Many faculty members were optimistic about their economic prospects for 2004-05. They saw signs of--or at least hope for--economic recovery all around and were ending a year in which overall average faculty salaries had grown by the smallest percentage in decades. Following the pattern of recent years, this annual report first examines the economic situation of full-time faculty at different types of institutions, after which it considers longer-term trends affecting higher education and faculty status. The results of the annual AAUP faculty compensation survey show that although some faculty saw their financial status brighten, significant segments of the professoriate are being left behind. As it has for years, this report rests on the premise that faculty must be adequately compensated if the quality of U.S. higher education is to be maintained--and improved. The analysis presented in this report is meant to stimulate discussion of how best to pursue that goal, and of actions to realize it. The report concludes with a matter of abiding concern: the question whether women faculty are making progress toward equity with men. (Contains 11 endnotes.)