THE PROCTER & GAMBLE COMPANY

Notice of Annual Meeting

and

Proxy Statement

Procter & Gamble Hall

at the Aronoff Center for the Arts

Annual Meeting of Shareholders

October 11, 2005

THE PROCTER & GAMBLE COMPANY

P.O. Box 599

August 30, 2005

Fellow Procter & Gamble Shareholders:

      It is my pleasure to invite you to this year’s annual meeting of shareholders, which will be held on Tuesday, October 11, 2005.

      The meeting will start at 12:00 noon, Eastern Daylight Time, at the Procter & Gamble Hall at the Aronoff Center for the Arts, 650 Walnut Street, in Cincinnati.

      I appreciate your continued confidence in the Company and look forward to seeing you on October 11.

	Sincerely,
	A. G. LAFLEY
	CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE

THE PROCTER & GAMBLE COMPANY

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

August 30, 2005

Purposes of the meeting:

Who may attend the meeting:

      Only shareholders, persons holding proxies from shareholders, and representatives of the media and financial community may attend the meeting.

      Shareholders attending the meeting who are hearing-impaired should identify themselves during registration so they can sit in a special section where an interpreter will be available.

What to bring:

      If your shares are registered in your name, you should bring the enclosed admission ticket to the meeting.

      If your shares are held in the name of a broker, trust, bank, or other nominee, you will need to bring a proxy or letter from that broker, trust, bank, or nominee that confirms that you are the beneficial owner of those shares.

Webcast of the Annual Meeting:

Annual Report:

      We have sent a copy of the annual report for the fiscal year that ended June 30, 2005 to each shareholder of record as of August 12, 2005 (except that only one annual report was sent to certain shareholders who share an address unless we have received contrary instructions from one or more of the shareholders). The annual report is not part of the proxy solicitation materials.

Householding Information:

      We have adopted a procedure approved by the Securities and Exchange Commission (“SEC”) called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our annual report and proxy statement unless one or more of these shareholders notifies us that they wish to continue receiving multiple copies. This procedure will reduce our printing costs and postage fees. If you are still receiving multiple copies of our annual report or proxy statement at a single address and wish to receive a single copy, please contact us at 1-800-742-6253 in the U.S., or inform us in writing at: The Procter & Gamble Company, Shareholder Services, P.O. Box 5572, Cincinnati, OH 45201-5572.

      Shareholders who participate in householding will continue to receive separate proxy cards. Householding will not in any way affect the mailing of dividend checks.

      If you participate in householding and wish to receive a separate copy of the 2005 annual report or proxy statement, or if you do not wish to participate in householding and prefer to receive separate copies of future materials, please call us toll-free at 1-800-742-6253 in the U.S., or inform us in writing at: The Procter & Gamble Company, Shareholder Services, P.O. Box 5572, Cincinnati, OH 45201-5572. We will respond promptly to such requests.

      Beneficial shareholders can request information about householding from their banks, brokers or other holders of record.

Proxy Voting:

      Your vote is important. Please vote your proxy promptly so your shares can be represented, even if you plan to attend the annual meeting. You can vote by Internet, by telephone, or by using the enclosed proxy card. Please see your proxy card for specific instructions on how to vote.

      Our proxy tabulator, Automatic Data Processing, must receive any proxy that will not be delivered in person to the annual meeting by 9:00 a.m., Eastern Daylight Time on Tuesday, October 11, 2005.

Table of Contents

Voting Information

Who can vote?

      You can vote if, as of the close of business on Friday, August 12, 2005, you were a shareholder of record of the Company’s

      Each share of the Company stock gets one vote. On August 12, 2005, there were issued and outstanding

      For The Procter & Gamble Shareholder Investment Program participants:

      If you are a participant in The Procter & Gamble Shareholder Investment Program (“SIP”), you can vote shares of Common Stock held for your account through the SIP Custodian.

      For The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan participants:

      If you are a participant in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, you can instruct the Trustees how to vote the shares of stock that are allocated to your account. If you do not vote your shares, the Trustees will vote them in proportion to those shares for which they have received voting instructions. Likewise, the Trustees will vote shares that have not been allocated to any account in the same manner.

How do I vote by proxy?

      Most shareholders can vote by proxy in three ways:

      Please see your proxy card or the information your bank, broker, or other holder of record provided you for more information on these options.

      If you vote by proxy, your shares will be voted in the manner you indicate at the annual meeting. If you sign your proxy card but don’t specify how you want your shares to be voted, they will be voted as the Board of Directors recommends.

Election of Directors

      The Board of Directors is divided into three classes. The classes are as equal in number as is possible depending on the total number of Directors at any time. Each Director serves for a term of three years. The classes are arranged so that the terms of the Directors in each class expire at successive annual meetings. This means that the shareholders elect approximately one-third of the members of the Board of Directors annually. As explained in detail on pages 33-34, the Board is proposing at the 2005 annual meeting to move to annual elections for all Directors. This action cannot take place, however, until approved by the shareholders.

      The terms of Bruce L. Byrnes, Scott D. Cook, Charles R. Lee, W. James McNerney, Jr., and Ernesto Zedillo will expire at the 2005 annual meeting. The Board intends to nominate each of these individuals for new terms that will expire at the 2008 annual meeting.

      We don’t know of any reason why any of these nominees would not accept the nomination. However, if any of the nominees does not accept the nomination, the persons named in the proxy will vote for the substitute nominee that the Board recommends.

      The Board of Directors recommends a vote FOR Bruce L. Byrnes, Scott D. Cook, Charles R. Lee, W. James McNerney, Jr., and Ernesto Zedillo as Directors to hold office until the 2008 annual meeting of shareholders and until their successors are elected.

Nominees for Election as Directors with Terms Expiring in 2005

		Bruce L. Byrnes                                  Director since 2002 Mr. Byrnes is Vice Chairman of the Board-P&G Household Care. He is also a Director of Cincinnati Bell Inc. Age 57.
		Scott D. Cook                                    Director since 2000 Mr. Cook is Chairman of the Executive Committee of the Board of Intuit Inc. (a software and web services firm). He is also a Director of Intuit Inc. and eBay Inc. Age 53. Member of the Compensation & Leadership Development and Innovation & Technology Committees.
		Charles R. Lee                                   Director since 1994 Mr. Lee is retired Chairman of the Board and Co-Chief Executive Officer of Verizon Communications (telecommunication services). He is also a Director of The DIRECTV Group, Inc., Marathon Oil Corporation, United Technologies Corporation and US Steel Corporation. Age 65. Member of the Audit, Compensation & Leadership Development, and Governance & Public Responsibility Committees.

      All of the nominees for election as Directors with terms expiring in 2008, except Mr. McNerney and Dr. Zedillo, have been executive officers of their respective employers, and/or retired from such positions, for more than the past five years. Prior to his election as Chairman of the Board, President and Chief Executive Officer of The Boeing Company, Mr. McNerney was Chairman of the Board and Chief Executive Officer of 3M from 2001 until July, 2005 and President and Chief Executive Officer of G. E. Aircraft Engines from 1997 until 2000. Dr. Zedillo was President of Mexico from 1994 until 2000.

      Each of the nominees with terms expiring in 2008 was elected by the shareholders in 2002 except Mr. McNerney who was elected on May 1, 2003.

Incumbent Directors with Terms Expiring in 2006

		Norman R. Augustine                              Director since 1989 Mr. Augustine is retired Chairman and Chief Executive Officer of Lockheed Martin Corporation (aerospace, electronics, telecommunications and information management). He is also a Director of Black and Decker Corporation and ConocoPhillips. Age 70. Chairman of the Compensation & Leadership Development Committee and member of the Executive and Innovation & Technology Committees.
		A. G. Lafley                                     Director since 2000 Mr. Lafley is Chairman of the Board, President and Chief Executive of the Company. He is also a Director of General Electric Company. Age 58. Chairman of the Executive Committee.

      All of the Directors with terms expiring in 2006, except Mr. Rodgers, have been executive officers of their respective employers, and/or retired from such positions, for more than the past five years. Prior to his appointment as President and Chief Executive Officer of TV One, Mr. Rodgers was President of Discovery Networks, U.S. from 1996 until 2002.

      Each of the Directors with terms expiring in 2006 was elected by the shareholders at the annual meeting in 2003.

Incumbent Directors with Terms Expiring in 2007

		R. Kerry Clark                                   Director since 2002 Mr. Clark is Vice Chairman of the Board-P&G Family Health. He is also a Director of Textron Inc. Age 53.

      All of the Directors with terms expiring in 2007, except Ms. Martin and Mr. Storey, have been executive officers of their respective employers, and/or retired from such positions, for more than the past five years. Ms. Martin was a Professor at Northwestern University from 1993 until 1999. Mr. Storey was a partner in the law firm of Thompson Hine, L.L.P. from 1993 until 2004.

      Each of the Directors with terms expiring in 2007 was elected by the shareholders at the annual meeting in 2004.

The Board of Directors

      The Board of Directors has general oversight responsibility for the Company’s affairs pursuant to Ohio’s General Corporation Law and the Company’s Code of Regulations and By Laws. In exercising its fiduciary duties, the Board of Directors represents and acts on behalf of the

Committees of the Board

      To facilitate deeper penetration of certain key areas of oversight, the Board of Directors has established five Committees. Membership on these Committees is shown in the following Chart.

      * Committee Chair

      The Audit Committee met ten times during the fiscal year ended June 30, 2005, with representatives of Deloitte & Touche LLP, the Company’s independent registered public accounting firm, and financial management to review accounting, control, auditing and financial reporting matters. All members of the Committee are independent under the New York Stock Exchange listing standards and the Board of Directors’ Guidelines for Determining the Independence of its Members (“Independence Guidelines”). The Audit Committee has the responsibilities set forth in its charter with respect to the quality and integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the Company’s overall risk management profile; the independent registered public accounting firm’s qualifications and independence; the performance of the Company’s internal audit function and the independent registered public accounting firm; preparing the annual Audit Committee Report to be included in the Company’s proxy statement; and assisting the Board of Directors and the Company in interpreting and applying the Company’s Worldwide Business Conduct Manual. The Audit Committee’s charter can be found in the corporate governance section of the Company’s corporate website, www.pg.com.

      The Compensation & Leadership Development Committee is the successor to the Compensation Committee. It met seven times during the fiscal year ended June 30, 2005. All members of the Committee are independent under the New York Stock Exchange listing standards and the Independence Guidelines. The Compensation & Leadership Development Committee has the responsibilities set forth in its charter with respect to overseeing overall Company compensation policies and their specific application to principal officers elected by the Board of Directors and to

      The Finance Committee met three times during the fiscal year ended June 30, 2005. The Finance Committee has the responsibilities set forth in its charter with respect to overseeing financial matters of importance to the Company. Topics considered by this Committee include the Company’s annual financing plans, global financing principles and objectives, financial strategies and capital structures, funding and oversight of the Company’s pension and benefit plans, the Company’s insurance program, the financial implications of major investments, restructurings, joint ventures, acquisitions and divestitures, and the impact of various finance activities on debt ratings. The Finance Committee’s charter can be found in the corporate governance section of the Company’s corporate website, www.pg.com.

      The Governance & Public Responsibility Committee replaces the former Governance & Nominating and Public Policy Committees. Before the creation of the Governance & Public Responsibility Committee, the Governance & Nominating Committee met four times and the Public Policy Committee met one time during the fiscal year ended June 30, 2005. After its creation, the Governance & Public Responsibility Committee also met three times during the fiscal year ended June 30, 2005. All members of the Governance & Public Responsibility Committee are independent under the New York Stock Exchange listing standards and the Independence Guidelines. The Governance & Public Responsibility Committee has the responsibilities set forth in its charter with respect to identifying individuals qualified to become members of the Board of Directors; recommending when new members should be added to the Board; recommending individuals to fill vacant Board positions; recommending the Director nominees for the next annual meeting of shareholders; periodically developing and recommending updates to the Company’s Corporate Governance Guidelines; other issues related to Director governance and ethics; evaluation of the Board of Directors and its members; and overseeing matters of importance to the Company and its stakeholders, including employees, consumers, customers, suppliers, shareholders, governments, local communities and the general public. Public Responsibility topics considered by this committee include organization diversity, sustainable development, community and government relations, product quality and quality assurance systems and corporate reputation. The Governance & Public Responsibility Committee’s charter can be found in the corporate governance section of the Company’s corporate website, www.pg.com.

      The Innovation & Technology Committee met two times during the fiscal year ended June 30, 2005. The Innovation & Technology Committee has the responsibilities set forth in its charter with respect to overseeing and providing counsel on matters of innovation and technology. Topics considered by this committee include the Company’s approach to technical and commercial innovation, the innovation and technology acquisition process, and tracking systems important to successful innovation. The Innovation & Technology Committee’s charter can be found in the corporate governance section of the Company’s corporate website, www.pg.com.

      In addition to the five Committees described above, the Company’s Code of Regulations establishes an Executive Committee. The Executive Committee did not meet during the fiscal year ended June 30, 2005. Mr. Lafley serves as Chairman of the Committee. The other members of this Committee are Messrs. Augustine and Gorman. This Committee has the authority to oversee the Company’s business and affairs between meetings of the Board of Directors. The Executive Committee’s charter can be found in the corporate governance section of the Company’s corporate website, www.pg.com. As explained in more detail on pages 32-33, the Board of Directors proposes in this proxy to eliminate the Executive Committee, thereby reducing the total number of Committees to five.

      All such correspondence is reviewed by the Secretary’s office, which enters the material into a log for tracking purposes. The Board of Directors has asked the Secretary’s office to forward to the appropriate Director(s) all correspondence, except for items unrelated to the functions of the Board of Directors, business solicitations, advertisements and materials that are profane.

Shareholder Recommendations of Board Nominees

      The Governance & Public Responsibility Committee will consider shareholder recommendations for candidates for the Board, which should be submitted to:

      Shareholder recommendations should include the name of the candidate, as well as relevant biographical information. The minimum qualifications and preferred, specific qualities and skills required for Directors are set forth in Article II, Sections B through E of the Company’s Corporate Governance Guidelines. The Committee considers all candidates using these criteria, regardless of the source of the recommendation. The Committee’s process for evaluating candidates includes the considerations set forth in Article II, Section B of the Committee’s Charter. After initial screening for minimum qualifications, the Committee determines appropriate next steps, including requests for additional information, reference checks and interviews with potential candidates. In addition to shareholder recommendations, the Committee also relies on recommendations from current Directors, Company personnel and others. From time to time, the Committee may engage the services of outside search firms to help identify candidates. During the fiscal year ended June 30, 2005, no such engagement existed (or currently exists) and no funds were paid to outside parties in connection with identification of nominees. All nominees for election as Directors currently serve on the Board and are known to the Committee in that capacity.

Annual Meeting Attendance

      The Board’s expectation is that all its members attend the annual meeting of shareholders. All Directors attended the 2004 annual meeting.

Director Compensation

      Directors who are Company employees do not receive Directors’ fees.

      Non-employee Directors received the following compensation:

      Stock and Restricted Stock Unit awards made to non-employee Directors are made under The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan, as approved by shareholders on October 14, 2003.

      The following table presents the compensation provided by the Company to the non-employee Directors for fiscal year 2004-05.

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

      Non-employee Directors also receive life insurance coverage in the amount of $750,000, payable in the event of accidental death or disability occurring while traveling on Company business.

      If a non-employee Director elects to defer cash fees under The Procter & Gamble Deferred Compensation Plan for Directors, such fees are credited to the Director’s account but not funded. Interest is credited to the account at the end of each month at the prime rate then in effect at J. P. Morgan Chase. This type of deferred compensation account is payable either upon the retirement of the Director or after a term of years after retirement specified by the Director.

Stock Ownership Guidelines for Non-employee Directors

      Non-employee Directors must own Company stock worth six times their annual cash retainer. All Directors either have already reached this goal or are anticipated to reach it by the end of their service year (October 11, 2005).

Charitable Gifts Program

      The Board of Directors has a Charitable Gifts Program funded by life insurance on the lives of the non-employee members of the Board of Directors and the Chief Executive. Effective July 1, 2003, the program was discontinued for any new Directors; however, current participants will retain coverage. Directors receive no financial benefit from the program because the Company

Report of the Compensation & Leadership Development Committee of the

Introduction

      The Compensation & Leadership Development Committee of the Board of Directors is responsible for ensuring that the Company’s executive compensation policies, practices and systems are competitive and reflect the long-term interests of shareholders. We take this responsibility seriously. None of us has been an officer or recent employee of the Company, and each of us is considered independent for purposes of applicable New York Stock Exchange listing standards as well as the Independence Guidelines. You can learn more about the Committee’s purpose, responsibilities, structure and other details by reading the Committee’s charter and the Company’s Committee Charter Appendix which can be found in the corporate governance section of the Company’s corporate website, www.pg.com.

      We are also responsible for reporting on the Company’s executive compensation each year, as part of the annual proxy statement. This Report explains:

Summary

      This section summarizes the Committee’s full report:

      The Company’s executive compensation is based on a few simple principles: pay competitively, pay for performance, and design compensation programs that support the business. These principles have served the Company well, and have enabled the Company to deliver strong shareholder value increases over time. Additionally, these principles have assisted the Company in developing and retaining extraordinary executive talent from within — an achievement few other major corporations have matched.

      At the executive level, a substantial portion of total compensation is comprised of variable, at-risk incentive programs, with the majority based on the Company’s long-term success. Company executives are compensated at competitive levels with individuals performing similar jobs in comparable companies and achieving similar results. This conclusion is based on comprehensive surveys by Hewitt Associates, which is an independent outside compensation consulting firm, and on the opinion of Frederic W. Cook & Co., a retained consultant who does no other work with the Company or its management and reports exclusively to this Committee.

      There were no changes to the Compensation Survey Group compared to fiscal year 2003-04.

      For fiscal year 2004-05, the Committee established compensation targets for the Company’s executive officers at the median of the Compensation Survey Group, based on the latest available data. Depending on results, actual compensation can be below as well as above target. Actual total compensation was above these targets because of strong business and financial performance at the Company.

      There are three major components of the Company’s executive compensation: base salaries, annual incentives and long-term incentives. All these components are designed to deliver year-to-year and long-term shareholder value increases. In fact, the vast majority of executives’ compensation is at risk, vests over time, and is tied directly to the Company’s long-term success.

      The Company sets compensation levels each year based on five criteria:

      Additionally, we expect executives to uphold the fundamental principles embodied in the Company’s Statement of Purpose, Values, and Principles, plus the Worldwide Business Conduct Manual, the Sustainability Report, and the Environmental Quality Policy. These fundamental principles include a commitment to integrity, maximizing the development of each individual, developing a diverse organization, and continually improving the environmental quality of the Company’s products and operations. In upholding these fundamental principles, executives not only contribute to their own success, but also help ensure that the Company’s business, employees, shareholders, and the communities in which the Company operates will prosper.

      The Company’s performance on each of these criteria met or exceeded previously established targets. We also considered other indicators of the health of the Company’s business. Market shares continue to increase broadly across the businesses. In addition, despite a challenging cost environment, particularly on certain commodities including petroleum related products, the Company improved its cost structure. Progress was also broad based as all Global Business Units, each of the 16 largest countries and 15 of 16 leading brands grew volume in fiscal year 2004-05. Total shareholder return was in the top half of the peer group.

      In view of the strong business and financial performance, and continued progress by the Company’s stock, compensation in fiscal year 2004-05 is above the Compensation Survey Group median.

•                       Chief Executive Compensation

      Mr. Lafley is compensated in accordance with the principles and criteria summarized above. More than 90% of Mr. Lafley’s total compensation is at-risk based on the Company’s performance. His total compensation in fiscal year 2004-05 reflects the Company’s strong performance during the year as well as the sustained results over the past four years. During this four year period, net sales increased           %, earnings per share increased           % and the Company delivered a total shareholder return of           %, while outpacing both the S&P 500 and the Dow Jones Industrial Average. We also considered steps taken by Mr. Lafley to sustain the Company’s strong results in the future.

      The strength of the Company’s business and financial performance have resulted in total compensation for Mr. Lafley that is above the Compensation Survey Group median.

      The other named executive officers are compensated according to the same principles, practices and programs as the Chief Executive.

      Details for each of the areas highlighted in this summary are included in the following pages.

      We establish base salary ranges based on careful examination of survey data for our Compensation Survey Group, gathered by Hewitt, a leading consulting firm specializing in executive compensation. Salary ranges, combined with annual incentive compensation, are targeted at the median of the Compensation Survey Group. Within the established ranges, base salary increases reflect each executive’s performance and experience.

      STAR is the Company’s annual incentive program. All awards are made within the authority of the Additional Remuneration Plan, which dates back to 1949, and the 2001 Stock Plan. Executives can choose between receiving all or some portion of their STAR awards in the form of cash, stock options, restricted stock units or deferred cash under the Executive Deferred Compensation Plan.

      Under STAR, awards are based on two factors:

      Differences in performance result in significantly different levels of annual incentive compensation, for various business units both upward and downward. For example, specific business unit factors for fiscal year 2004-05 ranged from           % to           %.

      As a result of strong overall Company performance, as well as combined business unit results that were significantly above targeted performance goals, the fiscal year 2004-05 STAR program paid out awards ranging from           % to           %.

      P&G shareholders approved the acquisition of Gillette on July 12, 2005. The acquisition is expected to close within the next few months. The Board and P&G Management are confident that combining P&G and Gillette will create substantial and sustainable shareholder value over the long term. Near term, the Company must focus on the successful integration of the Gillette business and delivery of growth and cost synergies, while maintaining momentum in the core business. The dilutive impact of the acquisition is expected to reduce P&G earnings by 25 to 35 cents per share in the first 12 month period following closing, and 5 to 10 cents per share in the

      The near term impacts of the proposed transaction caused the Committee to reconsider certain aspects of P&G’s incentive compensation programs. Subject to closing of the transaction, the Committee approved modifications to the STAR Program. In view of the importance of successfully integrating the Gillette acquisition, an additional factor will be used in determining STAR awards beginning fiscal year 2005-06. This ‘Gillette Factor’ will be determined by assessing performance during the fiscal year on various metrics related to integration goals 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 reduction targets; and staying within integration cost and restructuring estimates. This will put payments for all STAR participants at risk based on the achievement of integration goals. Under the revised STAR Plan, participants may end up earning more or less than they would have without this change.

•                       Long-Term Incentives

      We award long-term incentives through the 2001 Stock Plan, approved by shareholders on October 9, 2001 and/or the Additional Remuneration Plan. Awards under both programs focus executives’ attention on the longer-term performance of the Company. When long-term incentive programs pay awards at target, the combined long-term component of executive officers’ compensation will be consistent with the median for long-term compensation of the Compensation Survey Group for comparable positions.

      The Company may make awards of stock options, restricted stock, and/or restricted stock units under the shareholder-approved 2001 Stock Plan (which succeeded previous shareholder-approved stock plans dating back to 1952). These awards are given to employees who have demonstrated a capacity for contributing substantially to the success of the Company. As part of an appropriate mix of compensation elements, stock options encourage these managers to act as owners of the business, which helps to further align their interests with those of shareholders. Stock Appreciation Rights (SARs) are granted instead of stock options in countries where the holding of foreign stock is restricted.

      Pursuant to the terms of the 2001 Stock Plan, the Company makes stock option grants at no less than 100% of the market price on the date of grant and the options cannot be repriced to a price that is below the market price on the date of grant. Stock options and SARs are fully exercisable after three years and have a maximum term of ten years.

      The target number of shares to be awarded to an individual is based on the median competitive values of our Compensation Survey Group. This target amount can be adjusted by as much as plus or minus 50% based on an individual’s contribution to the Company. The number of option shares currently held by each executive is not considered in determining awards.

      The Business Growth Program (“BGP”) is normally a three-year performance program. Approximately 35 senior executive officers were included in BGP. Each was assigned a target amount (“Target Award”) for the three-year performance period. Taken together, each executive’s stock options at target and BGP at target represent total long-term incentive compensation equal to the median long-term incentive compensation of the Compensation Survey Group for comparable positions. The Committee determines actual BGP awards based on an assessment of Company performance versus pre-established financial measures for diluted earnings per share (“EPS”) growth and operating total shareholder return. A BGP cycle was implemented as a three-

      The Compensation & Leadership Development Committee believes it is essential that the goals of P&G’s compensation programs are directly linked to business results. Accordingly, we evaluated the Company’s BGP program to ensure it will remain consistent with shareholder interests following the Gillette merger. After careful consideration, we have discontinued the current three-year BGP cycle at the end of its first year (June 30, 2005) and adjusted potential payouts accordingly. In its place, we have established a new three-year cycle, beginning July 1, 2005. We have chosen to restart the program cycle so that management compensation is linked more directly to the successful integration of Gillette.

      For the one year just completed, the BGP program paid out at the maximum of 200% of target, reflecting very strong EPS growth and operating total shareholder return.

      By starting a new BGP cycle, we ensure that management compensation reflects results of all the Company’s businesses, including those acquired from Gillette. More specifically, management will be incented to minimize the dilution of EPS in the first two 12 month periods following closing and deliver accretive EPS in the third 12 month period following closing. The revised program will pay out at target compensation levels for the full three 12 month periods only if, by the third 12 month period following closing, the Company achieves its operating total shareholder return goal and delivers three-year 10% compound EPS growth for P&G’s current business, while also achieving its accretion goal for Gillette. Consequently, management compensation is at risk to achieve the profitable growth objectives of both Gillette and current P&G. Depending on actual results, participants may earn more or less than target.

      Progress awards of 30% of the total anticipated award may be made based on actual performance for the one-year period ending June 30, 2006 and for the two-year period ending June 30, 2007. Progress awards will be made only if performance targets are met or exceeded.

      For the new BGP cycle, as well as the year just completed, one-half of any amounts earned will be paid in the form of three-year restricted stock units. The remaining half can be paid in cash, deferred cash via the Executive Deferred Compensation Plan or restricted stock units, with the term elected by the officer. For the CEO, the entire award will be delivered in restricted stock units as discussed below.

Chief Executive Compensation

      The Committee established compensation levels for Mr. Lafley using the same principles applied to all Company executives. Mr. Lafley’s compensation is competitive with that of chief executives in the Compensation Survey Group, is linked directly to his and the Company’s performance, is aligned with business strategies and results, and is focused on rewarding sustained, long-term growth.

      The Committee reviewed all elements of Mr. Lafley’s compensation including salary, bonus, equity and long-term incentive compensation, accumulated, realized and unrealized stock option and restricted stock gains and the cost to the Company of all benefits and perquisites. A tally sheet displaying all of the above components was reviewed by the Committee. The Committee also reviewed potential future compensation under a variety of future circumstances.

      Meeting in executive session without the presence of any Company employee, we determined the amount of Mr. Lafley’s base salary and STAR award. The Committee’s action was reviewed and discussed by the non-employee Directors in executive session of the Board of Directors. We also approved the performance goals for Mr. Lafley’s annual incentive and long-term incentive award opportunities for fiscal year 2005-06.

      We primarily considered the following factors in determining Mr. Lafley’s annual and long-term incentive awards:

      In addition we considered several outcomes of Mr. Lafley’s efforts that are focused on sustaining growth into the future:

      Mr. Lafley’s base salary for fiscal year 2004-05 was $1,700,000.

      Mr. Lafley’s salary will continue to be $1,700,000 for fiscal year 2005-06 and, in combination with his STAR target, his short-term compensation is consistent with the median of his peer group.

      Mr. Lafley earned an annual incentive award under the STAR program for fiscal year 2004–05 in accordance with a formula established at the beginning of the year, which was applicable to the executives listed in the Summary Compensation Table.

      Mr. Lafley’s STAR target for fiscal year 2004-05 was 130% of base salary. This STAR target, when combined with his base salary, was consistent with the median of short-term target compensation for chief executives in our Compensation Survey Group.

      Mr. Lafley’s STAR target will be increased so that his total short-term compensation target (base salary plus annual bonus) for fiscal year 2005-06 is consistent with the median of compensation targets for chief executive officers in the Compensation Survey Group. Mr. Lafley’s STAR target was set at 140% of his base salary for fiscal year 2005-06.

      Mr. Lafley’s total long-term incentive award target was consistent with the median of long-term incentive awards paid to chief executives in our Compensation Survey Group, based on the latest available data. In fiscal year 2004–05, we awarded Mr. Lafley long-term incentives in the form of stock options and the payout of his one-year BGP award as discussed earlier in the Elements of Executive Compensation section.

—               Stock Options

      In February 2005, we granted Mr. Lafley 764,306 stock options in recognition of his performance in fiscal year 2003–04. The value of stock options is directly tied to future growth in shareholder value.

—               Business Growth Program

      Under BGP, Mr. Lafley earned an award of $           based on very strong EPS and OTSR operating total shareholder return performance during the one-year performance period. Mr. Lafley’s award was made on the same basis as the other participants in the Plan. This amount will be paid to Mr. Lafley entirely in the form of restricted stock units. One-half of the shares associated with these restricted stock units will be delivered to Mr. Lafley in three years (September 2008) and, the other one-half will be delivered upon his retirement. Consequently, the value of this award to Mr. Lafley is directly tied to the Company’s future growth in shareholder value.

      Mr. Lafley’s total target long-term incentive award opportunity has been set at the median of long-term incentive awards paid to chief executives in our Compensation Survey Group, based on the latest available data.

      Mr. Lafley will participate in the three-year performance program (BGP) covering the period July 1, 2005 through June 30, 2008 as discussed in the Elements of Executive Compensation section. If performance goals are fully achieved, Mr. Lafley’s total award for the three-year period would be $          . Mr. Lafley’s award may be more or less than this amount at the end of the three-year period, depending on the Company’s actual results.

      Any amounts earned will be delivered in the form of restricted stock units, with one-half in the form of three-year restricted stock units and the other half delivered in units restricted until retirement from the Company.

      Section 162(m) of the Internal Revenue Code limits the deductibility of executive compensation paid to the Company’s covered executive officers to $1,000,000 per year, but contains an exception for certain performance-based compensation.

      For fiscal year 2004–05, grants of retirement restricted stock, restricted stock units, and stock options and payments of STAR and BGP under the 2001 Stock Plan and Additional Remuneration Plan should satisfy the requirements for deductible compensation.

      While the Committee’s general policy is to preserve the deductibility of most compensation paid to the Company’s covered executives, we may authorize payments that might not be deductible if we believe they are in the best interests of the Company and its shareholders.

      Last year, after an analysis of competitive practices, we determined that it was appropriate and in the best interests of the Company and its shareholders to continue to pay Mr. Lafley a base salary in excess of $1,000,000. The only portion of Mr. Lafley’s compensation which will not be deductible is that portion of his base salary that exceeds $1,000,000.

OPTION GRANTS IN LAST FISCAL YEAR

AGGREGATED OPTION/ STOCK APPRECIATION RIGHT (SAR)

Long-Term Incentive Plans – Awards For the 3-Year Period

      This table provides information concerning award opportunities made under the Business Growth Program (“BGP”) during fiscal year 2004-05 for the 3-year performance period beginning July 1, 2004 and ending June 30, 2007. Payouts under BGP are based on core earnings per share growth and operating total shareholder return over the three-year period. If threshold performance is not met, no award will be earned. To the extent the Company’s performance exceeds the threshold, a varying award up to the maximum will be earned. Progress payments equal to 30% of the anticipated award may be made at the end of the first and second year if interim goals are achieved. In consideration of the Gillette merger, the Compensation Committee discontinued the 3 year performance period covering fiscal years 2004 though 2007 at the end of fiscal year 2005. For the one year completed, payouts were at the maximum of 200% of the target for that one year period as shown in the Summary Compensation Table on page      . The Compensation Committee also established a new 3 year BGP cycle beginning July 1, 2005 and ending June 30, 2008. The table for this BGP cycle will be included in next year’s proxy. A discussion of these changes to BGP is included on page                     of the Executive Compensation Report. BGP is also discussed in the Executive Compensation Committee Report on page                     .

RETIREMENT BENEFITS

      Retirement benefits for U.S.-based executive officers are provided primarily by The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan. This is a qualified defined contribution plan providing retirement benefits for U.S.-based employees. In addition, executives participating in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan receive retirement awards in the form of stock restricted (non-transferable and subject to forfeiture) until retirement. These awards make up the difference between the Internal Revenue Code limit on contributions that can be made to that Plan and what would otherwise be contributed by the Company to the executive’s retirement account. Under the rules set by the SEC, these Company contributions are included in the Summary Compensation Table in the “All Other Compensation” column (see footnote (4) to such Table). Mr. Clark is enrolled in the pension plans of Procter & Gamble Canada, Inc. Mr. Clark is also enrolled in a supplemental retirement plan for U.S.-based managers who previously participated in pension plans of international subsidiaries. These plans are defined benefit plans funded by book reserves or insurance contracts in order to pay retirement benefits in cash. Given Mr. Clark’s age and service with the Company, his estimated annual benefit under these plans, if payable in the form of a straight annuity upon retirement at age 65, would be                     .

Comparison of Five-year Cumulative Total Return

      The following graph compares the five-year cumulative total return of the Company’s Common Stock as compared with the S&P 500 Stock Index, the Dow Jones Industrial Average Index, and a composite of the S&P Household Products Index, the S&P Paper Products Index, the S&P Personal Products Index, the S&P Health Care Index and the S&P Foods Index weighted based on the Company’s current fiscal year revenues.

The graph assumes a $100 investment made on July 1, 2000 and the reinvestment of all dividends.

Security Ownership of Management and Certain Beneficial Owners

      The following tables give information concerning the ownership of the Company’s Common and Series A and B ESOP Convertible Class A Preferred Stock by all Directors and nominees, each named executive officer, all Directors and executive officers as a group, and the owners of more than five percent of the outstanding Series A and B ESOP Convertible Class A Preferred Stock, on August 12, 2005:

COMMON STOCK