co. KG [Germany]
Kadabell GmbH [Germany]
Kadabell Italiana S.P.A. [Italy]
Kasmare Ltd. [U.K.]
KMS Kramm + Scholten GmbH [Germany]
Komal Manufacturing Chemists Ltd. [India]
Kosinus Beteiligungs GmbH [Germany]
Labocos S.r.l. [Italy]
Laboratorios Vicks, S.L. [Spain]
Les Parfums Charles Jourdan S.A. [France]
Liberty Street Music Publishing Company, Inc. [Ohio]
LLC "Procter & Gamble Manufacturing Istra" [Russia]
LLC "Procter & Gamble Novomoskovsk" [Russia]
LLC "Procter & Gamble Services" [Russia]
LLC "Procter & Gamble" [Russia]
LONDA Cosmetics S.R.L. [Romania]
Londa GmbH [Germany]
Londa Kosmetika s.r.o. [Czech Republic]
Londa Kosmetika SAO [Russia]
Londa Kosmetikai Kft. [Hungary]
Londa Kosmetyki sp. z.o.o. [Poland]
Londa Rothenkirchen Produktions GmbH [Germany]
Malabar (HK) Corporation Limited [Hong Kong]
Marcosma Distribuidora de Cosmeticos Ltda. [Brazil]
Marcvenca Inversiones, C.A. [Venezuela]
Max Factor & Co. (U.K.) Ltd. [Bermuda]
Max Factor & Co. [Delaware]
Max Factor K.K. [Japan]
Max Factor Limited [U.K.]
Max Mara JV France [France]
Max Mara Parfums France S.A.S. [France]
Max Mara Parfums S.r.l. [Italy]
Mercona (G.B.) Ltd. [U.K.]
Merveille S.A. [Switzerland]
Metropolitan Cosmetics GmbH [Germany]
Metropolitan Cosmetics Grand Stores JV UAE [United Arab Emirates]
Metropolitan Cosmetics Pte. Ltd. [Singapore]
Midway Holdings Ltd. [Cayman Islands]
Millstone Coffee, Inc. [Washington]
Mir Kosmetiki [Russia]

[ ] 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
                         ------------------------------

Modern Hairdressing Supplies (Pty) Ltd. [South Africa]
Modern Holdings (Pty) Ltd. [South Africa]
Modern Industrial Products FZE [United Arab Emirates]
Modern Industries Company - Dammam [Saudi Arabia]
Modern Industries Company - Jeddah [Saudi Arabia]
Modern Products Company - Jeddah [Saudi Arabia]
Moroccan Modern Industries [Morocco]
Muelhens GmbH & Co. KG [Germany]
MULHENS International GmbH [Germany]
Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal]
North Carolina Pet Imaging, LLC [U.S.]
Noxell Corporation [Maryland]
Olay Company, Inc. [Delaware]
Olga BT [Hungary]
Ondabel S.A. [Argentina]
Ondal France E.u.r.l. [France]
Ondal Industrietechnik GmbH [Germany]
Ondal USA Inc. [Virginia]
Ondawel (G.B. ) Ltd. [U.K.]
Ondelle S.A.(Pty) Ltd. [South Africa]
P&G Consultoria E Servicos Ltda. [Brazil]
P&G Holding B.V. [Netherlands]
P&G Holding Company S.R.L. [Argentina]
P&G Indochina [Vietnam]
P&G Industrial Peru S.R.L. [Peru]
P&G Inversiones S.A. [Argentina]
P&G Investments Limited [Costa Rica]
P&G Israel M.D.O. Ltd. [Israel]
P&G K.K. [Japan]
P&G Northeast Asia Pte. Ltd. [Singapore]
P&G Prestige Beaute Cosmetic Warenvertrieb GmbH [Austria]
P&G Prestige Beaute GmbH [Germany]
P&G Prestige Beaute S.A.R.L. [Switzerland]
P&G Servicios S.A. [Argentina]
P&G-Clairol, Inc. [Delaware]
P.T. Kosmindo [Indonesia]
P.T. Mawar Sejati [Indonesia]
P.T. Procter & Gamble Home Products Indonesia [Indonesia]
Pacific Beauty Care Pte. Ltd. [Singapore]
PADOS Grundstucks-Vermietungsgesellschaft mbH & Co. Objekt Darmstadt KG
[Germany]
Palo Co. Ltd. [Japan]
Papierhygiene GmbH [Germany]
Parfums Rochas GmbH [Germany]
Parfums Rochas S.A. [France]
Percol Beteiligungen GmbH [Germany]
Person Verwaltungs-GmbH & Co. OHG [Germany]
PFX Pet Supply, Inc. [Ohio]
PPProducts SARL [Switzerland]

[ ] 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
                         ------------------------------

PPS Hairwear Australia Pty Ltd [Australia]
Procter & Gamble (Chengdu) Ltd. [PRC]
Procter & Gamble (China) Ltd. [PRC]
Procter & Gamble (Cosmetics and Fragrances) Limited [U.K.]
Procter & Gamble (East Africa) Limited [Kenya]
Procter & Gamble (Egypt) 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 (L&CP) Limited [U.K.]
Procter & Gamble (Malaysia) Sdn. Berhad [Malaysia]
Procter & Gamble (Manufacturing) Ireland Limited [Ireland]
Procter & Gamble (NBD) Pty. Ltd. [Australia]
Procter & Gamble (Shanghai) International Trade Company Ltd. [PRC]
Procter & Gamble (Vietnam) Ltd. [Vietnam]
Procter & Gamble (Yemen) Ltd [Yemen]
Procter & Gamble A/S [Norway]
Procter & Gamble Algeria EURL [Algeria]
Procter & Gamble Amiens S.A.S.  [France]
Procter & Gamble Argentina Sociedad Colectiva [Argentina]
Procter & Gamble Asia Pacific Ltd. [Hong Kong]
Procter & Gamble Asia Pte. Ltd. [Singapore]
Procter & Gamble Australasia Holdings Pte. Ltd. [Singapore]
Procter & Gamble Australia Proprietary Limited [Australia]
Procter & Gamble Austria GmbH [Austria]
Procter & Gamble Bangladesh Private Ltd. [Bangladesh]
Procter & Gamble Belize Ltda. [Belize]
Procter & Gamble Beteiligungs GmbH [Germany]
Procter & Gamble Beverages GmbH [Germany]
Procter & Gamble Blois S.A.S. [France]
Procter & Gamble Bolivia S.R.L. [Bolivia]
Procter & Gamble Bulgaria EOOD [Bulgaria]
Procter & Gamble Business Services Canada Company [Canada]
Procter & Gamble Canada Holding B.V. (Netherlannds)
Procter & Gamble Central & Eastern Europe GmbH [Germany]
Procter & Gamble Central Europe Holding B.V. [Netherlands]
Procter & Gamble Chile, Inc. [Ohio]
Procter & Gamble Colombia Ltda. [Colombia]
Procter & Gamble Comercial Limitada [Chile]
Procter & Gamble Commercial de Cuba, S.A. [Cuba]
Procter & Gamble Czech Holding B.V. [Netherlands]
Procter & Gamble Czech Republic [Czech Republic]
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]

[ ] 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 Detergent (Beijing) Ltd. [PRC]
Procter & Gamble Development Company A.G. [Switzerland]
Procter & Gamble Distributing (Philippines) Inc. [Philippines]
Procter & Gamble Distributing Limited [U.K.]
Procter & Gamble Distributing New Zealand [New Zealand]
Procter & Gamble Distribution Company (Europe) BVBA [Belgium]
Procter & Gamble Distribution S.R.L. [Romania]
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 Estonia Ltd. [Estonia]
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 Export-FZE [U.A.E.]
Procter & Gamble Far East, Inc. [Ohio]
Procter & Gamble Finance (Canada) Limited Partnership [Canada]
Procter & Gamble Finance (U.K.) Ltd. [U.K.]
Procter & Gamble Financial Services [Ireland]
Procter & Gamble Finland OY [Finland]
Procter & Gamble Food Products SARL [Switzerland]
Procter & Gamble France S.A.S. [France]
Procter & Gamble FSC (Barbados) Inc. [Barbados]
Procter & Gamble Ghana, Ltd. [Ghana]
Procter & Gamble Global Holdings Ltd. [Bermuda]
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 (HK) Limited [Hong Kong]
Procter & Gamble Holding (Thailand) Limited [Thailand]
Procter & Gamble Holding Denmark ApS [Denmark]
Procter & Gamble Holding GmbH & Co. Operations oHG [Germany]
Procter & Gamble Holding GmbH [Germany]
Procter & Gamble Holding S.r.l. [Italy]
Procter & Gamble Holdings (U.K.) Ltd. [U.K.]
Procter & Gamble Holdings 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
                         ------------------------------

Procter & Gamble Holdings Singapore Pte. Ltd. [Singapore]
Procter & Gamble Home Products Limited [India]
Procter & Gamble Hong Kong Limited [Hong Kong]
Procter & Gamble Hungary Holding B.V. [Netherlands]
Procter & Gamble Hungary Wholesale Trading Partnership (KKT) [Hungary]
Procter & Gamble Hygiene & Health Care Limited [India]
Procter & Gamble Inc. [Ontario, Canada]
Procter & Gamble India Holdings, Inc. [Ohio]
Procter & Gamble Industrial 1, S.R.L. [Venezuela]
Procter & Gamble Industrial de Guatemala, S.A. [Guatemala]
Procter & Gamble Industrial e Comercial Ltda.[Brazil]
Procter & Gamble Industrial S.C.A. [Venezuela]
Procter & Gamble Interamericas de Costa Rica, Limitada [Costa Rica]
Procter & Gamble Interamericas de El Salvador, Limitada de Capital Variable
[El Salvador]
Procter & Gamble Interamericas de Guatemala, Limitada [Guatemala]
Procter & Gamble Interamericas de Honduras, S. de R.L. [Honduras]
Procter & Gamble Interamericas de Panama, S. de R.L. [Panama]
Procter & Gamble Interamericas LLC [Delaware]
Procter & Gamble International Operations Pte. Ltd. [Singapore]
Procter & Gamble International Operations S.A. [Switzerland]
Procter & Gamble Investment Company (UK) Ltd. [U.K.]
Procter & Gamble Investment Subsidiary Inc. [Canada]
Procter & Gamble Investments Limited [Ireland]
Procter & Gamble Investments UK [U.K.]
Procter & Gamble Italia, S.p.A. [Italy]
Procter & Gamble Jamaica Ltd. [Jamaica]
Procter & Gamble Kazakhstan [Kazakhstan]
Procter & Gamble Korea IE, Co. [Korea]
Procter & Gamble Korea Inc.  [Korea]
Procter & Gamble Korea S&D Co. [Korea]
Procter & Gamble Leasing LLC [Ohio]
Procter & Gamble Levant S.A.L. [ Lebanon]
Procter & Gamble Limited [U.K.]
Procter & Gamble Limited Liability Company [Uzbekistan]
Procter & Gamble Luxembourg Finance S.a.r.l. [Luxembourg]
Procter & Gamble Luxembourg Global S.a.r.l [Luxembourg]
Procter & Gamble Luxembourg Holding S.a.r.l. [Luxembourg]
Procter & Gamble Luxembourg Investment General Management S.a.r.l. [Luxembourg]
Procter & Gamble Luxembourg Investment ScS [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 Pty. Ltd. [Australia]
Procter & Gamble Manufacturing Ukraine [Ukraine]
Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia]
Procter & Gamble Marketing and Services d.o.o. [Serbia and Montenegro]

[ ] 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 Marketing DOOEL Skopje [Macedonia]
Procter & Gamble Marketing Latvia Ltd. [Latvia]
Procter & Gamble Marketing Romania SRL (Romania)
Procter & Gamble Maroc [Morocco]
Procter & Gamble Mataro, S.L. [Spain]
Procter & Gamble Materials Management Romania S.R.L. [Romania]
Procter & Gamble Materials Management s.r.o. [Czech Republic]
Procter & Gamble Mexico Holding B.V. [Netherlands]
Procter & Gamble Moldova SRL [Moldova]
Procter & Gamble N.S. Holding Company [Canada]
Procter & Gamble Nederland B.V. [Netherlands]
Procter & Gamble Netherland Services B.V. [Netherlands]
Procter & Gamble Neuilly S.A.S. [France]
Procter & Gamble Nigeria Limited  [Nigeria]
Procter & Gamble Nordic Inc. [Ohio]
Procter & Gamble Norge AS [Norway]
Procter & Gamble NPD, Inc. [Ohio]
Procter & Gamble Operations Polska-Spolka z o.o. [Poland]
Procter & Gamble Orleans S.A.S.  [France]
Procter & Gamble Overseas Ltd. [U.K.]
Procter & Gamble Pakistan (Private) Limited [Pakistan]
Procter & Gamble Personal Cleansing (Tianjin) Ltd. [PRC]
Procter & Gamble Peru S.R.L. [Peru]
Procter & Gamble Pharmaceuticals Canada, Inc.  [Canada]
Procter & Gamble Pharmaceuticals France [France]
Procter & Gamble Pharmaceuticals Longjumeau S.A.S. [France]
Procter & Gamble Pharmaceuticals N.V. [Belgium]
Procter & Gamble Pharmaceuticals Nederland B.V. [Netherlands]
Procter & Gamble Pharmaceuticals Puerto Rico, Inc. [Delaware]
Procter & Gamble Pharmaceuticals SARL [Switzerland]
Procter & Gamble Pharmaceuticals U.K. Limited [U.K.]
Procter & Gamble Pharmaceuticals, Inc. [Ohio]
Procter & Gamble Pharmaceuticals-Germany GmbH [Germany]
Procter & Gamble Philippines, Inc. [Philippines]
Procter & Gamble Platform, Inc. [Ohio]
Procter & Gamble Polska-Spolka z o.o  [Poland]
Procter & Gamble Porto, Lda. [Portugal]
Procter & Gamble Portugal S.A. (Portugal)
Procter & Gamble Product Supply (U.K.) Limited [U.K.]
Procter & Gamble Productions, Inc. [Ohio]
Procter & Gamble Quimica Ltda. [Brazil]
Procter & Gamble reflect.com, Inc. [Delaware]
Procter & Gamble RHD, Inc. [Ohio]
Procter & Gamble RSC Regional Service Company Ltd. [Hungary]
Procter & Gamble S.A. [Chile]
Procter & Gamble S.r.l. [Italy]
Procter & Gamble Satis ve Dagitim Ltd. Sti. [Turkey]
Procter & Gamble Service GmbH [Germany]

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



                                  EXHIBIT (21)

                  THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
                  ---------------------------------------------
                         Subsidiaries of the Registrant
                         ------------------------------

Procter & Gamble Services (Switzerland) SA [Switzerland]
Procter & Gamble Services Company N.V.  [Belgium]
Procter & Gamble Services Neuilly S.A.S. [France]
Procter & Gamble Servicios Latinoamerica, S.C.A. [Venezuela]
Procter & Gamble Servicios Latinoamerica-1, S.R.L. [Venezuela]
Procter & Gamble Singapore Investment Pte. Ltd. [Singapore]
Procter & Gamble Singapore Pte. Ltd. [Singapore]
Procter & Gamble South Africa Proprietary Limited [South Africa]
Procter & Gamble Sri Lanka Private Ltd. [Sri Lanka]
Procter & Gamble Sverige AB [Sweden]
Procter & Gamble Switzerland SARL [Switzerland]
Procter & Gamble Taiwan Limited [Taiwan]
Procter & Gamble Technical Centers Limited   [U.K.]
Procter & Gamble Technology (Beijing) Co., Ltd. [PRC]
Procter & Gamble Tenedora, S.A. [Venezuela]
Procter & Gamble Trading (Thailand) Limited [Thailand]
Procter & Gamble Trgovaeko Drustvo d.o.o. Sarajevo [Bosnia]
Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey]
Procter & Gamble U.K. [U.K.] (Partnership)
Procter & Gamble Ukraine [Ukraine]
Procter & Gamble Valores, S.A. [Venezuela]
Procter & Gamble, Spol. s r.o. (Ltd.)  [Slovak Republic]
Procter & Gamble-Rakona, s.r.o.  [Czech Republic]
Productora de Cosmeticos S.A. de C.V. [Mexico]
Productos  Sanitarios Sociedad Colectiva [Argentina]
Productos Cosmeticos S.L. [Spain]
Professional LLC [Delaware]
Progam Realty & Development Corporation [Philippines]
Progasud S.r.l. [Italy]
Promotora de Bienes y Valores, S. de R.L. de C.V. [Mexico]
PT Cosmopolitan Cosmetics (Indonesia) [Indonesia]
Publicitaria Combla Ltda. [Chile]
PUR Water Purification Products, Inc. [Ohio]
Reflect.com Corp. [Delaware]
Reflect.com LLC [Delaware]
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]
Russwell GmbH [Russia]
R-V Chemicals Holdings Ltd. [Ireland]
S.C. Detergenti S.A. [Romania]
S.P.F. Beaute S.a.r.l. [France]
San Francisco Pet Imaging, Inc. [California]
San Francisco Pet Imaging, LLC [Ohio]
Scannon GmbH [Germany]
Scannon S.A. [France]

[ ] 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
                         ------------------------------

Sebastian de Mexico S.A. de C.V. [Mexico]
Sebastian Deutschland GmbH [Germany]
Sebastian Europe GmbH [Germany]
Sebastian Suisse GmbH [Switzerland]
Secato Friseurbedarf GmbH [Germany]
Serventi (Design) Ltd. [U.K.]
Shulton (Great Britain) Ltd. [U.K.]
Shulton S.A. [Guatemala]
Shulton, Inc. [New Jersey]
Sigma Cosmetica International S.A. [Uruguay]
Societe Immobiliere Les Colombettes, S.A. [Switzerland]
SsangYong Paper Co. Ltd. [Korea]
Star Parfums GmbH [Germany]
Sulcosma Distribuidora de Cosmeticos Ltda. [Brazil]
Sundor Brands Limited [U.K.]
Surfac S. R. Ltda. [Peru]
Sycamore Productions, Inc. [Ohio]
Tambrands (Continental) Ltd. [U.K.]
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]
Tefa Holdings (Pty) Ltd. [South Africa]
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]
The Procter & Gamble iVentures Company [Ohio]
The Procter & Gamble Manufacturing Company [Ohio]
The Procter & Gamble Paper Products Company [Ohio]
The Procter & Gamble U.S. Business Services Company [Ohio]
Thomas Hedley & Co. Limited [U.K.]
Tondeo-Werk GmbH [Germany]
Transcosmetics Holdings Sdn. Bhd. [Malaysia]
TRAPOFA Leonhard-Speditions GmbH I.L. [Germany]
UAB "Cosmopolitan Cosmetics Baltics" [Lithuania]
Unidisbell Ltda. [Colombia]
Uschi Friseur-Fachversand GmbH [Austria]

[ ] 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
                         ------------------------------

Uschi Friseur-Fachversand GmbH [Germany]
Uschi Verwaltungsgesellschaft mbH [Germany]
Valbonne S.A. [Switzerland]
Vick International Corporation [Delaware]
Vidal Sassoon (Shanghai) Academy [PRC]
Vidal Sassoon Co. [Ohio]
Vita Cientifica S.L. [Spain]
Wella  Kozmetik  Sanayi  ve Ticaret  A.S. [Turkey]
Wella (Ireland) Ltd. [Ireland]
Wella (Thailand) Co. Ltd. [Thailand]
Wella (U.K.) Holdings Ltd. [U.K.]
Wella (U.K.) Ltd. [U.K.]
Wella A.G. [Germany]
Wella AB [Sweden]
WELLA AG [Germany]
Wella Asia Pacific Co. [Malaysia]
Wella Beteiligungen GmbH [Switzerland]
Wella Chile S.A. [Chile]
Wella Colombiana S.A. [Colombia]
Wella Corporation [Delaware]
Wella Cosmetics China Ltd. Co. [China]
Wella CZ s.r.o. [Czech Republic]
Wella Danmark A/S [Denmark]
Wella France S.A.S. [France]
WELLA HELLAS SA [Greece]
Wella Hongkong Limited [Hong Kong]
Wella India Haircosmetics Private Limited [India]
Wella Intercosmetic GmbH [Germany]
Wella Japan Co. Ltd. [Japan]
Wella Korea Co. Ltd. [Republic of Korea]
Wella Magyaroszag Kft. (Wella Hungary Ltd.) [Hungary]
Wella Malaysia Sdn. Bhd. [Malaysia]
Wella Management GmbH [Germany]
Wella Manufacturing GmbH [Germany]
Wella Manufacturing of Virginia, Inc. [U.S.]
WELLA NEW ZEALAND LIMITED [New Zealand]
Wella Paraguay S.A. [Paraguay]
Wella Philippines Inc. [Philippines]
Wella Polska Sp.z.o.o. [Poland]
Wella Portugal Sociedade Unipessoal Lda. [Portugal]
Wella Romania s.r.l. [Romania]
Wella Slovensko, s.r.o. [Slovakia]
Wella Suisse GmbH [Switzerland]
Wella Taiwan Co. Ltd. [Taiwan]
Wella Ukraina [Ukraine]
Yardley of London Ltd. [U.K.]

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

EX-23

                                  EXHIBIT (23)


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------

We consent to the incorporation by reference in the following documents of our
reports dated August 9, 2005, relating to the financial statements and
management's report on the effectiveness of internal control over financial
reporting, incorporated by reference in the Annual Report on Form 10-K of The
Procter & Gamble Company for the year ended June 30, 2005.

      1.    Amendment No. 1 on Form S-8 Registration Statement No. 33-31855 on
            Form S-4 (now S-8) for the 1982 Noxell Employees' Stock Option Plan
            and the 1984 Noxell Employees' Stock Option Plan;

      2.    Post Effective Amendment No. 1 to Registration Statement No.
            33-49289 on Form S-8 for The Procter & Gamble 1992 Stock Plan;

      3.    Registration Statement No. 33-47656 on Form S-8 for The Procter &
            Gamble International Stock Ownership Plan;

      4.    Registration Statement No. 33-50273 on Form S-8 for The Procter &
            Gamble Commercial Company Employees' Savings Plan;

      5.    Registration Statement No. 33-51469 on Form S-8 for The Procter &
            Gamble 1993 Non-Employee Directors' Stock Plan;

      6.    Registration Statement No. 333-05715 on Form S-8 for The Procter &
            Gamble Profit Sharing Trust and Employee Stock Ownership Plan;

      7.    Post-Effective Amendment No. 2 to Registration Statement No.
            33-59257 on Form S-3 for The Procter & Gamble Shareholder Investment
            Program;

      8.    Registration Statement No. 333-14381 on Form S-8 for Profit Sharing
            Retirement Plan of The Procter & Gamble Commercial Company;

      9.    Registration Statement No. 333-14397 on Form S-8 for Procter &
            Gamble Subsidiaries Savings Plan;

     10.    Registration Statement No. 333-21783 on Form S-8 for The Procter &
            Gamble 1992 Stock Plan (Belgian Version);

     11.   Registration Statement No. 333-37905 on Form S-8 for The Procter &
            Gamble Future Shares Plan;



      12.   Registration Statement No. 333-51213 on Form S-8 for Group Profit
            Sharing, Incentive, and Employer Contribution Plan (France);

      13.   Registration Statement No. 333-51219 on Form S-8 for Procter &
            Gamble Ireland Employees Share Ownership Plan;

      14.   Registration Statement No. 333-51221 on Form S-8 for Employee Stock
            Purchase Plan (Japan);

      15.   Registration Statement No. 333-51223 on Form S-8 for Savings and
            Thrift Plan (Saudi Arabia);

      16.   Registration Statement No. 333-34606 on Form S-8 for The Procter &
            Gamble Future Shares Plan;

      17.   Registration Statement No. 333-40264 on Form S-8 for Savings and
            Thrift Plan Saudi Arabia;

      18.   Registration Statement No. 333-44034 on Form S-8 for The Procter &
            Gamble International Stock Ownership Plan;

      19.   Registration Statement No. 333-47132 on Form S-8 for Employee Stock
            Purchase Plan (Japan);

      20.   Registration Statement No. 333-49764 on Form S-3 for The Procter &
            Gamble U.K. Share Investment Scheme;

      21.   Registration Statement No. 333-75030 on Form S-8 for The Procter &
            Gamble 2001 Stock and Incentive Compensation Plan;

      22.   Registration Statement No. 333-100561 on Form S-8 for The Procter &
            Gamble (U.K.) 1-4-1 Plan;

      23.   Registration Statement No. 333-108753 on Form S-8 for The Procter &
            Gamble Profit Sharing Trust and Employee Stock Ownership Plan;

      24.   Registration Statement No. 333-108991 on Form S-8 for The Procter &
            Gamble 1992 Stock Plan (Belgian Version);

      25.   Registration Statement No. 333-108992 on Form S-8 for Savings and
            Thrift Plan (Saudi Arabia);

      26.   Registration Statement No. 333-108993 on Form S-8 for Employee Stock
            Purchase Plan (Japan);

      27.   Registration Statement No. 333-108994 on Form S-8 for Procter &
            Gamble Ireland Employees Share Plan;



      28.   Registration Statement No. 333-108995 on Form S-8 for Group Profit
            Sharing, Incentive, and Employer Contribution Plan (France);

      29.   Registration Statement No. 333-108997 on Form S-8 for The Procter &
            Gamble International Stock Ownership Plan;

      30.   Registration Statement No. 333-108998 on Form S-8 for The Procter &
            Gamble 1993 Non-Employee Directors' Stock Plan;

      31.   Registration Statement No. 333-108999 on Form S-8 for The Procter &
            Gamble 1992 Stock Plan;

      32.   Registration Statement No. 333-111304 on Form S-8 for The Procter &
            Gamble 2003 Non-Employee Directors' Stock Plan;

      33.   Registration Statement No. 333-111305 on Form S-8 for The Procter &
            Gamble U.K. Share Investment Scheme;

      34.   Amendment No. 1 to Registration Statement No. 333-113515 on Form S-3
            for The Procter & Gamble Company Debt Securities and Warrants;

      35.   Amendment No. 3 to Registration Statement No. 333-123309 on Form S-4
            for the Procter & Gamble Company; and



DELOITTE & TOUCHE LLP
- ------------------------
Deloitte & Touche LLP

Cincinnati, Ohio
August 29, 2005

EX-31

                                  EXHIBIT (31)

                     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)) and
            internal control over financial reporting (as defined in Exchange
            Act Rules 13a-15(f) and 15d-15(f)) 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)    Designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

            c)    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

            d)    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

August 29, 2005
- -------------------------
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)) and
            internal control over financial reporting (as defined in Exchange
            Act Rules 13a-15(f) and 15d-15(f)) 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)    Designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

            c)    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

            d)    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

August 29, 2005
- ---------------------------
Date

EX-32

                                  EXHIBIT (32)

                          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, 2005 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 condition and results of operations
            of the Company.

A.G. LAFLEY
- ------------------------
(A.G. Lafley)
Chairman of the Board,
President and Chief Executive

August 29, 2005
- ---------------------------
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, 2005 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 condition and results of operations
            of the Company.

CLAYTON C. DALEY, JR.
- ------------------------------
(Clayton C. Daley, Jr.)
Chief Financial Officer

August 29, 2005
- ------------------------------
Date

EX-99.1

                                                                               .
                                                                               .
                                                                               .
                                  Exhibit (99.1)

               P&G DIRECTORS & OFFICERS INSURANCE PROGRAM SUMMARY

This summary states the general effect of the Company's Directors & Officers
("D&O") Insurance Program.



INSURANCE                                    LIMIT    UNDERLYING
 COMPANY     POLICY PERIOD      COVER       ($MILL)     ($MILL)
- ---------   --------------   ----------     -------   ----------
                                          
CODA        June 30, 2005-     Side A          25         nil
            June 30, 2006

XL          June 30, 2005-     Side A          25          25
            June 30, 2006

ACE         June 30, 2005-   Side A,B,C        25          50
            June 30, 2006

AWAC        June 30, 2005-   Side A,B,C        25          75
            June 30, 2006

Arch        June 30, 2005-   Side A,B,C        25         100
            June 30, 2006

Starr       June 30, 2005-   Side A,B,C        25         125
            June 30, 2006

Axis        June 30, 2005-   Side A,B,C        25         150
            June 30, 2006

XL          June 30, 2005-   Side A,B,C        10         175
            June 30, 2006

Max Re      June 30, 2005-   Side A,B,C        15         185
            June 30, 2006

CODA        June 30, 2005-     Side A          25         200
            June 30, 2006

XL          June 30, 2005-     Side A          15         225
            June 30, 2006

Starr       June 30, 2005-     Side A          10         240
            June 30, 2006
                                              ---
TOTAL                                         250
                                              ===




Note: "Side A coverage" refers to D&O insurance coverage that provides direct
coverage to insured directors and officers for claims for which the insured
company is unable or unwilling to indemnify the insured individuals. For
example, the law in many states prohibits a company from indemnifying its
directors or officers for shareholder derivative claims. "Side B coverage"
refers to D&O coverage that indemnifies the insured company or corporation,
typically in excess of a deductible, for sums that the company or corporation
spends to indemnify insured directors or officers for allegedly wrongful acts
covered by the terms of D&O insurance. "Side C coverage" refers to direct entity
coverage provided to the insured company or corporation itself when a claim is
brought against the company or corporation itself for allegedly wrongful acts
covered by the terms of D&O insurance.