THIRD AUTOMATIC COMMON EXCHANGE SECURITY TRUST, 497, 1998-02-12

THIRD AUTOMATIC COMMON EXCHANGE SECURITY TRUST
497, 1998-02-12

Previous: VARIABLE ACCOUNT J OF LIBERTY LIFE ASSURANCE CO OF BOSTON, 497, 1998-02-12

Next: PEGASUS SYSTEMS INC, 424B4, 1998-02-12

<PAGE> 1

10,308,257 SHARES

READER'S DIGEST AUTOMATIC
COMMON EXCHANGE SECURITY TRUST

$1.93 TRUST AUTOMATIC COMMON EXCHANGE SECURITIES (TRACES (TM/SM))
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK OF
THE READER'S DIGEST ASSOCIATION, INC.)
------------------------

Each of the $1.9336 Trust Automatic Common Exchange Securities (the
"Securities") of Reader's Digest Automatic Common Exchange Security Trust (the
"Trust") represents the right to receive an annual distribution of $1.9336, and
will be exchanged for between 0.8696 shares and one share of Class A Nonvoting
Common Stock, par value $0.01 per share (the "Common Stock"), of The Reader's
Digest Association, Inc. (the "Company") on February 15, 2001, (the "Exchange
Date").
The Trust is a finite-term Trust the sole purpose of which is to acquire and
hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly
basis through the Exchange Date, and forward purchase contracts (the
"Contracts") with one or more existing shareholders of the Company (the
"Sellers") relating to the Common Stock. The Trust's investment objective is to
provide each holder of Securities with a quarterly distribution of $0.4834 per
Security and, on the Exchange Date, a number of shares of Common Stock per
Security equal to the Exchange Rate.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Common Stock on the Exchange
Date:
- if the Average Market Price is less than the Appreciation Threshold Price
but equal to or greater than the Initial Price, the Exchange Rate will be
the number of shares of Common Stock having a value (determined at the
Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0.8696 shares of Common Stock;
and
- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.
For purposes of this formula, the Appreciation Threshold Price is $26.9531 and
the Initial Price is $23.4375. The formula will be subject to adjustment in
certain events. Holders otherwise entitled to receive fractional shares in
respect of their aggregate holdings of Securities will receive cash in lieu
thereof.
Holders of Securities will receive distributions at a higher annual rate
than the current annual dividends paid on the Common Stock. There is no
assurance, however, that the yield on the Securities will be higher than the
dividend yield on the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in the Securities
is less than that afforded by an investment in the Common Stock because holders
of Securities will realize no equity appreciation if, on the Exchange Date, the
Average Market Price of the Common Stock is below the Appreciation Threshold
Price, and less than all of the appreciation if at that time the Average Market
Price is above the Appreciation Threshold Price. Holders of Securities will
realize the entire decline in equity value if the Average Market Price is less
than the Initial Price, which is equal to the price to public per Security shown
below.
The Company is not affiliated with the Trust.
The Securities have been authorized for listing on the New York Stock
Exchange under the symbol "RDT". Prior to this offering there has been no public
market for the Securities. The last reported sale price of the Common Stock on
the New York Stock Exchange on February 10, 1998, was $23.4375 per share.
(continued on next page)
SEE "RISK FACTORS" ON PAGE 18 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC SALES LOAD(1) THE TRUST(2)
-------------- ------------- -------------
<S> <C> <C> <C>
Per Security...................................... $23.4375 $--(4) $23.4375
Total(3).......................................... $ 241,599,773 $--(4) $ 241,599,773
</TABLE>

- - ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Expenses of the offering, which are payable by Goldman, Sachs & Co. and the
Sellers, are estimated to be $600,000.
(3) The Trust has granted to the Underwriters an option for 30 days to purchase
up to an additional 1,546,239 Securities at the price to the public per
Security, solely to cover over-allotments. If the option is exercised in
full, the total Price to Public, Sales Load and Proceeds to the Trust will
be $277,839,750, $-- and $277,839,750, respectively. See "Underwriting".
(4) In light of the fact that the proceeds of the sale of the Securities will be
used in part by the Trust to purchase the Contracts from the Sellers, the
Underwriting Agreement provides that the Sellers will pay to the
Underwriters as compensation ("Underwriters' Compensation") $0.7031 per
Security. See "Underwriting".
------------------------

The Securities are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates for the
Securities will be ready for delivery in book entry form only through the
facilities of The Depository Trust Company, on or about February 13, 1998,
against payment in immediately available funds.
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
------------------------

The date of this Prospectus is February 10, 1998
<PAGE> 2

The Trust has adopted a policy that the Contracts may not be disposed of
during the term of the Trust. The Trust will continue to hold the Contracts
despite any significant decline in the market price of the Common Stock or
adverse changes in the financial condition of the Company.

This Prospectus sets forth concisely information about the Trust that a
prospective investor ought to know before investing. Potential investors are
advised to read this Prospectus and to retain it for future reference.

The Securities may be a suitable investment for those investors who are
able to understand the unique nature of the Trust and the economic
characteristics of the Contracts and the U.S. Treasury securities held by the
Trust.

The Trust will be a grantor trust for federal income tax purposes and each
holder of Securities will be treated as the owner of its pro rata portions of
the stripped U.S. Treasury securities and the Contracts. For a discussion of the
principal United States federal income tax consequences of ownership of
Securities, see "Certain Federal Income Tax Considerations".

THE TRUST IS A SPECIAL-PURPOSE CLOSED-END INVESTMENT COMPANY WITH NO
PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END FUND SHARES FREQUENTLY
TRADE AT A DISCOUNT FROM NET ASSET VALUE. THIS CHARACTERISTIC OF INVESTMENTS IN
A CLOSED-END INVESTMENT COMPANY IS A RISK SEPARATE AND DISTINCT FROM THE RISK
THAT THE TRUST'S NET ASSET VALUE WILL DECREASE. THE TRUST CANNOT PREDICT WHETHER
ITS SHARES WILL TRADE AT, BELOW OR ABOVE NET ASSET VALUE. THE RISK OF PURCHASING
INVESTMENTS IN A CLOSED-END COMPANY THAT MIGHT TRADE AT A DISCOUNT MAY BE
GREATER FOR INVESTORS WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER COMPLETION
OF AN INITIAL PUBLIC OFFERING.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".

2
<PAGE> 3

PROSPECTUS SUMMARY

This summary of the provisions relating to the Securities does not purport
to be complete and is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus. Certain terms used in this summary are
defined elsewhere in this Prospectus.

THE TRUST

GENERAL. The Trust is a special-purpose, finite-term trust. The Trust will
be registered as a non-diversified closed-end management investment company
under the Investment Company Act of 1940 (the "Investment Company Act"). Under
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the power to vary the
investments held by the Trust.

INVESTMENT OBJECTIVE AND POLICIES. The Trust will acquire and hold a
portfolio of stripped U.S. Treasury securities maturing on a quarterly basis
through the Exchange Date, and the Contracts with the Sellers obligating each
Seller, on the Exchange Date, to deliver to the Trust a number of shares of
Common Stock equal to the product of the Exchange Rate times the initial number
of shares subject to such Seller's Contract. The Trust's investment objective is
to provide the holders of Securities ("Holders") with a quarterly distribution
of $0.4834 per Security (which amount equals the pro rata portion of the fixed
quarterly cash distributions from the proceeds of the maturing U.S. Treasury
securities held by the Trust) and, on the Exchange Date, a number of shares of
Common Stock per Security equal to the Exchange Rate.

The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Common Stock on the Exchange
Date:

- if the Average Market Price is less than the Appreciation Threshold Price
but equal to or greater than the Initial Price, the Exchange Rate will be
the number of shares of Common Stock having a value (determined at the
Average Market Price) equal to the Initial Price;

- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0.8696 shares of Common Stock;
and

- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.

For purposes of this formula, the Appreciation Threshold Price is $26.9531
and the Initial Price is $23.4375. The "Average Market Price" on any date means
the average Closing Price (as defined herein) per share of Common Stock for the
20 Trading Days (as defined herein) immediately prior to, but not including,
such date. The formula will be subject to adjustment in certain events.

The Exchange Rate formula provides the Trust with the potential for a
portion of any capital appreciation above the Appreciation Threshold Price on
the Common Stock, but no protection from depreciation of the Common Stock.
Holders otherwise entitled to receive fractional shares in respect of their
aggregate holdings of Securities will receive cash in lieu thereof. See
"Investment Objective and Policies -- Trust Termination".

STRUCTURE. The purchase price under the Contracts is equal to $18.105 per
share of Common Stock initially subject thereto and $186,631,065 (10,308,261
shares of Common Stock) in the aggregate (assuming no exercise of the
Underwriters' over-allotment option) and is payable to the Sellers by the Trust
at the closing of the offering of the Securities. The obligations of the Sellers
under the Contracts will be secured by a pledge of the Common Stock. See
"Investment Objective and Policies -- The Contracts -- Collateral Arrangements;
Acceleration".

3
<PAGE> 4

THE OFFERING

The Trust is offering 10,308,257 Securities to the public at a purchase
price of $23.4375 per Security (which is equal to the last reported sale price
of the Common Stock on the date of this Prospectus) through Goldman, Sachs & Co.
and Lazard Freres & Co. LLC (the "Underwriters"). In addition, the Underwriters
have been granted options to purchase up to 1,546,239 additional Securities
solely for the purpose of covering over-allotments. See "Underwriting".

THE SECURITIES

GENERAL. The Securities are designed to provide investors with a higher
distribution per Security than the dividend currently paid per share on the
Common Stock. The annual distribution per Security is $1.9336. Based on the
current annual dividend rate of $.90 per share of Common Stock, the annual per
share distribution per Security is $1.0336 greater than the current annual per
share dividend rate on the Common Stock. Future declarations of dividends on the
Common Stock by the Company and the amount of such dividends are discretionary
with its Board of Directors and subject to legal and other factors. Such further
declarations will necessarily depend on the Company's future earnings, financial
condition, capital requirements and other factors. Quarterly distributions on
the Securities will consist solely of the cash received from the U.S. Treasury
securities. The Trust will not be entitled to any dividends that may be declared
on the Common Stock because the Common Stock will only be transferred to the
Trust on the Exchange Date.

Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Common Stock. There is no assurance, however, that
the yield on the Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less than that
afforded by an investment in the Common Stock because Holders will realize no
equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is below the Appreciation Threshold Price (which represents an
appreciation of 115% of the Initial Price). Moreover, because a Holder will only
receive 0.8696 shares of Common Stock per Security if the Average Market Price
exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange 86.96% of any appreciation of the value of the Common
Stock in excess of the Appreciation Threshold Price. Holders of Securities will
realize the entire decline in equity value if the Average Market Price on the
Exchange Date is less than the Initial Price, which is equal to the price to the
public per Security shown on the cover page hereof.

DISTRIBUTIONS. Holders are entitled to receive distributions at the rate
per Security of $1.9336 per annum or $0.4834 per quarter, payable quarterly on
each February 15, May 15, August 15 and November 15 or, if any such date is not
a business day, on the next succeeding business day, to Holders of record as of
each February 1, May 1, August 1 and November 1, respectively. The first
distribution will be payable on May 15, 1998 to Holders of record as of May 1,
1998. See "Investment Objective and Policies -- General".

MANDATORY EXCHANGE. On the Exchange Date, each outstanding Security will
be exchanged automatically for between 0.8696 shares and one share of Common
Stock, subject to adjustment in the event of certain dividends or distributions,
subdivisions, splits, combinations, issuances of certain rights or warrants or
distributions of certain assets with respect to the Common Stock.

However, in the event of a merger of the Company with another entity, or
the liquidation of the Company, or certain related events, Holders would receive
consideration in the form of cash or Marketable Securities (as defined below
under the caption "Investment Objective and Policies -- The Contracts --
Dilution Adjustments") rather than shares of Common Stock. In addition, the
occurrence of certain defaults by the Sellers under the Contracts or the
collateral arrangements would cause the acceleration of the Contracts and the
exchange of each Security for an amount of shares of Common Stock (or, after a
Reorganization Event, the Marketable Securities or cash or a

4
<PAGE> 5

combination thereof deliverable in respect thereof). See "Investment Objective
and Policies -- The Contracts -- Collateral Arrangements; Acceleration"; and
"-- Trust Termination".

VOTING RIGHTS. Holders will have the right to vote on matters affecting
the Trust, as described below under the caption "Description of the Securities".
Holders of Common Stock have no voting power for any purpose whatsoever, except
as otherwise provided by law. See "Investment Objective and Policies -- The
Company" and "Description of the Securities".

THE COMPANY

The Company is a preeminent global leader in publishing and direct
marketing, creating and delivering products, including magazines, books,
recorded music collections, home videos and other products, that inform, enrich,
entertain and inspire.

Reference is made to the accompanying prospectus of the Company (pages A-1
through A-40 hereto) (the "Company Prospectus") which describes the Company and
the shares of Common Stock of the Company deliverable to the Holders upon
mandatory exchange of the Securities on the Exchange Date. The Company is not
affiliated with the Trust and will not receive any of the proceeds from the sale
of the Securities. The Company Prospectus relates to an aggregate of 10,308,257
shares of Common Stock (plus an additional 1,546,239 shares that may be
delivered upon exercise of the Underwriters' over-allotment option).

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The Trust will be treated as a grantor trust for federal income tax
purposes. Accordingly, each Holder will be treated for federal income tax
purposes as the owner of its pro rata portion of the U.S. Treasury securities
and the Contracts, and income received (including original issue discount
treated as received) by the Trust will generally be treated as income of the
Holders. The U.S. Treasury securities will be treated for federal income tax
purposes as having "original issue discount" that will accrue over the term of
such U.S. Treasury securities. Actual receipts of cash in respect of U.S.
Treasury securities will not be included in income, however, but rather will
reduce the aggregate tax basis of the Securities. See "Certain Federal Income
Tax Considerations".

MANAGEMENT AND ADMINISTRATION OF THE TRUST

The Trust will be internally managed and will not have an investment
adviser. The administration of the Trust will be overseen by three Trustees. The
day-to-day administration of the Trust will be carried out by The Bank of New
York (or its successor) as trust administrator (the "Administrator"). The Bank
of New York (or its successor) will also act as custodian (the "Custodian") for
the Trust's assets and as paying agent (the "Paying Agent"), registrar and
transfer agent with respect to the Securities. Except as aforesaid, The Bank of
New York has no other affiliation with, and is not engaged in any other
transaction with, the Trust. See "Management and Administration of the Trust".

LIFE OF THE TRUST

The Trust will terminate automatically on or shortly after the Exchange
Date. Promptly after the Exchange Date the shares of Common Stock to be
exchanged for the Securities and other remaining Trust assets, if any, will be
distributed pro rata to Holders. See "Investment Objective and Policies -- Trust
Termination".

RISK FACTORS

The Trust will not be managed in the traditional sense. The Trust has
adopted a policy that the Contracts may not be disposed of during the term of
the Trust and that the U.S. Treasury securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities and the

5
<PAGE> 6

termination of the Trust. The Trust will continue to hold the Contracts despite
any significant decline in the market price of the Common Stock or adverse
changes in the financial condition of the Company. See "Risk Factors -- Internal
Management; No Portfolio Management" and "Management and Administration of the
Trust -- Trustees".

Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Common Stock. There is no assurance, however, that
the yield on the Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less than that
afforded by an investment in the Common Stock because Holders will realize no
equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is below the Appreciation Threshold Price (which represents an
appreciation of 115% of the Initial Price). Moreover, because a Holder will only
receive 0.8696 shares of Common Stock per Security if the Average Market Price
exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange 86.96% of any appreciation of the value of the Common
Stock in excess of the Appreciation Threshold Price. Holders of Securities will
realize the entire decline in equity value if the Average Market Price on the
Exchange Date is less than the price to public per Security shown on the cover
page hereof.

The Trust is classified as a "non-diversified" investment company under the
Investment Company Act. Consequently, the Trust is not limited by the Investment
Company Act in the proportion of its assets that may be invested in the
securities of a single issuer. Since the only assets held by the Trust will be
the U.S. Treasury securities and the Contracts, the Trust will be subject to
greater risk than would be the case for an investment company with diversified
investments. See "Investment Objective and Policies" and "Risk
Factors -- Non-Diversified Status".

The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Common Stock in the secondary
market. Trading prices of Common Stock will be influenced by the Company's
operating results and prospects and by economic, financial and other factors and
market conditions.

HOLDERS OF THE SECURITIES WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT
TO THE COMMON STOCK (INCLUDING, WITHOUT LIMITATION, RIGHTS TO RECEIVE ANY
DIVIDENDS OR OTHER DISTRIBUTIONS IN RESPECT THEREOF) UNLESS AND UNTIL SUCH TIME,
IF ANY, AS THE SELLERS SHALL HAVE DELIVERED SHARES OF COMMON STOCK PURSUANT TO
THE CONTRACTS.

LISTING

The Securities have been authorized for listing on the New York Stock
Exchange (the "NYSE") under the symbol "RDT".

FEES AND EXPENSES

In light of the fact that the proceeds of the sale of the Securities will
be used in part by the Trust to purchase the Contracts from the Sellers, the
Underwriting Agreement provides that the Sellers will pay Underwriters'
Compensation to the Underwriters of $0.7031 per Security. See "Underwriting".
Estimated organization costs of the Trust in the amount of $10,000 and estimated
costs of the Trust in connection with the initial registration and public
offering of the Securities in the amount of $453,850 will be paid by the
Underwriters. Other estimated costs of the Trust in connection with the public
offering of the Securities, in the amount of $146,150, will be paid by the
Sellers. Each of the Administrator, the Custodian and the Paying Agent, and each
Trustee, will be paid by the Underwriters at the closing of the offering of the
Securities a one-time, up-front amount in respect of its ongoing fees and, in
the case of the Administrator, anticipated expenses of the Trust (estimated to
be $350,000 in the aggregate), over the term of the Trust. The Underwriters have
agreed to pay any on-going expenses of the Trust in excess of these estimated
amounts and to reimburse the

6
<PAGE> 7

Trust for any amounts it may be required to pay as indemnification to any
Trustee, the Administrator, the Custodian or the Paying Agent. See "Management
and Administration of the Trust -- Estimated Expenses".

Regulations of the Securities and Exchange Commission ("SEC") applicable to
closed-end investment companies designed to assist investors in understanding
the costs and expenses that an investor will bear directly or indirectly require
the presentation of Trust expenses in the following format. Because the Trust
will not bear any fees or expenses, investors will not bear any direct expenses.
The only expenses that an investor might be considered to be bearing indirectly
are (i) the Underwriters' Compensation payable by the Sellers with respect to
such investor's Securities and (ii) the ongoing expenses of the Trust (including
fees of the Administrator, Custodian, Paying Agent and Trustees), estimated at
$116,667 per year, payable by Goldman Sachs at the closing of the offering. See
"Investment Objective and Policies -- General".

<TABLE>
<S> <C>
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).................................. 3.0%
Dividend Reinvestment and Cash Purchase Plan Fees............................... N/A
ANNUAL EXPENSES
Management Fees................................................................. 0.0%
Other Expenses (after reimbursement by the Underwriters)........................ 0.020%
-
Total Annual Expenses (after reimbursement by the Underwriters)......... 0.020%
=
</TABLE>

- - ---------------
* Absent the reimbursement, the Trust's "total annual expenses" would be equal
to approximately 0.133% of the Trust's average net assets. The Underwriters
are paying expenses on behalf of the Trust out of its normal underwriting
compensation.

SEC regulations also require that closed-end investment companies present
an illustration of cumulative expenses (both direct and indirect) that an
investor would bear. The example is required to factor in the applicable Sales
Load and to assume, in addition to a 5% annual return, the reinvestment of all
distributions at net asset value. INVESTORS SHOULD NOTE THAT THE ASSUMPTION OF A
5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE FINANCIAL TERMS OF THE TRUST.
SEE "INVESTMENT OBJECTIVE AND POLICIES -- GENERAL". ADDITIONALLY, THE TRUST DOES
NOT PERMIT THE REINVESTMENT OF DISTRIBUTIONS.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- - ----------------------------------------------------------------------- ------ -------
<S> <C> <C>
You would bear the following expenses (i.e., the applicable sales load
and allocable portion of ongoing expenses paid by the Underwriters
and the Sellers) on a $1,000 investment, assuming a 5% annual
return............................................................... $31.33 $ 34.19
</TABLE>

7
<PAGE> 8

THE TRUST

The Trust is a special-purpose New York trust and is registered as a
closed-end investment company under the Investment Company Act. The Trust was
formed on June 2, 1997 pursuant to a trust agreement dated as of such date and
amended and restated as of February 10, 1998. The address of the Trust is 85
Broad Street, New York, New York 10004 (telephone no. (212) 902-1000).

USE OF PROCEEDS

The net proceeds of this offering will be used immediately upon the closing
of this offering (a) to purchase a fixed portfolio comprised of stripped U.S.
Treasury securities with face amounts and maturities corresponding to the
quarterly distributions payable with respect to the Securities and the payment
dates thereof, and (b) to pay the purchase price under the Contracts to the
Sellers.

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

The Trust will acquire and hold a portfolio of stripped U.S. Treasury
securities maturing on a quarterly basis through the Exchange Date and the
Contracts relating to the Common Stock of the Company. The Trust's investment
objective is to provide each Holder with a quarterly cash distribution of
$0.4834 per Security (which amount equals the pro rata portion of the fixed
quarterly distributions from the proceeds of the maturing U.S. Treasury
securities held by the Trust) and, on the Exchange Date, a number of shares of
Common Stock per Security equal to the Exchange Rate.

The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price of the Common Stock on the Exchange Date:

- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0.8696 shares of Common Stock;
and

- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.

The "Average Market Price" per share of Common Stock on any date means the
average Closing Price (as defined below) of a share of Common Stock on the 20
Trading Days (as defined below) immediately prior to but not including such
date. The formula will be subject to adjustment in certain events. See "-- The
Contracts -- Dilution Adjustments". For purposes of the first part of the
formula, the Exchange Rate will be rounded upward or downward to the nearest
1/10,000 (or if there is not a nearest 1/10,000, to the next lower 1/10,000).
Holders otherwise entitled to receive fractional shares in respect of their
aggregate holdings of Securities will receive cash in lieu thereof. See
"-- Trust Termination".

The "Closing Price" of the Common Stock on any date of determination means
the daily closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the Common Stock as reported on the NYSE Consolidated
Tape on such date of determination or, if the Common Stock is not listed for
trading on the NYSE on any such date, as reported in the composite transactions
for the principal United States securities exchange on which the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ National Market or,
if the Common Stock is not so reported, the last

8
<PAGE> 9

quoted bid price for the Common Stock in the over-the-counter market as reported
by the National Quotation Bureau or similar organization, provided that if any
event that results in an adjustment to the number of shares of Common Stock
deliverable under the Contracts as described under "-- The Contracts -- Dilution
Adjustments" occurs prior to the Exchange Date, the Closing Price as determined
pursuant to the foregoing will be appropriately adjusted to reflect the
occurrence of such event.

A "Trading Day" means a day on which the Common Stock (A) is not suspended
from trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of such
security.

A fundamental policy of the Trust is to invest at least 70% of its total
assets in the Contracts. The Trust has also adopted a fundamental policy that
the Contracts may not be disposed of during the term of the Trust and that the
U.S. Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust. The
foregoing investment objective and policies are fundamental policies of the
Trust that may not be changed without the approval of a majority of the Trust's
outstanding Securities. A "majority of the Trust's outstanding Securities" means
the lesser of (i) 67% of the Securities represented at a meeting at which more
than 50% of the outstanding Securities are represented, and (ii) more than 50%
of the outstanding Securities.

The value of the Common Stock (or, after a Reorganization Event, the
Marketable Securities or cash or a combination thereof deliverable in respect
thereof) that will be received by Holders in respect of the Securities on the
Exchange Date may be more or less than the amount paid for the Securities
offered hereby.

For illustrative purposes only, the following chart shows the number of
shares of Common Stock that a Holder would receive for each Security at various
Average Market Prices. The chart assumes that there would be no adjustments to
the number of shares of Common Stock deliverable under the Contracts by reason
of the occurrence of any of the events described under "-- The Contracts --
Dilution Adjustments". There can be no assurance that the Average Market Price
on the Exchange Date will be within the range set forth below. Given the Initial
Price of $23.4375 per Security and the Appreciation Threshold Price of $26.9531,
a Holder would receive in connection with the exchange of Securities on the
Exchange Date the following number of shares of Common Stock:

<TABLE>
<CAPTION>
AVERAGE MARKET PRICE NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
- - -------------------- ----------------
<S> <C>
29.0000 0.8696
26.9531 0.8696
25.0000 0.9375
23.4375 1.0000
20.0000 1.0000
19.0000 1.0000
</TABLE>

9
<PAGE> 10

The following table sets forth information regarding the distributions to
be received on the U.S. Treasuries to be acquired by the Trust with a portion of
the proceeds of the Offering (assuming no exercise of the Underwriters'
overallotment option), the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax purposes and the
amount of original issue discount accruing (assuming a yield-to-maturity accrual
election in respect of any short-term U.S. Treasury securities) on such U.S.
Treasuries with respect to a Holder who acquires its Securities at the issue
price from an Underwriter pursuant to the original offering. See "Certain
Federal Income Tax Considerations -- Recognition of Interest on the U.S.
Treasury Securities".

<TABLE>
<CAPTION>
ANNUAL GROSS
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ANNUAL INCLUSION OF
DISTRIBUTIONS FROM U.S. TREASURIES CAPITAL PER ORIGINAL ISSUE DISCOUNT
YEAR U.S. TREASURIES PER SECURITY SECURITY IN INCOME PER SECURITY
- - -------------------- ------------------ ------------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
1998................ $ 15,059,725 $1.4609 $1.2367 $0.2243
1999................ 19,931,990 1.9336 1.7614 0.1722
2000................ 19,931,990 1.9336 1.8556 0.0780
2001................ 4,982,997 0.4834 0.4792 0.0042
</TABLE>

The annual distribution of $1.9336 per Security is payable quarterly on
each February 15, May 15, August 15, and November 15, commencing May 15, 1998.
Quarterly distributions on the Securities will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Common Stock. See "Management and
Administration of the Trust -- Distributions".

ENHANCED YIELD; LESS EQUITY APPRECIATION THAN COMMON STOCK; NO DEPRECIATION
PROTECTION

Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Common Stock. However, there is no assurance that
the yield on the Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less than that
afforded by an investment in the Common Stock because Holders will realize no
equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is below the Appreciation Threshold Price (which represents an
appreciation of 115% of the Initial Price). Moreover, because Holders will only
receive 0.8696 shares of Common Stock per Security if the Average Market Price
exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange 86.96% (the percentage equal to the Initial Price divided
by the Appreciation Threshold Price) of any appreciation of the value of the
Common Stock in excess of the Appreciation Threshold Price. Holders of
Securities will realize the entire decline in value if the Average Market Price
on the Exchange Date is less than the Initial Price, which is equal to the price
to the public per Security shown on the cover page hereof.

THE COMPANY

The shares of Common Stock are traded on the New York Stock Exchange. The
following table sets forth, for the periods indicated, the reported high and low
sales prices of the shares of Common Stock on the New York Stock Exchange
Composite Tape and the cash dividends per share of Common Stock.

10
<PAGE> 11

<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW PER SHARE
--- --- ---------
<S> <C> <C> <C>
Fiscal Year ended June 30, 1996
1st Quarter.................................................. $47 7/8 $43 7/8 $ 0.40
2nd Quarter.................................................. 52 46 3/4 0.45
3rd Quarter.................................................. 51 3/8 45 1/4 0.45
4th Quarter.................................................. 47 3/4 40 1/2 0.45
Fiscal Year ended June 30, 1997
1st Quarter.................................................. $43 3/4 $38 1/4 $ 0.45
2nd Quarter.................................................. 41 1/4 34 0.45
3rd Quarter.................................................. 41 28 3/4 0.45
4th Quarter.................................................. 30 22 1/8 0.45
Fiscal Year ending June 30, 1998
1st Quarter.................................................. $30 9/16 $24 1/2 $ 0.225
2nd Quarter.................................................. 31 1/2 20 7/8 0.225
3rd Quarter (through February 10, 1998)...................... 25 3/8 22 3/8 0.225
</TABLE>

Holders will not be entitled to rights with respect to the Common Stock
(including, without limitation, rights to receive dividends or other
distributions in respect thereof) until receipt of shares of Common Stock by the
Holders as a result of the exchange of the Securities for the Common Stock on
the Exchange Date.

Reference is made to the Company Prospectus (pages A-1 through A-40 hereto)
which describes the Company and the shares of Common Stock deliverable to the
Holders upon mandatory exchange of the Securities on the Exchange Date. The
Company is not affiliated with the Trust and will not receive any of the
proceeds from the sale of the Securities. The Company Prospectus relates to an
aggregate of 10,308,257 shares of Common Stock (plus an additional 1,546,239
shares that may be delivered upon exercise of the Underwriters' over-allotment
option).

THE CONTRACTS

GENERAL. The Trust will enter into a Contract with each Seller obligating
that Seller to deliver to the Trust on the Exchange Date a number of shares of
Common Stock equal to the product of the Exchange Rate times the initial number
of shares of Common Stock subject to such Contract. The aggregate initial number
of shares of Common Stock under the Contracts will equal the aggregate number of
Securities offered hereby (subject to increase in the event the Underwriters
exercise their over-allotment option).

The purchase price of the Contracts was arrived at by arm's-length
negotiation between the Trust and the Sellers taking into consideration factors
including the price, expected dividend level and volatility of the Common Stock,
current interest rates, the term of the Contracts, current market volatility
generally, the collateral security pledged by the Sellers, the value of other
similar instruments and the costs and anticipated proceeds of the offering of
the Securities. All matters relating to the administration of the Contracts will
be the responsibility of either the Administrator or the Custodian.

DILUTION ADJUSTMENTS. The Exchange Rate is subject to adjustment if the
Company (i) pays a stock dividend or makes a distribution with respect to the
Common Stock in shares of such stock, (ii) subdivides or splits its outstanding
shares of Common Stock, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issues by reclassification of its
shares of Common Stock any shares of other common stock of the Company. In any
such event, the Exchange Rate shall be adjusted as follows: for each share of
Common Stock that would have been issuable upon exchange prior to the
adjustment, the Holder will receive the number of shares of Common Stock (or, in
the case of a reclassification referred to in clause (iv) above, the number of
shares of other common stock of the Company issued pursuant thereto), or
fraction thereof, that a

11
<PAGE> 12

shareholder who held one share of Common Stock immediately prior to such event
would be entitled solely by reason of such event to hold immediately after such
event.

In addition, if the Company issues rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Then-Current Market Price of the Common Stock
(as defined below) (other than rights to purchase Common Stock pursuant to a
plan for the reinvestment of dividends or interest), then the Exchange Rate
shall be adjusted pursuant to the following formula:

where

ER = the Exchange Rate prior to the adjustment;

OS = the number of shares of Common Stock outstanding immediately prior to
the time (determined as described below) the adjustment is calculated
by reason of the issuance of such rights or warrants;

AS = the number of additional shares offered for subscription or purchase
pursuant to such rights or warrants; and

PS = the number of additional shares that the aggregate offering price of
the shares so offered for subscription or purchase would purchase at
the Then-Current Market Price.

To the extent that, after expiration of such rights or warrants, the shares
offered thereby shall not have been delivered, the Exchange Rate shall be
further adjusted to equal the Exchange Rate that would have been in effect had
the foregoing adjustment been made upon the basis of delivery of only the number
of shares of Common Stock actually delivered.

The "Then-Current Market Price" of the Common Stock means the average
Closing Price per share of Common Stock for a Calculation Period (defined below)
of five Trading Days immediately prior to the time such adjustment is effected
(or, in the case of an adjustment effected at the opening of business on the
business day following a record date, as described below, immediately prior to
the earlier of the time such adjustment is effected and the related "ex-date" on
which the shares of Common Stock first trade regular way on their principal
market without the right to receive the relevant dividend, distribution or
issuance); provided that if no Closing Price for the Common Stock is determined
for one or more (but not all) of such Trading Days, such Trading Day shall be
disregarded in the calculation of the Then-Current Market Price (but no
additional Trading Days shall be added to the Calculation Period). If no Closing
Price for the Common Stock is determined for any of such Trading Days, the most
recently available Closing Price for the Common Stock prior to such five Trading
Days shall be the Then-Current Market Price. "Calculation Period" means any
period of Trading Days for which an average security price must be determined
pursuant to the Contracts.

In addition, if the Company pays a dividend or makes a distribution to all
holders of Common Stock, in either case, of evidences of its indebtedness or
other non-cash assets (excluding any stock dividends or distributions in shares
of Common Stock) or issue to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in the second paragraph of this subsection), then the Exchange Rate
shall be adjusted pursuant to the following formula:

where

ER = the Exchange Rate prior to adjustment;

T = the Then-Current Market Price per share of Common Stock; and

12
<PAGE> 13

V = the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) as of the time the adjustment is calculated of the
portion of such evidences of indebtedness, non-cash assets or rights
or warrants payable in respect of one share of Common Stock.

In addition, if the Company distributes cash (other than an Excluded
Distribution ), by dividend or otherwise, to all holders of Common Stock or
makes an Excess Purchase Payment, then the Exchange Rate shall be adjusted
pursuant to the following formula:

where

ER = the Exchange Rate prior to adjustment;

T = the Then-Current Market Price on the record date in respect of such
distribution; and

D = the amount of such distribution applicable to one share of Common
Stock that would not be a Permitted Dividend (or in the case of an
Excess Purchase Payment, the aggregate amount of such Excess Purchase
Payment divided by the number of outstanding shares of Common Stock on
such record date).

For purposes of these adjustments,

(a) the term "Excluded Distribution" means any Permitted Dividend, any
cash distributed in consideration of fractional shares of Common Stock and
any cash distributed in a Reorganization Event;

(b) the term "Permitted Dividend" means any quarterly cash dividend in
respect of the Common Stock, other than a quarterly cash dividend that
exceeds the immediately preceding quarterly cash dividend, and then only to
the extent that the per share amount of such dividend results in an
annualized dividend yield on the Common Stock in excess of 10%; and

(c) the term "Excess Purchase Payment" means the excess, if any, of
(i) the cash and the value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator, whose determination shall be conclusive) of all other
consideration paid by the Company with respect to one share of Common Stock
acquired in a tender offer or exchange offer by the Company over (ii) the
Then-Current Market Price per share of Common Stock.

* If any adjustment in the Exchange Rate is required to be calculated as
described above, corresponding proportionate adjustments to the Initial Price
and the Appreciation Threshold Price shall be calculated.

Dilution adjustments shall be effected: (i) in the case of any dividend,
distribution or issuance described above, at the opening of business on the
business day following the record date for determination of holders of Common
Stock entitled to receive such dividend, distribution or issuance or, if the
announcement of any such dividend, distribution or issuance is after such record
date, at the time such dividend, distribution or issuance shall be announced by
the Company; (ii) in the case of any subdivision, split, combination or
reclassification described above, on the effective date of such transaction;
(iii) in the case of any Excess Purchase Payment for which the Company shall
announce, at or prior to the time it commences the relevant share repurchase,
the repurchase price for such shares to be repurchased, on the date of such
announcement; and (iv) in the case of any other Excess Purchase Payment, on the
date that the holders of Common Stock become entitled to payment with respect
thereto. There will be no adjustment under the Contracts in respect of any
dividends, distributions, issuances or repurchases that may be declared or
announced after the Exchange Date. If any announcement or declaration of a
record date in respect of a dividend, distribution, issuance or repurchase shall
subsequently be canceled by the Company, or such

13
<PAGE> 14

dividend, distribution, issuance or repurchase shall fail to receive requisite
approvals or shall fail to occur for any other reason, then the Exchange Rate
shall be further adjusted to equal the Exchange Rate that would have been in
effect had the adjustment for such dividend, distribution, issuance or
repurchase not been made. If after an announcement of a share repurchase, the
Company reduces the repurchase price or repurchases fewer shares than announced,
upon completion of such share repurchase, the Exchange Rate shall be further
adjusted to equal the Exchange Rate that would have been in effect had the
adjustment for such repurchase been based on the actual price and amount
repurchased. All adjustments described herein shall be rounded upward or
downward to the nearest 1/10,000 (or if there is not a nearest 1/10,000, to the
next lower 1/10,000). No adjustment in the Exchange Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent therein; provided, however, that any adjustments which by reason of the
foregoing are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.

In the event of a Reorganization Event, the Exchange Rate will be adjusted
such that, on the Exchange Date, each Holder will receive for each Security cash
in an amount equal to:

(i) if the Transaction Value (as defined below) is less than the
Appreciation Threshold Price but equal to or greater than the Initial
Price, the Initial Price,

(ii) if the Transaction Value is greater than or equal to the
Appreciation Threshold Price, 0. multiplied by the Transaction Value, and

(iii) if the Transaction Value is less than the Initial Price, the
Transaction Value;

provided, however, that if the consideration received by holders of Common Stock
in such Reorganization Event includes securities or other property (other than
Marketable Securities), then a majority in interest of the Sellers may, at their
option (by joint notice delivered to the Administrator not later than the date
of consummation of such Reorganization Event), elect to accelerate the Contracts
by delivering to the Trust (as promptly as practicable after receipt thereof by
the Sellers) the Applicable Portion of the total consideration received in such
Reorganization Event in respect of the maximum number of shares of Common Stock
subject to the Contracts. In such event the Custodian will liquidate the U.S.
Treasury securities acquired by the Trust at closing of the Contracts and then
held by the Trust, and the proceeds of such liquidation, together with the total
consideration received by the Trust from the Sellers, will be distributed to the
Holders. "Applicable Portion", as applied to each type of consideration received
in a Reorganization Event, means that portion of such type of consideration
determined by multiplying the total amount of such consideration by a fraction,
the numerator of which is the cash amount determined to be payable as a result
of such Reorganization Event pursuant to the first sentence of this paragraph,
and the denominator of which is the Transaction Value.

In addition, to the extent that any Marketable Securities (as defined
below) are received by holders of Common Stock in such Reorganization Event,
then in lieu of delivering cash as provided above, the Sellers shall deliver a
proportional amount of such Marketable Securities on the Exchange Date. If the
Sellers deliver Marketable Securities on the Exchange Date, Holders will be
responsible for the payment of any and all brokerage and other transaction costs
upon the sale of such securities.

"Reorganization Event" means (A) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity of the Company
(a "Company Successor"), with or into another entity (other than a merger or
consolidation in which the Company is the continuing corporation and in which
the Common Stock outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of the Company or another
corporation), (B) any sale, transfer, lease or conveyance to another corporation
of the property of the Company or any Company Successor as an entirety or
substantially as an entirety, (C) any statutory exchange of securities of the
Company or any Company Successor with another

14
<PAGE> 15

corporation (other than in connection with a merger or acquisition) or (D) any
liquidation, dissolution or winding up of the Company or any Company Successor.

"Transaction Value" means (i) for any cash received in any such
Reorganization Event, the amount of cash received per share of Common Stock,
(ii) for any property other than cash or Marketable Securities received in any
such Reorganization Event, an amount equal to the market value on the date the
Reorganization Event is consummated of such property received per share of
Common Stock as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator (which determination
shall separately identify the value ascribed to each different type of
consideration received) and (iii) for any Marketable Securities received in any
such Reorganization Event, an amount equal to the average Closing Price per
share of such securities on the 20 Trading Days immediately prior to the
Exchange Date multiplied by the number of such securities received for each
share of Common Stock; provided that if no Closing Price for such Marketable
Securities is determined for one or more (but not all) of such Trading Days,
such Trading Days shall be disregarded in the calculation of such average
Closing Price (but no additional Trading Days shall be added to the Calculation
Period). If no Closing Price for the Marketable Securities is determined for all
such Trading Days, the calculation in the preceding clause (iii) shall be based
on the most recently available Closing Price for the Marketable Securities prior
to such 20 Trading Days. The number of shares of Marketable Securities included
in the calculation of Transaction Value for purposes of the preceding clause
(iii) shall be subject to adjustment if a dilution event of the type described
above shall occur with respect to the issuer of the Marketable Securities
between the time of the Reorganization Event and the Exchange Date.

Notwithstanding the foregoing, if the consideration received by holders of
Common Stock in a Reorganization Event includes securities (other than
Marketable Securities) for which a bona fide trading market exists, then at the
close of business on the 20th Trading Day after consummation of such
Reorganization Event, the Transaction Value shall be recomputed (and a
corresponding adjustment shall be effected to the Exchange Rate) on the basis of
such securities' having a market value equal to the average of the high and low
sale prices of such securities (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) on each of the 20 Trading Days to and including such 20th Trading
Day.

For purposes of determining Transaction Value, the term "Trading Day" and
"Closing Price" will have the same meaning, as applied to the Marketable
Securities, as these terms have as applied to the Common Stock for purposes of
determining the Average Market Price.

"Marketable Securities" means any common equity securities (whether voting
or non-voting) listed on a U.S. national securities exchange or reported by The
NASDAQ National Market that are received by the holders of Common Stock in a
Reorganization Event.

No dilution adjustments will be made for events, other than those described
above, such as offerings of Common Stock (other than through the issuance of
rights or warrants described above) for cash or in connection with acquisitions.

COLLATERAL ARRANGEMENTS; ACCELERATION. Each Seller's obligations under the
Contract between such Seller and the Trust initially will be secured by a
security interest in the maximum number of shares of Common Stock subject to
such Contract (subject to adjustment in accordance with the dilution adjustment
provisions of such Contract, described above), pursuant to a Collateral
Agreement between such Sellers and The Bank of New York, as collateral agent
(the "Collateral Agent"). The Collateral Agreements will provide that, in the
event of a Reorganization Event, each Seller will pledge as alternative
collateral any Marketable Securities received by it in respect of the maximum
number of shares of Common Stock subject to its Contract at the time of the
Reorganization Event, plus cash in an amount equal to 100% of such Seller's Cash
Delivery Obligations (or U.S. Government obligations having an aggregate market
value when pledged and at daily mark-to-market valuations thereafter of not less
than 105% thereof). The Collateral Agent will be required,

15
<PAGE> 16

under the Collateral Agreements, to invest any such cash in U.S. Treasury
securities maturing on or before February 15, 2001. A Seller's "Cash Delivery
Obligations" shall be the Transaction Value of any consideration other than
Marketable Securities received by such Seller in respect of the maximum number
of shares subject to its Contract at the time of the Reorganization Event. The
number of shares of Marketable Securities required to be pledged shall be
subject to adjustment if any event requiring a dilution adjustment under the
Contracts shall occur. The Collateral Agent will promptly pay over to each
Seller any dividends, interest, principal or other payments received by the
Collateral Agent in respect of any collateral pledged by such Seller, unless
such Seller is in default of its obligations under its Collateral Agreement, or
unless the payment of such amount to such Seller would cause the collateral to
become insufficient under its Collateral Agreement. Each Seller shall have the
right to vote any pledged shares of Marketable Securities for so long as such
shares are owned by it and pledged under its Collateral Agreement, including
after an event of default under such Seller's Contract or Collateral Agreement.

A "Collateral Event of Default" under such Seller's Collateral Agreement
shall mean, at any time, (A) failure of the collateral to consist of at least
the maximum number of shares of Common Stock subject to such Seller's Contract
at such time (or, if a Reorganization Event shall have occurred at or prior to
such time, failure of the collateral to include the maximum number of shares of
any Marketable Securities required to be pledged as described above); and (B) at
any time after a Reorganization Event in which consideration other than
Marketable Securities shall have been delivered, failure of any U.S. Government
obligations pledged in respect of Cash Delivery Obligations to have a market
value at such time of at least 105% of such Cash Delivery Obligations, if such
failure shall not be cured within one business day after notice thereof is
delivered to such Seller.

The occurrence of a Collateral Event of Default under a Collateral
Agreement, or the bankruptcy or insolvency of a Seller, will cause an automatic
acceleration of such Seller's obligations under its Contract. In any such event,
such Seller will become obligated to deliver the initial number of shares of
Common Stock (or, after a Reorganization Event, the Marketable Securities or
cash or a combination thereof deliverable in respect thereof) subject to such
Seller's Contract.

Upon any acceleration under a Collateral Agreement, (i) the Collateral
Agent will distribute to the Trust, for distribution pro rata to the Holders,
the shares of Common Stock then pledged by the Defaulting Seller (or, after a
Reorganization Event, the Marketable Securities then pledged by the defaulting
Seller, cash generated from the liquidation of U.S. Government obligations then
pledged by the defaulting Seller, or a combination thereof) and (ii) the
Custodian will liquidate a proportionate amount of the U.S. Treasury securities
acquired by the Trust at closing and then held by the Trust and distribute the
proceeds pro rata to the Holders. Following any distributions upon acceleration
and liquidation in accordance with the foregoing sentence, the number of shares
of Common Stock or Marketable Securities, as applicable, deliverable to Holders
on the Exchange Date will be proportionately reduced. See "-- Trust
Termination".

DESCRIPTION OF THE SELLERS. The Sellers are Lila Acheson and Dewitt
Wallace Fund for Lincoln Center, Dewitt Wallace Fund for Macalester College,
Community Funds, Inc., Lila Acheson and Dewitt Wallace Fund for the Hudson
Highlands, Lila Acheson Wallace Fund for the New York Zoological Society, and
Dewitt Wallace Fund for Memorial Sloan-Kettering Cancer Center. Reference is
made to the caption "Principal and Selling Stockholders" in the Company
Prospectus for information about the Sellers.

THE U.S. TREASURY SECURITIES

The Trust will purchase and hold a series of zero-coupon ("stripped") U.S.
Treasury securities with face amounts and maturities corresponding to the
distributions payable with respect to the Securities and the payment dates
thereof. Up to 30% of the Trust's total assets may be invested in these U.S.
Treasury Securities. In the event that any Contract is accelerated, then a
proportionate amount of such U.S. Treasury securities then held in the Trust
shall be liquidated by the Administra-

16
<PAGE> 17

tor and the proceeds thereof distributed pro rata to the Holders, together with
the amounts distributed upon acceleration. See "-- Collateral Arrangements;
Acceleration" and "-- Trust Termination".

TEMPORARY INVESTMENTS

For cash management purposes, the Trust may invest the proceeds of the U.S.
Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
preceding the next following distribution date. Not more than 5% of the Trust's
total assets will be invested in such short-term obligations or held in cash at
any one time.

INVESTMENT RESTRICTIONS

As a matter of fundamental policy, the Trust may not purchase any
securities or instruments other than the U.S. Treasury securities, the Contracts
and the Common Stock or other assets received pursuant to the Contracts and, for
cash management purposes, short-term obligations of the U.S. Government; issue
any securities or instruments except for the Securities; make short sales or
purchase securities on margin; write put or call options; borrow money;
underwrite securities; purchase or sell real estate, commodities or commodities
contracts including futures contracts; or make loans (other than the purchase of
stripped U.S. Treasury securities as described in this Prospectus). The Trust
also has adopted a fundamental policy that the Contracts may not be disposed of
during the term of the Trust and that the U.S. Treasury securities held by the
Trust may not be disposed of prior to the earlier of their respective maturities
and the termination of the Trust.

Because of the foregoing limitations, the Trust's investments will be
concentrated in the publishing and direct marketing industries, which are the
industries in which the Company operates. The Trust is not permitted to purchase
restricted securities.

TRUST TERMINATION

The Trust will terminate automatically on or shortly after the Exchange
Date. Alternatively, in the event that all Contracts are accelerated, then any
U.S. Treasury securities then held in the Trust shall be liquidated by the
Administrator and the proceeds distributed pro rata to the Holders, together
with the amounts distributed upon acceleration, and the Trust shall be
terminated. See "-- Collateral Arrangements; Acceleration" and "-- The U.S.
Treasury Securities".

17
<PAGE> 18

RISK FACTORS

INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT

The Trust will be internally managed by its Trustees and will not have any
separate investment adviser. It is a fundamental policy of the Trust that the
Contracts may not be disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust. As a
result, the Trust will continue to hold the Contracts despite significant
declines in the market price of the Common Stock or adverse changes in the
financial condition of the Company (or, after a Reorganization Event, comparable
developments affecting any Marketable Securities or the issuer thereof). The
Trust will not be managed like a typical closed-end investment company.

LIMITED APPRECIATION POTENTIAL; COMMON STOCK DEPRECIATION RISK

The Trust anticipates that on the Exchange Date, it will receive the Common
Stock deliverable pursuant to the Contracts, which it will then distribute to
Holders. Although the yield on the Securities is higher than the current
dividend yield on the Common Stock, there is no assurance that the yield on the
Securities will be higher than the dividend yield on the Common Stock over the
term of the Trust. In addition, because the Contracts call for the Sellers to
deliver less than the full number of shares of Common Stock subject to the
Contracts where the Average Market Price exceeds the Initial Price (and
therefore less than one full share of Common Stock for each outstanding
Security), the Securities have more limited appreciation potential than the
Common Stock. Therefore, the Securities may trade below the value of the Common
Stock if the Common Stock appreciates in value. The value of the Common Stock to
be received by Holders on the Exchange Date may be less than the amount paid for
the Securities. Holders of Securities will realize the entire decline in value
if the Average Market Price is less than the Initial Price, which is equal to
the price to public per Security shown on the cover page hereof.

DILUTION ADJUSTMENTS; SHAREHOLDER RIGHTS

The number of shares of Common Stock that Holders are entitled to receive
at the termination of the Trust is subject to adjustment for certain events
arising from stock splits and combinations, stock dividends and certain other
actions of the Company that modify its capital structure. See "Investment
Objective and Policies -- The Contracts -- Dilution Adjustments". The number of
shares to be received by Holders may not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions, that may
adversely affect the price of the Common Stock and, because of the relationship
of the amount to be received pursuant to the Contracts to the price of the
Common Stock, such other events may adversely affect the trading price of the
Securities. There can be no assurance that the Company will not take any of the
foregoing actions, or that it will not make offerings of, or that major
shareholders will not sell any, Common Stock in the future, or as to the amount
of any such offerings or sales. In addition, until the receipt of the Common
Stock by Holders as a result of the exchange of the Securities for the Common
Stock, Holders will not be entitled to any rights with respect to the Common
Stock (including without limitation the right to receive any dividends or other
distributions in respect thereof).

TRADING VALUE; LISTING

The Trust is a special-purpose closed-end investment company with no
previous operating history and the Securities are innovative securities. It is
not possible to predict how the Securities will trade in the secondary market.
The trading price of the Securities may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the Common Stock
(which may occur due to changes in the Company's financial condition, results of
operations or prospects, or because of complex and interrelated political,
economic, financial and other factors

18
<PAGE> 19

that can affect the capital markets generally, the stock exchanges or quotation
systems on which the Common Stock is traded and the market segment of which the
Company is a part) and fluctuations in interest rates and other factors that are
difficult to predict and beyond the Trust's control. The Trust believes,
however, that because of the yield on the Securities and the formula for
determining the number of shares of Common Stock to be delivered on the Exchange
Date, the Securities will tend to trade at a premium to the market value of the
Common Stock to the extent the Common Stock price falls and at a discount to the
market value of the Common Stock to the extent the Common Stock price rises.
There can, however, be no assurance that the Securities will trade at a premium
to the market value of the Common Stock.

Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of investments in a closed-end
investment company is a risk separate and distinct from the risk that the
Trust's net asset value will decrease. The Trust cannot predict whether its
shares will trade at, below or above net asset value. The risk of purchasing
investments in a closed-end investment company that might trade at a discount
may be greater for investors who wish to sell their investments soon after
completion of an initial public offering because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.

The representatives of the Underwriters currently intend, but are not
obligated, to make a market in the Securities. There can be no assurance that a
secondary market will develop or, if a secondary market does develop, that it
will provide the Holders with liquidity of investment or that it will continue
for the life of the Securities. The representatives of the Underwriters may
cease to make a market in the Securities at any time without notice. Application
will be made to list the Securities on the NYSE. Assuming the acceptance of such
application, there can be no assurance that the Securities will not later be
delisted or that trading in the Securities on the NYSE will not be suspended. In
the event of a delisting or suspension of trading on such exchange, the Trust
will apply for listing of the Securities on another national securities exchange
or for quotation on another trading market. If the Securities are not listed or
traded on any securities exchange or trading market, or if trading of the
Securities is suspended, pricing information for the Securities may be more
difficult to obtain, and the price and liquidity of the Securities may be
adversely affected.

NON-DIVERSIFIED STATUS

The Trust is considered non-diversified under the Investment Company Act,
which means that the Trust is not limited in the proportion of its assets that
may be invested in the obligations of a single issuer. Since the only assets
held or received by the Trust will be U.S. Treasury securities and the Contracts
or other assets consistent with the terms of the Contracts, the Trust will be
subject to greater risk than would be the case for an investment company with
diversified investments.

DESCRIPTION OF THE SECURITIES

Each Security represents an equal proportional interest in the Trust, and a
total of 10,308,257 Securities will be issued (assuming no exercise of the
Underwriters' overallotment option). Upon liquidation of the Trust, Holders are
entitled to share pro rata in the net assets of the Trust available for
distribution. The Securities have no preemptive, redemption or conversion
rights. Securities are fully paid and nonassessable by the Trust. The only
securities that the Trust is authorized to issue are the Securities offered
hereby and those sold to the initial Holder referred to below. See
"Underwriting".

Holders are entitled to a full vote for each Security held on all matters
to be voted on by Holders and are not able to cumulate their votes in the
election of Trustees. The Trustees of the Trust have been selected initially by
Goldman Sachs, as the initial Holder of Securities of the Trust. The Trust
intends to hold annual meetings as required by the rules of the NYSE. The
Trustees may call special meetings of Holders for action by Holder vote as may
be required by either the Investment Company

19
<PAGE> 20

Act or the Amended and Restated Trust Agreement. The Holders have the right,
upon the declaration in writing or vote of more than two-thirds of the
outstanding Securities, to remove a Trustee. The Trustees will call a meeting of
Holders to vote on the removal of a Trustee upon the written request of the
Holders of record of 10% of the Securities or to vote on other matters upon the
written request of the Holders of record of 51% of the Securities (unless
substantially the same matter was voted on during the preceding 12 months). The
Trustees shall establish, and notify the Holders in writing of, the record date
for each such meeting which shall be not less than 10 nor more than 50 days
before the meeting date. Holders at the close of business on the record date
will be entitled to vote at the meeting. The Trust will also assist in
communications with other Holders as required by the Investment Company Act.

In calculating the net asset value of the Trust as required by the
Investment Company Act, the Amended and Restated Trust Agreement provides that
(i) the Treasury Securities will be valued at the mean between the last current
bid and asked prices or, if quotations are not available, as determined in good
faith by the Trustees, (ii) short-term investments having a maturity of 60 days
or less will be valued at cost with accrued interest or discount earned included
in interest receivable and (iii) the Contracts will be valued on the basis of
the bid price received by the Trust in respect of the Contracts, or any portion
thereof covering not less than 1,000 shares, from an independent broker-dealer
firm unaffiliated with the Trust to be named by the Trustees who is in the
business of making bids on financial instruments similar to the Contracts and
with terms comparable thereto, or if such a bid quotation is not available, as
determined in good faith by the Trustee.

BOOK-ENTRY-ONLY ISSUANCE

The Depository Trust Company ("DTC") will act as securities depository for
the Securities. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
offered hereby will be issued only as fully-registered securities registered in
the name of Cede & Co. (as nominee for DTC). One or more fully-registered global
Security certificates will be issued, representing in the aggregate the total
number of Securities, and will be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). Access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants").

Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of a Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except upon a resignation of DTC.

20
<PAGE> 21

DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.

Payments on the Securities will be made to DTC. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Trust, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.

Except as provided herein, a Beneficial Owner of an interest in a global
Security will not be entitled to receive physical delivery of Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.

DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, certificates representing the Securities will be printed and
delivered.

21
<PAGE> 22

MANAGEMENT AND ADMINISTRATION OF THE TRUST

TRUSTEES

The Trust will be internally managed by three Trustees, none of which is an
"interested person" of the Trust as defined in the Investment Company Act. Under
the provisions of the Code applicable to grantor trusts, the Trustees will not
have the power to vary the investments held by the Trust. It is a fundamental
policy of the Trust that the Contracts may not be disposed of during the term of
the Trust and that the U.S. Treasury Securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities and termination
of the Trust.

The names of the persons who have been elected by Goldman Sachs, the
initial Holder of securities of the Trust, and who will serve as the Trustees
are set forth below. The positions and the principal occupations of the
individual Trustees during the past five years are also set forth below.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- - ------------------------------------------------ ----------------- -----------------------
<S> <C> <C>
Donald J. Puglisi, 50........................... MANAGING TRUSTEE Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51....................... TRUSTEE Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 57............................ TRUSTEE Professor of Economics
Center for Education & Entrepreneurship University of Delaware
University of Delaware
Newark, DE 19716
</TABLE>

Each Trustee who is not a director, officer or employee of any Underwriter
or the Administrator, or of any affiliate thereof, will be paid by the Sellers,
on behalf of the Trust, in respect of its annual fee and anticipated
out-of-pocket expenses, a one-time, up-front fee of $10,800. The Trust's
Managing Trustee will also receive an additional up-front fee of $3,600 for
serving in that capacity. The Trustees will not receive, either directly or
indirectly, any other compensation, including any pension or retirement
benefits, from the Trust. None of the Trustees receives any compensation for
serving as a trustee or director of any other affiliated investment company.

ADMINISTRATOR

The day-to-day affairs of the Trust will be managed by The Bank of New York
as Trust Administrator pursuant to an Administration Agreement. Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, the duties to: (i)
receive invoices for expenses incurred by the Trust; (ii) with the approval of
the Trustees, engage legal and other professional advisors (other than the
independent public accountants for the Trust); (iii) instruct the Paying Agent
to pay distributions on Securities as described herein; (iv) prepare and mail,
file or publish all notices, proxies, reports, tax returns and other
communications and documents, and keep all books and records, for the Trust; (v)
at the direction of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce the rights and remedies of the Trust; and
(vi) make all necessary arrangements with respect to meetings of Trustees and
any meetings of Holders. The Administrator, however, will not select the
independent public accountants for the Trust or sell or otherwise dispose of the
Trust assets (except in connection with an acceleration of a Contract or the
settlement of the Contracts and upon termination of the Trust).

22
<PAGE> 23

The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days' prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.

Except for its roles as Administrator, Custodian, Paying Agent, registrar
and transfer agent for the Trust, The Bank of New York has no other affiliation
with, and is not engaged in any other transactions with, the Trust.

The address of the Administrator is 101 Barclay Street, New York, New York
10286.

CUSTODIAN

The Trust's custodian (the "Custodian") is The Bank of New York pursuant to
a custodian agreement (the "Custodian Agreement"). In the event of any
termination of the Custodian Agreement by the Trust or the resignation of the
Custodian, the Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by the Custodian
in short-term U.S. Treasury securities maturing on or shortly before the next
quarterly distribution date. The Custodian will also act as collateral agent
under the Collateral Agreements and will hold a perfected security interest in
the Common Stock or other assets consistent with the terms of the Contracts.

PAYING AGENT

The transfer agent, registrar and paying agent (the "Paying Agent") for the
Securities is The Bank of New York pursuant to a paying agent agreement (the
"Paying Agent Agreement"). In the event of any termination of the Paying Agent
Agreement by the Trust or the resignation of the Paying Agent, the Trust will
use its best efforts to engage a new Paying Agent to carry out the duties of the
Paying Agent.

INDEMNIFICATION

The Trust will indemnify each Trustee, the Paying Agent, the Administrator
and the Custodian, with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
that it may incur in acting as Trustee, Paying Agent, Administrator or
Custodian, as the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits such indemnification. Goldman Sachs has agreed to
reimburse the Trust for any amounts it may be required to pay as indemnification
to any Trustee, the Administrator, the Custodian or the Paying Agent.

DISTRIBUTIONS

The Trust intends to distribute to Holders on a quarterly basis an amount
equal to $0.4834 per Security (which amount equals the pro rata portion of the
fixed quarterly cash distributions from the proceeds of the maturing U.S.
Treasury securities held by the Trust). The first distribution, reflecting the
Trust's operations from the date of this offering, will be made on May 15, 1998
to Holders of record as of May 1, 1998. Thereafter, distributions will be made
on February 15, May 15, August 15, and November 15 of each year to Holders of
record as of each February 1, May 1, August 1 and November 1, respectively. A
portion of each such distribution should be treated as a tax-free return of the
Holder's investment. See "Investment Objective and Policies -- General" and
"Certain Federal Income Tax Considerations -- Recognition of Interest on the
U.S. Treasury Securities".

Upon termination of the Trust, as described under the caption "Investment
Objective and Policies -- Trust Termination", each Holder will receive any
remaining net assets of the Trust.

The Trust does not permit the reinvestment of distributions.

23
<PAGE> 24

ESTIMATED EXPENSES

At the closing of this offering the Underwriters will pay to each of the
Administrator, the Custodian and the Paying Agent, and to each Trustee, a
one-time, up-front amount in respect of its fee and, in the case of the
Administrator, anticipated expenses of the Trust over the term of the Trust. The
anticipated Trust expenses to be borne by the Administrator include, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, Securities certificates and Holder reports, expenses of the
Trustees, fidelity bond coverage, stock exchange listing fees and expenses of
qualifying the Securities for sale in the various states. Organization costs of
the Trust in the amount of $10,000 and estimated costs of the Trust in
connection with the initial registration and public offering of the Securities
in the amount of $453,850 will be paid by the Underwriters. Other estimated
costs of the Trust in connection with the public offering of the Securities in
the amount of $146,150 will be paid by the Sellers.

The amount payable to the Administrator in respect of ongoing expenses of
the Trust was determined based on estimates made in good faith on the basis of
information currently available to the Trust, including estimates furnished by
the Trust's agents. There cannot, however, be any assurance that actual
operating expenses of the Trust will not be substantially more than this amount.
Any excess expenses will be paid by the Underwriters or, in the event of failure
by the Underwriters to pay such amounts, the Trust (which would reduce the
amount available for distributions to Holders of Securities).

24
<PAGE> 25

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following summary of the principal United States federal income tax
consequences of ownership of Securities is based upon the opinion of Sullivan &
Cromwell, counsel to the Trust. It deals only with Securities held as capital
assets by a Holder who acquires its Securities at the issue price from an
Underwriter pursuant to the original offering, and not with special classes of
Holders, such as dealers in securities or currencies, banks, life insurance
companies, persons who are not United States Holders (as defined below), persons
that hold Securities that are part of a hedging transaction, straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.

Prospective purchasers of Securities should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of ownership of Securities.

A United States Holder is a beneficial owner who or that is (i) a citizen
or resident of the United States, (ii) a domestic corporation or (iii) otherwise
subject to United States federal income taxation on a net income basis in
respect of Securities.

Sullivan & Cromwell believes the Contracts should be treated for federal
income tax purposes as prepaid forward contracts for the purchase of a variable
number of shares of Common Stock. Holders should be aware that there are
alternative characterizations of the Contracts which could result in different
federal income tax consequences, including that the Contracts represent a
current purchase by Holders of the Common Stock. While Sullivan & Cromwell does
not believe that any alternative characterizations should apply for federal
income tax purposes, Holders should consult their tax advisors in this regard.
The following discussion is based on treatment of the Contracts as prepaid
forward contracts:

TAX STATUS OF THE TRUST. The Trust will be treated as a grantor trust for
federal income tax purposes, and each Holder will be considered the owner of its
pro rata portions of the stripped U.S. Treasury securities and the Contracts in
the Trust under the grantor trust rules of the Code. Income received by the
Trust will be treated as income of the Holders in the manner set forth below.

RECOGNITION OF INTEREST ON THE U.S. TREASURY SECURITIES. The U.S. Treasury
securities in the Trust will consist of stripped U.S. Treasury securities. A
Holder will be required to treat its pro rata portion of each U.S. Treasury
security in the Trust as a bond that was originally issued on the date the
Holder purchased its Securities at an original issue discount equal to the
excess of the Holder's pro rata portion of the amounts payable on such U.S.
Treasury security over the Holder's tax basis therefor (determined as described
below). The amount of such excess, however, will constitute only a portion of
the total amounts payable in respect of U.S. Treasury securities held by the
Trust and, consequently, a substantial portion of each quarterly cash
distribution to the Holders will be treated as a tax-free return of the Holders'
investment in the U.S. Treasury securities and will not be considered current
income for federal income tax purposes. See "Investment Objective and
Policies -- General".

A Holder (whether on the cash or accrual method of tax accounting) will be
required to include original issue discount (other than original issue discount
on short-term U.S. Treasury securities as defined below) in income for federal
income tax purposes as it accrues on a constant yield basis. The Trust expects
that more than 20% of the Holders will be accrual basis taxpayers, in which case
original issue discount on any short-term U.S. Treasury security (i.e., any U.S.
Treasury security with a maturity of one year or less from the date it is
purchased) held by the Trust also will be required to be included in income by
the Holders as it is accrued. Unless a Holder elects to accrue the original
issue discount on a short-term U.S. Treasury security according to a constant
yield

25
<PAGE> 26

method based on daily compounding, such original issue discount will be accrued
on a straight-line basis. The Holder's tax basis in a U.S. Treasury security
will be increased by the amounts of any original issue discount included in
income by the Holder with respect to such U.S. Treasury security.

TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACTS. A Holder's
tax basis in the Contracts and the U.S. Treasury securities, respectively, will
equal its pro rata portion of the amounts paid for them by the Trust. It is
currently anticipated that 22.75% and 77.25% of the proceeds of the offering
will be used by the Trust to purchase the U.S. Treasury securities and as
payments for the Contracts, respectively.

TREATMENT OF THE CONTRACTS. Each Holder will be treated as having entered
into a pro rata portion of the Contracts and, at the Exchange Date, as having
received a pro rata portion of the Common Stock delivered to the Trust.

DISTRIBUTION OF THE COMMON STOCK. The delivery of Common Stock pursuant to
the Contracts will not be taxable to the Holders. Each Holder's basis in its
Common Stock will be equal to its basis in its pro rata portion of the
Contracts, less the portion of such basis allocable to any fractional shares of
Common Stock for which cash is received. A Holder will recognize capital gain or
loss upon receipt by the Trust of cash in lieu of fractional shares of Common
Stock equal to the difference between the Holder's allocable portion of the
amount of cash received and the Holder's basis in such fractional shares. The
holding period for the Common Stock will begin on the day after it is acquired
by the Trust.

DISTRIBUTION OF CASH FOLLOWING A REORGANIZATION EVENT. To the extent the
Trust receives cash following the occurrence of a Reorganization Event, a Holder
will recognize gain or loss equal to the difference between the Holder's
allocable portion of the amount of cash received and the Holder's aggregate tax
basis in its pro rata portion of the Contracts exchanged for such cash. Any gain
or loss will be long-term capital gain or loss if the Holder has held the
Securities for more than one year. Long-term capital gain of an individual
Holder will be subject to a maximum tax rate of 28% in respect of Securities
held for more than one year. The maximum rate is reduced to 20% in respect of
Securities held in excess of 18 months.

SALE OF SECURITIES. Upon a sale of all or some of a Holder's Securities, a
Holder will be treated as having sold its pro rata portions of the U.S. Treasury
securities and the Contracts underlying the Securities. The selling Holder will
recognize gain or loss equal to the difference between the amount realized and
the Holder's aggregate tax bases in its pro rata portions of the U.S. Treasury
securities and the Contracts. Any gain or loss will be long-term capital gain or
loss if the Holder has held the Securities for more than one year. Long-term
capital gain of an individual Holder will be subject to a maximum tax rate of
28% in respect of Securities held for more than one year. The maximum rate is
reduced to 20% in respect of Securities held in excess of 18 months.

BACKUP WITHHOLDING AND INFORMATION REPORTING. The payments of principal
and interest (including original issue discount) on, and the proceeds received
from the sale of, Securities may be subject to U.S. backup withholding tax at
the rate of 31% if the Holder thereof fails to supply an accurate taxpayer
identification number or otherwise to comply with applicable U.S. information
reporting or certification requirements. Any amounts so withheld will be allowed
as a credit against such Holder's U.S. federal income tax liability and may
entitle such Holder to a refund, provided that the required information is
furnished to the Internal Revenue Service.

After the end of each calendar year, the Trust will furnish to each record
Holder of Securities an annual statement containing information relating to the
payments on the U.S. Treasury securities received by the Trust. The Trust will
also furnish annual information returns to each record Holder of the Securities
and to the Internal Revenue Service.

26
<PAGE> 27

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell to each Underwriter named below, and each Underwriter
has agreed to purchase from the Trust, the number of Securities set forth
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SECURITIES
---------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co................................................... 8,246,606
Lazard Freres & Co. LLC............................................... 2,061,651
----------
Total....................................................... 10,308,257
==========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Securities offered
hereby, if any are taken.

The Underwriters propose to offer the Securities in part directly to the
public at the price to the public set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of
$0.42 per Security. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $0.10 per Security to certain brokers and dealers.
After the Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Underwriters. The
sales load of $0.7031 per Security is equal to 3.0% of the initial public
offering price. Investors must pay for any Securities purchased in the initial
public offering on or before February 13, 1998.

In connection with the offering, the Underwriters may purchase and sell the
Securities and the Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the securities or the Common
Stock; and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of Securities than they are required to
purchase from the Trust in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Securities sold in the offering may be
reclaimed by the syndicate if such securities are repurchased by the syndicate
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Securities which may be
higher than the price that might otherwise prevail in the open market, and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the NYSE, in the over-the-counter market or otherwise.

In light of the fact that proceeds from the sale of the Securities will be
used by the Trust to purchase the Contracts from the Sellers, the Underwriting
Agreement provides that the Sellers will pay to the Underwriters the
Underwriters' Compensation of $0.7031 per Security.

The Trust has granted the Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of 1,546,239 additional Securities solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, they will receive the
Underwriters' Compensation referred to above for each Security so purchased.

27
<PAGE> 28

The Sellers and the Company have agreed that, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any Common Stock or other securities of the Company
(other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the Common Stock
or which are convertible or exchangeable into Common Stock or other securities
which are substantially similar to the Common Stock, without the prior written
consent of Goldman Sachs.

The Securities will be a new issue of securities with no established
trading market. The Securities have been authorized for listing on the NYSE. The
representatives of the Underwriters have advised the Company that they intend to
make a market in the Securities, but they are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Securities.

The Underwriters have informed the Trust that they do not expect sales to
accounts over which they exercise discretionary authority to exceed 5% of the
total number of Securities offered by them.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933.

One Security has been subscribed for by Goldman Sachs at an aggregate
purchase price of $100.00. No Securities will be sold to the public until the
Securities subscribed for have been purchased and the purchase price thereof
paid in full to the Trust.

The principal business address of Goldman, Sachs & Co. is 85 Broad Street,
New York, New York 10004 and of Lazard Freres & Co. LLC is 30 Rockefeller Plaza,
New York, New York 10020.

VALIDITY OF SECURITIES

The validity of the Securities will be passed upon for the Trust by
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, and for the
Underwriters by Milbank, Tweed, Hadley & McCloy, One Chase Manhattan Plaza, New
York, New York 10005. Frederic C. Rich, a member of Sullivan & Cromwell, is a
member and director of the Lila Acheson and Dewitt Wallace Fund for the Hudson
Highlands, one of the Sellers.

EXPERTS

The financial statement included in this Prospectus has been audited by
Coopers & Lybrand L.L.P., independent accountants, as stated in their opinion
appearing herein, and has been so included in reliance upon such opinion given
upon the authority of that firm as experts in accounting and auditing.

FURTHER INFORMATION

The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form N-2 under the
Securities Act of 1933, as amended, with respect to the Securities offered
hereby. Further information concerning the Securities and the Trust may be found
in the Registration Statement of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by the
Commission. Such Registration Statement is also available on the Commission's
website (http://www.sec.gov).

28
<PAGE> 29

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Securityholders of
Reader's Digest Automatic Common Exchange Security Trust:

We have audited the accompanying statement of assets and liabilities of
Reader's Digest Automatic Common Exchange Security Trust as of February 4, 1998.
This financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by the Trust's management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the financial
statement provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Reader's Digest Automatic
Common Exchange Security Trust, as of February 4, 1998, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

New York, New York
February 5, 1998

29
<PAGE> 30

READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST

STATEMENT OF ASSETS AND LIABILITIES

FEBRUARY 4, 1998

<TABLE>
<S> <C>
ASSETS
Cash................................................................. $ 100
----
Total assets......................................................... $ 100
====

LIABILITIES
$ 0
----
NET ASSETS
Balance applicable to 1 Security outstanding......................... $ 100
----
Net asset value per Security......................................... $ 100
====
</TABLE>

- - ---------------
(1) Reader's Digest Automatic Common Exchange Security Trust (the "Trust") was
established on June 2, 1997 and has had no operations to date other than
matters relating to its organization and registration as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940. Costs incurred in connection with the organization of the Trust will
be paid by the Underwriters.

(2) The Trust proposes to sell Trust Automatic Common Exchange Securities (the
"Securities") to the public pursuant to a Registration Statement on Form N-2
under the Securities Act of 1933, as amended, and the Investment Company Act
of 1940, as amended.

The Trust is a special-purpose, finite-term trust established to purchase
and hold a portfolio of stripped U.S. treasury securities and a forward
purchase contract with existing shareholders of The Reader's Digest
Association, Inc. (the "Company") relating to the Class A Nonvoting Common
Stock, par value $0.01 per share of the Company. The trust will be
internally managed and will not have an investment adviser. The
administration of the trust, which will be overseen by the trustees, will
be carried out by The Bank of New York as trust administrator. The Bank of
New York will also serve as custodian, paying agent, registrar and transfer
agent with respect to the Securities. Ongoing fees and anticipated expenses
for the term of the trust will be paid for by the Underwriters.

(3) The Trust issued one Security on December 18, 1997 to Goldman, Sachs & Co.
in consideration for the aggregate purchase price of $100.

The Amended and Restated Trust Agreement provides that prior to the
offering, the Trust will split the outstanding Security to be effected on
the date that the price and underwriting discount of the Securities being
offered to the public is determined, but prior to the sale of the
Securities to the Underwriters. The initial Security will be split into the
smallest whole number of Securities that would result in the per Security
amount recorded as shareholders' equity after effecting the split not
exceeding the Public Offering price per Security.

30
<PAGE> 31

GLOSSARY

"Administration Agreement" means the Administration Agreement between the
Trust and The Bank of New York, as Trust Administrator.

"Administrator" means The Bank of New York, in such capacity under the
Administrative Agreement.

"Appreciation Threshold Price" means $26.9531.

"Average Market Price" on any date means the average Closing Price (as
defined herein) per share of Common Stock for the 20 Trading Days (as defined
herein) immediately prior to, but not including, such date.

"Calculation Period" means any period of Trading Days for which an average
security price must be determined pursuant to the Contracts.

"Cash Delivery Obligation," in respect of any Seller after a Reorganization
Event, means the Transaction Value of any consideration other than Marketable
Securities received by such Seller in respect of the maximum number of shares
subject to its Contract at the time of the Reorganization Event.

"Closing Price" of the Common Stock on any date of determination means the
daily closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the Common Stock as reported on the NYSE Consolidated
Tape on such date of determination or, if the Common Stock is not listed for
trading on the NYSE on any such date, as reported in the composite transactions
for the principal United States securities exchange on which the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ National Market or,
if the Common Stock is not so reported, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, provided that if any event that results in an
adjustment to the number of shares of Common Stock deliverable under the
Contracts as described under "-- The Contracts -- Dilution Adjustments" occurs
prior to the Exchange Date, the Closing Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.

"Code" means the Internal Revenue Code of 1986, as amended.

"Collateral Agent" means The Bank of New York, acting in such capacity
under the Collateral Agreements.

"Collateral Agreements" means the Collateral Agreements between the Sellers
and The Bank of New York, as Collateral Agent, securing the Sellers' obligations
under their respective Contracts.

"Collateral Event of Default" means, in respect of any Seller's Collateral
Agreement, (A) failure of the collateral to consist of at least the maximum
number of shares of Common Stock subject to such Seller's Contract at such time
(or, if a Reorganization Event shall have occurred at or prior to such time,
failure of the collateral to include the maximum number of shares of any
Marketable Securities required to be pledged as a result thereof); and (B) at
any time after a Reorganization Event in which consideration other than
Marketable Securities shall have been delivered, failure of any U.S. Government
obligations pledged in respect of Cash Delivery Obligations to have a market
value at such time of at least 105% of such Cash Delivery Obligations, if such
failure shall not be cured within one business day after notice thereof is
delivered to such Seller.

"Common Stock" means the Class A Nonvoting Common Stock, par value $0.01
per share, of the Company.

"Company" means The Reader's Digest Association, Inc., a Delaware
corporation.

31
<PAGE> 32

"Contracts" means the forward purchase contracts between the Sellers and
the Trust relating to the Common Stock.

"Custodian" means The Bank of New York, in such capacity under the
Custodian Agreement.

"Custodian Agreement" means Custodian Agreement between the Trust and The
Bank of New York, as Custodian.

"DTC" means The Depository Trust Company.

"Excess Purchase Payment" means the excess, if any, of (i) the cash and the
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Administrator, whose determination shall
be conclusive) of all other consideration paid by the Company with respect to
one share of Common Stock acquired in a tender offer or exchange offer by the
Company over (ii) the Then-Current Market Price per share of Common Stock.

"Exchange Date" means February 15, 2001.

"Exchange Rate" means the rate of exchange of Common Stock for Securities
on the Exchange Date, and shall be determined as follows (subject to adjustment
in certain events):

- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0.8696 shares of Common Stock;
and

- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.

"Excluded Distribution" means any Permitted Dividend, any cash distributed
in consideration of fractional shares of Common Stock and any cash distributed
in a Reorganization Event.

"Holders" means holders of Securities.

"Initial Price" means $23.4375.

"Investment Company Act" means the Investment Company Act of 1940, as
amended.

"NYSE" means the New York Stock Exchange.

"Paying Agent" means The Bank of New York, acting as transfer agent,
registrar and paying agent pursuant to the Paying Agent Agreement.

"Paying Agent Agreement" means the Paying Agent Agreement between the Trust
and The Bank of New York, as Paying Agent.

"Permitted Dividend" means any quarterly cash dividend in respect of the
Common Stock, other than a quarterly cash dividend that exceeds the immediately
preceding quarterly cash dividend, and then only to the extent that the per
share amount of such dividend results in an annualized dividend yield on the
Common Stock in excess of 10%.

32
<PAGE> 33

consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of the Company or any Company Successor as
an entirety or substantially as an entirety, (C) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a merger or acquisition) or (D) any liquidation,
dissolution or winding up of the Company or any Company Successor.

"SEC" means the Securities and Exchange Commission.

"Securities" means the $1.9336 Trust Automatic Common Exchange Securities
of the Trust.

"Sellers" means Lila Acheson and Dewitt Wallace Fund for Lincoln Center,
Dewitt Wallace Fund for Macalester College, Community Funds, Inc., Lila Acheson
and Dewitt Wallace Fund for the Hudson Highlands, Lila Acheson Wallace Fund for
the New York Zoological Society, and Dewitt Wallace Fund for Memorial
Sloan-Kettering Cancer Center.

"Then-Current Market Price" of the Common Stock, in respect of any dilution
adjustment under the Contracts, means the average Closing Price per share of
Common Stock for a Calculation Period of five Trading Days immediately prior to
the time such adjustment is effected (or, in the case of an adjustment effected
at the opening of business on the business day following a record date,
immediately prior to the earlier of the time such adjustment is effected and the
related "ex-date" on which the shares of Common Stock first trade regular way on
their principal market without the right to receive the relevant dividend,
distribution or issuance); provided that if no Closing Price for the Common
Stock is determined for one or more (but not all) of such Trading Days, such
Trading Day shall be disregarded in the calculation of the Then-Current Market
Price (but no additional Trading Days shall be added to the Calculation Period).
If no Closing Price for the Common Stock is determined for any of such Trading
Days, the most recently available Closing Price for the Common Stock prior to
such five Trading Days shall be the Then-Current Market Price.

"Trading Day" means a day on which the Common Stock (A) is not suspended
from trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of such
security.

"Transaction Value" means (i) for any cash received in a Reorganization
Event, the amount of cash received per share of Common Stock, (ii) for any
property other than cash or Marketable Securities received in any such
Reorganization Event, an amount equal to the market value on the date the
Reorganization Event is consummated of such property received per share of
Common Stock as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator (which determination
shall separately identify the value ascribed to each different type of
consideration received) and (iii) for any Marketable Securities received in any
such Reorganization Event, an amount equal to the average Closing Price per
share of such securities on the 20 Trading Days immediately prior to the
Exchange Date multiplied by the number of such securities received for each
share of Common Stock; provided that if no Closing Price for such Marketable
Securities is determined for one or more (but not all) of such Trading Days,
such Trading Days shall be disregarded in the calculation of such average
Closing Price (but no additional Trading Days shall be added to the Calculation
Period). If no Closing Price for the Marketable Securities is determined for all
such Trading Days, the calculation in the preceding clause (iii) shall be based
on the most recently available Closing Price for the Marketable Securities prior
to such 20 Trading Days. The number of shares of Marketable Securities included
in the calculation of Transaction Value for purposes of the preceding clause
(iii) shall be subject to adjustment if a dilution event of the type described
above shall occur with respect to the issuer of the Marketable Securities
between the time of the Reorganization Event and the Exchange Date.

"Trust" means the Reader's Digest Automatic Common Exchange Security Trust.

"Underwriters" means the Underwriters of the Securities.

33
<PAGE> 34

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Trust............................. 8
Use of Proceeds....................... 8
Investment Objective and Policies..... 8
Risk Factors.......................... 18
Description of the Securities......... 19
Management and Administration of the
Trust............................... 22
Certain Federal Income Tax
Considerations...................... 25
Underwriting.......................... 27
Validity of Securities................ 28
Experts............................... 28
Further Information................... 28
Report of Independent Accountants..... 29
Statement of Assets and Liabilities... 30
Glossary.............................. 31
</TABLE>

THROUGH AND INCLUDING MARCH 7, 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

10,308,257 SHARES

READER'S DIGEST
AUTOMATIC
COMMON EXCHANGE
SECURITY TRUST
$1.93 TRUST AUTOMATIC COMMON
EXCHANGE SECURITIES
(TRACES(TM/SM))

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

PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
LAZARD FRERES & CO. LLC
======================================================