READERS DIGEST ASSOCIATION INC, S-3, 1997-12-18

READERS DIGEST ASSOCIATION INC
S-3, 1997-12-18
BOOKS: PUBLISHING OR PUBLISHING & PRINTING

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 18, 1997. REGISTRATION NO.: 333-
======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE READER'S DIGEST ROAD 13-1726769
(State or other PLEASANTVILLE, NY (I.R.S. Employer
jurisdiction 10570-7000 Identification No.)
of incorporation or (914) 238-1000
organization) (Address, including
zip code, and
telephone number,
including area code,
of registrant's
principal
executive offices)
-------------------
MR. GEORGE V. GRUNE
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
THE READER'S DIGEST
ASSOCIATION, INC.
READER'S DIGEST ROAD
PLEASANTVILLE, NY
10570
(914) 238-1000
(Name, address,
including zip code,
and telephone number,
including area code,
of agent for service)
-----------------------
COPIES TO:
ARTHUR FLEISCHER, JR., ESQ. DONALD B. BRANT, JR., ESQ.
FRIED, FRANK, HARRIS, MILBANK, TWEED, HADLEY
SHRIVER & JACOBSON & MCCLOY
ONE NEW YORK PLAZA 1 CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10005
(212) 859-8000 (212) 530-5618

-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes
effective.
-----------------------
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|

CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
TITLE OF EACH
CLASS OF
SECURITIES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT PRICE FEE(2)
- --------------------------------------------------------------------------------
Class A
Nonvoting
Common Stock, 11,854,496 None None None
par value
$0.01 per
share
- --------------------------------------------------------------------------------

[FN]
(1) Includes 1,546,239 shares of Class A Nonvoting Common Stock that
may be purchased pursuant to the over-allotment option granted to
the Underwriters.

(2) The shares of Class A Nonvoting Common Stock being registered
pursuant to this Registration Statement represent the maximum
number of shares that may be delivered upon the exchange of the
Reader's Digest Automatic Common Exchange Securities registered
on a separate registration statement on Form N-2 (Registration
Statement Nos. 333-28245 and 811-08237). The number of shares of
Class A Nonvoting Common Stock that may be delivered pursuant to
the terms of the Reader's Digest Automatic Common Exchange
Securities is subject to adjustment in accordance with Rule 416.
Since the shares of Class A Nonvoting Common Stock being
registered hereunder are deliverable only upon the exchange of
the Reader's Digest Automatic Common Exchange Securities for
which a registration fee is being paid pursuant to the
registration statement referenced above, no registration fee with
respect to the shares of Class A Nonvoting Common Stock being
registered hereunder is required pursuant to the provisions of
Rule 457(i).
</FN>

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY THE EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
======================================================================

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997

10,308,257 SHARES
THE READER'S DIGEST ASSOCIATION, INC.
CLASS A NONVOTING COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
-------------

This Prospectus relates to an aggregate of 10,308,257 shares of
Class A Nonvoting Common Stock (the "Nonvoting Common Stock") of The
Reader's Digest Association, Inc., a Delaware corporation (the
"Company") beneficially owned by the Selling Stockholders identified
under the heading "Selling Stockholders" that may be delivered by the
Reader's Digest Automatic Common Exchange Security Trust (the "Trust")
to holders of the Trust Automatic Common Exchange Securities of the
Trust (the "Automatic Common Exchange Securities") upon exchange of
such securities on (assuming that the Underwriters exercise
in full the number of Automatic Common Exchange Securities subject to
the over-allotment option). The Company will receive no portion of the
proceeds from the sale of the Nonvoting Common Stock offered hereby or
from the sale of the Automatic Common Exchange Securities. The
Automatic Common Exchange Securities are being sold by the Trust in an
offering described in the attached prospectus of the Trust (the "Trust
Prospectus"). See "Trust Prospectus."

The Nonvoting Common Stock is currently traded on the New York
Stock Exchange under the symbol "RDA." On December 16, 1997, the last
reported price for the Nonvoting Common Stock as reported on the New
York Stock Exchange Composite Tape was $23.625 per share. See "Price
Range of Nonvoting Common Stock and Dividend Information."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND 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.

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

GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC

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

The date of this Prospectus is , 1998
---------------

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

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

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

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
and information statements and other information filed by the Company
with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; and at the Commission's regional offices
at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661-2511, and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding the
Company at (http://www.sec.gov). Such materials may also be inspected
and copied at the offices of the New York Stock Exchange (the "NYSE"),
20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby (the "Securities"). This
Prospectus, which forms a part of the Registration Statement on Form
S-3, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Securities,
reference is made to the Registration Statement. Statements contained
in this Prospectus as to the contents of certain documents are not
necessarily complete, and, in each instance, reference is made to the
copy of the document filed as an exhibit to the applicable
Registration Statement. The Registration Statement (and the exhibits
and schedules thereto) may be inspected and copied at the public
reference facilities maintained by the Commission at its offices and
at the Commission's regional offices at the locations listed above.

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

THE STATEMENTS CONTAINED IN THIS PROSPECTUS, IF NOT HISTORICAL,
ARE FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
IN SUCH FORWARD-LOOKING STATEMENTS DUE TO A VARIETY OF FACTORS. SEE
"PROSPECTUS SUMMARY - RECENT DEVELOPMENTS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND IS
SUBJECT TO, THE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN
THIS PROSPECTUS TO THE "COMPANY" OR TO "READER'S DIGEST" ARE TO THE
READER'S DIGEST ASSOCIATION, INC. AND ITS CONSOLIDATED SUBSIDIARIES.
THE CLASS A NONVOTING COMMON STOCK OF THE COMPANY (THE "NONVOTING
COMMON STOCK") AND THE CLASS B VOTING COMMON STOCK OF THE COMPANY (THE
"VOTING COMMON STOCK") ARE COLLECTIVELY REFERRED TO IN THIS PROSPECTUS
AS THE "COMMON STOCK." THE TERM "FISCAL" WHEN USED IN THIS PROSPECTUS
PRECEDING A SPECIFIC YEAR SHALL MEAN THE TWELVE-MONTH PERIOD ENDING
JUNE 30 IN THAT YEAR.

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. The Company has
published its flagship publication, READER'S DIGEST magazine, the most
widely read magazine in the world, since 1922. Its products are sold
principally through direct mail marketing. The Company's direct mail
campaigns are usually accompanied by sweepstakes and premium
merchandise offers which are researched and designed for specific
target audiences. In addition to its core expertise in disciplined
direct marketing, the Company believes that its large and high quality
worldwide customer lists represent a significant competitive
advantage. The Company constantly strives to expand and improve its
customer lists and related databases. The Company believes that its
United States list of over 50 million households - over half the total
number of households in the country - is one of the largest direct
response lists in the country. In addition, the Company markets to a
significant number of prospective customers on rented lists.

The Company operates in over 50 countries. The first
international edition of READER'S DIGEST magazine was published in the
United Kingdom in 1938. The Company is a major publisher of magazines
and books in Canada, Mexico, Western Europe and Australia and has
established operations in many countries in Asia, Central and Eastern
Europe, Latin America and Africa. Its international customer lists
comprise approximately 50 million households. The Company believes
that its long presence in many of its international markets and its
use of local editorial and marketing expertise have helped to make the
Company's name and products an accepted and recognized component of
local culture throughout the world. In fiscal 1997, international
operations generated approximately 57% of the Company's total revenues
and approximately 45% of its operating profit (before corporate
expenses and other operating items).

The Company reports its results of operations in four business
segments: (1) READER'S DIGEST Magazine, (2) Books and Home
Entertainment Products, (3) Special Interest Magazines and (4) Other
Businesses.

READER'S DIGEST MAGAZINE. READER'S DIGEST magazine is published
in 48 editions and 19 languages. In fiscal 1997, READER'S DIGEST
magazine had a worldwide monthly circulation that averaged almost 28
million with an estimated monthly readership of 100 million people.
The Company believes that READER'S DIGEST magazine is a powerful
"front door" that provides a customer base to which the Company can
market more broadly and effectively its many other offerings,
including books and home entertainment products. READER'S DIGEST
magazine's broad demographic reach also makes it an effective
advertising medium. For example, based upon an independent study
conducted in the fall of 1997 by Mediamark Research Inc., the United
States-English language edition of READER'S DIGEST reaches: (i) more
adults with household income of over $100,000 than FORTUNE, BUSINESS
WEEK and THE WALL STREET JOURNAL combined, (ii) approximately twice as
many 18-34 year old readers as ROLLING STONE, (iii) more adults age
25-54 than any other magazine and (iv) more adults with a college
education than any other magazine. In fiscal 1997, READER'S DIGEST
magazine accounted for approximately 26% of the Company's revenues and
approximately 18% of its operating profit (before corporate expenses
and other operating items).

BOOKS AND HOME ENTERTAINMENT PRODUCTS. The Company publishes and
markets Reader's Digest Condensed Books (called "Select Editions" in
certain markets), TODAY'S BEST NONFICTION(R), series books, general
books, recorded music collections and series, home video products and
series, and children's books and videos. In fiscal 1997 it sold nearly
60 million books worldwide (including approximately 18 million
children's books) and nearly 10 million sets of recorded music. Among
the general books recently published by the Company is the
internationally popular FOODS THAT HARM, FOODS THAT HEAL, published in
10 languages in 25 countries with over two million copies sold. In
fiscal 1997, the Company's books and home entertainment products
accounted for approximately 65% of the Company's revenues and
approximately 74% of its operating profit (before corporate expenses
and other operating items).

SPECIAL INTEREST MAGAZINES. The Company publishes several special
interest magazines that it deems consistent with its image, editorial
philosophy and market expertise. Publications include popular
magazines such as THE FAMILY HANDYMAN(R), NEW CHOICES: LIVING EVEN
BETTER AFTER 50(R), AMERICAN HEALTH FOR WOMEN(R), WALKING(R) and
MONEYWISE. The Company's special interest magazines have a combined
readership of almost 12 million. The continuing development of the
special interest magazine business represents an opportunity for the
Company to further expand its customer lists and product portfolio.

OTHER BUSINESSES. The Company's wholly owned subsidiaries, QSP,
Inc. and Quality Service Plan, Inc. (collectively, "QSP"), assist
schools and youth groups in the United States and Canada in their
fundraising efforts by selling magazine subscriptions, including
subscriptions to READER'S DIGEST magazine, and other products. In
fiscal 1997, QSP helped over 25,000 schools and youth groups raise
over $135 million and provided the Company with an opportunity to
attract new, younger customers.

RECENT DEVELOPMENTS

The Company's operating results have declined over recent years.
See "Selected Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." The decline in operating results has been principally
attributable, on a geographic basis, to weaker performances in the
Company's international markets, particularly in its major European
and Pacific geographic markets, and, on a business segment basis, to
weaker performance in the Books and Home Entertainment Products
segment. The primary causes of this operating decline have been (i)
lower customer response rates to the Company's promotional mailings
and (ii) fewer active and promotable customers. The Company believes
that several factors have contributed to these circumstances,
including modification and reduced implementation of the Company's
historical promotion testing and product testing techniques, use of
less-effective promotional materials, de-emphasis on sweepstakes
promotions, variation in quantity and frequency of promotional
mailings, uncompetitive product pricing, weakness in European
economies, and increased competitive pressures. The Company's
declining results were also due to higher paper and postage costs in
fiscal 1995 and 1996, increased investment and expansion into new
countries and increased promotional spending to retain subscribers for
READER'S DIGEST magazine who purchase other Company products.

Since the commencement of fiscal 1996, the Company has recorded
pre-tax charges of $350 million composed primarily of severance costs
associated with headcount reductions, repositioning and
discontinuation of certain businesses and various claims against the
Company.

In addition, the Company's liquidity has declined steadily in
recent years. At the beginning of fiscal 1995, the Company's cash and
cash equivalents, short-term investments and marketable securities
position was $766.9 million, compared with $77.6 million at the end of
the first quarter of fiscal 1998. This reduction in liquidity was
primarily due to the Company's expenditures during this period of
$409.4 million for repurchases of its Nonvoting Common Stock and of
$583.1 million for dividends on its stock, which was partially offset
by net cash from operations during this period of $373.3 million. In
response to this liquidity trend, the Company (i) reduced its
quarterly Common Stock dividend by 50% (from $0.45 to $0.225 per
share), effective beginning the first quarter of fiscal 1998 (reducing
its annual cash dividend payment by approximately $100 million), and
(ii) has not purchased any shares of Common Stock under its share
repurchase program since February 1997 (the Company has no present
intention to make any additional share repurchases). As of September
30, 1997, the Company had U.S. lines of credit of up to $525 million
in place with various financial institutions, of which $492.3 million
was available for borrowing. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

In response to the decline in its financial performance, on
August 11, 1997, the Company asked George V. Grune to return as
Chairman and Chief Executive Officer. Mr. Grune served as Chief
Executive Officer of the Company from 1984 to 1994 and retired as its
Chairman in 1995. Since reassuming his position, Mr. Grune has rebuilt
a management team with strong experience in direct mail marketing at
Reader's Digest. See "Management." The Board of Directors has
designated a search committee, composed of three members of the Board
of Directors, to find a new Chief Executive Officer. The Board
currently intends to complete its search by the end of fiscal 1998.

Mr. Grune and the new management team have commenced
implementation of the following strategies to improve the Company's
long-term financial performance:

() INVEST IN AND EXPAND CORE BUSINESS. The Company's primary
objective is to stabilize and strengthen its core franchise
by focusing on the key elements of its direct marketing
business: promotion, products and list.

() PROMOTION: REFOCUS ON DISCIPLINED DIRECT MARKETING. The
Company is returning to its tradition of implementing
extensive direct market testing in order to (i) restore
the effectiveness of its promotions and (ii) improve
customer targeting. The Company believes that this
disciplined approach will enhance its ability to
efficiently generate customers.

() PRODUCTS: REFOCUS ON CORE OFFERINGS. The Company is
refocusing on disciplined testing methods to expand and
develop its core product lines to appeal broadly to
existing and new customers, including those
representing younger demographic segments.

() LIST: ENHANCE UTILIZATION OF WORLDWIDE CUSTOMER DATABASES.
The Company will continue to develop and improve
utilization of its integrated promotion and fulfillment
databases, which enables the Company to select
customers to receive promotional offers based on such
customers' affinities for, and demonstrated purchasing
behavior with, Reader's Digest products and services.
The information contained in the Company's customer
lists provides opportunities to create targeted
demographic editions of the Company's magazines. These
editions enhance the magazines' appeal to advertisers,
thereby increasing advertising revenues.

() REVITALIZE GROWTH. The Company intends to seek to
restore revenue and operating profit growth by
investing in new products, new markets and new direct
marketing channels. The Company also intends to
generate further growth by further capitalizing on
synergy opportunities through cross-promotion of its
products among customer segments. For example, the
Company intends to use READER'S DIGEST magazine as a
"front door" to expand into new geographic markets in
Central and Eastern Europe, South America and Asia, and
more effectively market its many other offerings to an
expanded customer list. The Company continues to
explore opportunities to introduce products to new
demographic segments, particularly to young families,
and to develop new direct marketing channels such as
direct response television, telemarketing, the Internet
and strategic alliances to further expand its customer
base.

() ENHANCED GLOBAL EFFICIENCY. The Company believes it can
improve the efficiency of its worldwide operations
through increased coordination and sharing of "best
practices" among its U.S. and foreign operations in
product and promotion development, information systems
and production.

There is no assurance that the Company's business strategy will
be successful or that any of the actions which the Company takes will
stabilize or improve its financial performance. There are risks and
uncertainties that could cause actual results to differ materially
from management's strategic growth plan or those expressed or implied
in any other forward-looking statements in this Prospectus. These
risks and uncertainties include: the effect of increased market
testing of its promotions and products; the effect of modified and
varied promotions; the ability to identify customer trends; the
ability to continue to create a broadly appealing mix of new products;
the ability to attract and retain new and younger magazine subscribers
and product customers in view of the maturing of an important portion
of the U.S. customer base; the effect of selective adjustments in
pricing; the ability to expand and more effectively utilize the
Company's customer database; the ability to expand into new
international markets and to introduce new product lines into new and
existing markets; the ability to expand into new channels of
distribution; the ability to negotiate and implement productive
strategic alliances and joint ventures; the ability to contain and
reduce costs, especially through global efficiencies; the cost and
effectiveness of the realignment of business processes and operations;
the accuracy of management's assessment of the current status of the
Company's business; the evolution of the Company's organizational and
structural capabilities, including the effect of the transition to a
future chief executive officer; the effect of privacy and other
governmental regulation; the ability of the Company to respond to
competitive pressures within and outside of the direct mail industry;
the effect of worldwide paper and postage costs; the effect of postal
disruptions on deliveries; the effect of foreign currency
fluctuations; as well as general economic conditions.

The Company is a Delaware corporation that was originally
incorporated in New York in 1926 and was reincorporated in Delaware in
1951. Its principal executive offices are located at Reader's Digest
Road, Pleasantville, New York 10570 and its telephone number is (914)
238-1000.

SUMMARY FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)

The following tables present summary financial data of the
Company. This information should be read in conjunction with, and is
qualified in its entirety by reference to, the Company's financial
statements and accompanying notes contained in the Company's Annual
Report on Form 10-K for fiscal 1997 and the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1997, which are
incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."

<TABLE>
<CAPTION>
Three Months Ended
September 30, Fiscal Year Ended June 30,
--------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997(1) 1996 1997(2) 1996(3) 1995 1994(4) 1993(5)
------- ------ -------- --------- -------- -------- --------
INCOME
STATEMENT DATA:
Revenues $561.4 $644.0 $2,839.0 $3,098.1 $3,068.5 $2,806.4 $2,868.6
Operating
(loss) profit (83.5) 46.6 192.8 109.3 391.9 393.7 352.7
(Loss) income
before
(benefit)
provision
for income
taxes (77.3) 54.6 210.2 137.7 422.5 463.2 420.0
Net (loss)
income (56.4) 34.6 133.5 80.6 264.0 246.3 207.3
(Loss)
earnings per
common
share $ (0.53) $ 0.32 $ 1.24 $ 0.73 $ 2.35 $ 2.11 $ 1.74
Average common
shares
outstanding 106.3 107.4 106.7 107.9 112.0 115.7 118.7
</TABLE>

<TABLE>
<CAPTION>
September 30, June 30,
------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----

BALANCE SHEET
DATA:
Cash and cash
equivalents,
short-term
investments
and
marketable
securities $ 77.6 $ 102.4 $ 374.2 $ 532.1 $ 766.9 $ 723.4
Total assets 1,688.5 1,643.8 1,904.1 1,958.7 2,049.4 1,872.4
Long-term
notes payable 1.7 1.7 1.7 1.7 8.7 8.1
Stockholders'
equity 258.9 346.0 478.9 640.8 791.0 806.3

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

<FN>
(1) Results for 1998 include the effect of first quarter charges
(aggregate pre-tax charges of $70.0 or $0.49 per share).

(2) Results for 1997 include the effect of fourth quarter charges
(aggregate pre-tax charges of $35.0, or $0.21 per share).

(3) Results for 1996 include the effects of third quarter charges
(aggregate pre-tax charges of $245.0, or $1.57 per share) and
fourth quarter savings on the finalization of the Company's lease
termination program in the United Kingdom ($10.0, or $0.09 per
share).

(4) Results for 1994 include the effects of promotion accounting
changes, net (pre-tax benefit of $113.9, or $0.60 per share),
other operating items (aggregate pre-tax charge of $76.0, or
$0.51 per share) and the cumulative effect of changes in
accounting principles ($25.8, or $0.23 per share).

(5) Results for 1993 include the cumulative effect of changes in
accounting principles ($51.0, or $0.42 per share).
</FN>
</TABLE>

REVENUES AND OPERATING PROFIT BY GEOGRAPHIC AREA

Fiscal Year Ended June 30,
-------------------------------------------------------
1997(1) 1996(2) 1995 1994(3) 1993
--------- ---------- -------- --------- --------
Revenues:
United States $1,236.4 $1,278.9 $1,196.9 $1,117.8 $1,157.3
Europe 1,172.2 1,379.7 1,455.8 1,301.0 1,322.5
Pacific and Other
Markets 439.8 445.6 424.9 396.8 398.9
Interarea (9.4) (6.1) (9.1) (9.2) (10.1)
- -------------------------------------------------------------------------------
$2,839.0 $3,098.1 $3,068.5 $2,806.4 $2,868.6
- -------------------------------------------------------------------------------

Operating profit:
United States $ 133.8 $ 16.6 $ 151.7 $ 87.1 $ 115.5
Europe 94.1 110.0 225.5 205.3 231.7
Pacific and Other
Markets 13.3 45.6 70.7 46.4 68.6
Effect of promotion
accounting changes,
net -- -- -- 113.9 --
Corporate Expense (48.4) (62.9) (56.0) (59.0) (63.1)
- -------------------------------------------------------------------------------
$ 192.8 $ 109.3 $ 391.9 $ 393.7 $ 352.7
- -------------------------------------------------------------------------------

REVENUES AND OPERATING PROFIT BY BUSINESS SEGMENT

Fiscal Year Ended June 30,
-------------------------------------------------------
1997(1) 1996(2) 1995 1994(3) 1993
--------- ---------- -------- --------- --------
Revenues
READER'S
DIGEST Magazine $ 729.2 $ 739.8 $ 732.9 $ 689.1 $ 720.0
Books and Home
Entertainment
Products 1,850.5 2,099.4 2,099.8 1,900.3 1,958.1
Special
Interest
Magazines 81.9 91.9 95.6 90.6 84.1
Other
Businesses 181.0 170.6 143.9 129.6 110.4
Intersegment(4) (3.6) (3.6) (3.7) (3.2) (4.0)
- -------------------------------------------------------------------------------
$2,839.0 $3,098.1 $3,068.5 $2,806.4 $2,868.6
- -------------------------------------------------------------------------------
Operating profit
READER'S
DIGEST Magazine $ 42.7 $ 11.2 $ 78.3 $ 60.8 $ 97.3
Books and Home
Entertainment
Products 175.6 192.0 339.3 266.8 307.2
Special
Interest
Magazines 0.4 (21.1) (0.8) (6.7) (9.2)
Other
Businesses 22.5 (9.9) 31.1 17.9 20.5
Effect of
promotion
accounting
changes, net -- -- -- 113.9 --
Corporate
Expense (48.4) (62.9) (56.0) (59.0) (63.1)
- -------------------------------------------------------------------------------
$ 192.8 $ 109.3 $ 391.9 $ 393.7 $ 352.7
- -------------------------------------------------------------------------------
- ----------------
[FN]
(1) Operating profit for 1997 reflects the allocation of other
operating items of $35.0 to the business segment and geographic
financial information as follows: READER'S DIGEST Magazine $5.6,
Books and Home Entertainment Products $25.5, Other Businesses
$0.5, Corporate Expense $3.4, and United States $15.3, Europe
$7.4, and Pacific and Other Markets $8.9.

(2) Operating profit for 1996 reflects the allocation of other
operating items of $235.0 to the business segment and geographic
financial information as follows: READER'S DIGEST Magazine $37.6,
Books and Home Entertainment Products $130.1, Special Interest
Magazines $21.4, Other Businesses $42.1, Corporate Expense $3.8,
and United States $151.0, Europe $63.5, and Pacific and Other
Markets $16.7.

(3) Operating profit for 1994 has been restated to reflect the
allocation of other operating items of $76.0 to the business
segment and geographic financial information as follows: READER'S
DIGEST Magazine $17.8, Books and Home Entertainment Products
$44.0, Special Interest Magazines $3.5, Other Businesses $8.7,
Corporate Expense $2.0 and United States $48.0 and Europe $26.0.

(4) Intersegment sales are included in the Company's Other Businesses
segment.
</FN>

PRICE RANGE OF NONVOTING COMMON STOCK AND DIVIDEND INFORMATION

Since February 1990, the shares of Nonvoting Common Stock have
been traded on the NYSE. The table below shows, for the periods
indicated, the high and low sales prices for the shares of Nonvoting
Common Stock on the NYSE as reported on the New York Stock Exchange
Composite Tape.

DIVIDEND
HIGH LOW PER SHARE
---- --- ---------
Fiscal Year ended
June 30, 1996
First Quarter....... $47 7/8 $43 7/8 $0.40
Second Quarter...... 52 46 3/4 0.45
Third Quarter....... 51 3/8 45 1/4 0.45
Fourth Quarter...... 47 3/4 40 1/2 0.45
Fiscal Year ended
June 30, 1997
First Quarter....... $43 3/4 $38 1/4 $0.45
Second Quarter...... 41 1/4 34 0.45
Third Quarter....... 41 28 3/4 0.45
Fourth Quarter...... 30 22 1/8 0.45
Fiscal Year ending
June 30, 1998
First Quarter....... $30 9/16 $24 1/2 $0.225
Second Quarter
(through
December 16, 1997).. 31 1/2 20 7/8 --

On December 16, 1997, the last sale price of the Nonvoting Common
Stock as reported on the New York Stock Exchange Composite Tape was
$23.625.

Trading prices of the Nonvoting Common Stock will be influenced
by the Company's results of operations, financial condition, cash
requirements, future prospects and by economic, financial and other
factors and market conditions. There can be no assurance that prices
of the Nonvoting Common Stock will, in the future, be within the
ranges set forth above.

The Company reduced its Common Stock quarterly dividend by 50%
(from $0.45 to $0.225), effective for the first quarter of fiscal
1998. See "Prospectus Summary--Recent Developments." The payment and
amount of future dividends (if any) will be determined by the Board of
Directors in light of the Company's earnings, capital requirements,
financial condition and other relevant factors.

CAPITALIZATION
(IN MILLIONS)

The following table sets forth the condensed consolidated
capitalization of the Company as of September 30, 1997.

SEPTEMBER 30,
1997
------------

DEBT:
Current debt................. $ 73.3
Long-term debt............... 1.7
----------
Total debt................. $ 75.0

STOCKHOLDERS' EQUITY:
Capital stock................ $ 29.2
Paid-in capital.............. 141.5
Retained earnings............ 843.6
Foreign currency translation
adjustment................... (39.9)
Net unrealized losses on
certain investments.......... (0.1)
Treasury stock, at cost...... (715.4)
----------
Total stockholders' equity. $ 258.9
----------
Total capitalization....... $ 333.9
==========

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)

The following financial information is qualified by reference to
and should be read in conjunction with the consolidated financial
statements and accompanying notes contained in the Company's Annual
Report on Form 10-K for fiscal 1997 and the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1997, which are
incorporated by reference herein, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained
elsewhere in this Prospectus. The selected financial data for each of
the years in the five-year period ended June 30, 1997 are derived from
the Company's consolidated financial statements for each of the years
in the five-year period ended June 30, 1997. The Company's
consolidated financial statements for the years ended June 30, 1997,
1996, 1995, 1994 and 1993 have been audited by KPMG Peat Marwick,
independent certified public accountants. The financial statements for
1997, 1996 and 1995 and the report of KPMG Peat Marwick LLP thereon
have been incorporated by reference herein. The selected financial
data for the three-month periods ended September 30, 1997 and 1996 are
derived from unaudited consolidated condensed financial statements
contained in the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997, which is incorporated by reference
herein, which in the opinion of management include all adjustments
(consisting only of normal recurring adjustments) necessary to state
fairly the data included therein in accordance with generally accepted
accounting principles for interim financial information. Interim
results are not necessarily indicative of the results to be expected
for the entire fiscal year.

Three Months Ended
September 30, Fiscal Year Ended June 30,
------------- --------------------------
1997(1) 1996 1997(2) 1996(3) 1995 1994(4) 1993(5)
---------- --------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................... $ 561.4 $ 644.0 $ 2,839.0 $ 3,098.1 $ 3,068.5 $ 2,806.4 $ 2,868.6
Product, distribution and editorial
expense ......................... 203.5 221.7 1,026.7 1,079.8 1,049.7 935.8 1,111.2
Promotion, marketing and
administrative expense .......... 371.4 375.7 1,584.5 1,674.0 1,626.9 1,514.8 1,404.7
Effect of promotion accounting
changes, net..................... -- -- -- -- -- (113.9) --
Other operating items .............. 70.0 -- 35.0 235.0 -- 76.0 --
Operating (loss) profit ............ (83.5) 46.6 192.8 109.3 391.9 393.7 352.7
Other income, net .................. 6.2 8.0 17.4 28.4 30.6 69.5 67.3
(Loss) income before (benefit)
provision for income taxes ...... (77.3) 54.6 210.2 137.7 422.5 463.2 420.0
(Benefit) provision for income taxes (20.9) 20.0 76.7 57.1 158.5 191.1 161.7
Cumulative effect of changes in
accounting principles ........... -- -- -- -- -- (25.8) (51.0)
Net (loss) income .................. (56.4) 34.6 133.5 80.6 264.0 246.3 207.3
(Loss) earnings per common share ... $ (0.53) $ 0.32 $ 1.24 $ 0.73 $ 2.35 $ 2.11 $ 1.74
Dividends per common share ......... $ 0.225 $ 0.45 $ 1.80 $ 1.75 $ 1.55 $ 1.35 $ 1.15
Average common shares outstanding .. 106.3 107.4 106.7 107.9 112.0 115.7 118.7

</TABLE>
<TABLE>
<CAPTION>

September 30, June 30,
------------- --------
1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents, short-term
investments and marketable securities $ 77.6 $ 102.4 $ 374.2 $ 532.1 $ 766.9 $ 723.4
Total assets........................... 1,688.5 1,643.8 1,904.1 1,958.7 2,049.4 1,872.4
Long-term notes payable................ 1.7 1.7 1.7 1.7 8.7 8.1
Stockholders' equity................... 258.9 346.0 478.9 640.8 791.0 806.3

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

<FN>
(1) Results for 1998 include the effect of first quarter charges
(aggregate pre-tax charges of $70.0, or $0.49 per share).

(2) Results for 1997 include the effect of fourth quarter charges
(aggregate pre-tax charges of $35.0, or $0.21 per share).

(5) Results for 1993 include the cumulative effect of changes in
accounting principles ($51.0, or $0.42 per share).
</FN>
</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company's fiscal year ends June 30. All references to 1998,
1997, 1996 and 1995 in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are to fiscal 1998,
fiscal 1997, fiscal 1996 and fiscal 1995, respectively. All dollar
amounts in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are in millions of dollars,
except per share data. As it pertains to geographic and business
segment information, the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" has been
written excluding the effects of the 1998 first quarter charges of
$70.0, the 1997 fourth quarter charges of $35.0 and the 1996 third
quarter charges of $245.0 (together, referred to as the operating
charges) in order to analyze the results on a comparable basis. In
addition, in 1996 reported results include $10.0 of savings recognized
as a result of the finalization of the Company's lease termination
program in the United Kingdom.

RESULTS OF OPERATIONS

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

In the first quarter of 1998, the Company recorded charges of
$70.0 ($51.8 after tax, or $0.49 per share) composed primarily of
severance costs of $39.5 associated with workforce reductions in
Europe, the United States, and at the corporate level; and other costs
associated with the discontinuation of certain businesses and the
realignment of business processes and operations. Businesses to be
discontinued include a children's book club in the United States, and
the Company's investment in LOOKSMART, a World Wide Web navigation
service. The realignment of business processes and operations also
relates to certain vendor contracts in the United States and Europe.

Worldwide revenues for the first quarter of 1998 decreased to
$561.4, or by 13%, compared with $644.0 in the first quarter of 1997.
Excluding the adverse effect of changes in foreign currency exchange
rates, revenues decreased 8%. Revenues declined primarily in the
Company's European and United States operations. The decrease in
revenues was predominantly due to lower unit sales in certain product
lines within Books and Home Entertainment Products as a result of a
combination of lower mail quantities and lower customer response to
promotional mailings in major markets. The lower customer response
reflects a reduction in testing and the use of less effective
promotional offers. The revenue decline in the United States was
primarily a result of the timing and lower quantity of promotional
mailings in the first quarter of 1998 compared with the first quarter
of 1997. The Company reported a worldwide operating loss of $83.5 in
the first quarter of 1998, compared with operating profit of $46.6 in
the first quarter of 1997. Excluding the effect of other operating
items, the operating loss was $13.5 in the first quarter of 1998.
These operating results reflect lower revenues in major markets,
higher proportionate overhead and promotional spending, and increased
investment in product development, testing and list development
initiatives.

The Company reported a net loss of $56.4, or $0.53 per share, in
the first quarter of 1998, compared with net income of $34.6, or $0.32
per share, in the first quarter of 1997. Excluding the effect of other
operating items, the loss was $0.05 per share in the first quarter of
1998.

1997 V. 1996

Worldwide revenues for 1997 decreased to $2,839.0, or by 8%,
compared with $3,098.1 for 1996. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues decreased 7%.
Revenues declined in all geographic areas, particularly in the
Company's European operations. The decrease in revenues was
principally due to lower unit sales, and, to a lesser extent,
lower-priced product offerings and sales of a lower-priced product mix
in Books and Home Entertainment Products. External factors, including
weak European economies and increased competitive pressures globally,
impacted revenues. Tactical implementation of many simultaneous
strategic initiatives, including varying the quantity and frequency of
promotional mailings, moderating product pricing and introducing
greater promotion variety and less aggressive sweepstakes, also
contributed to lower worldwide revenues in 1997.

Worldwide operating profit increased to $192.8 in 1997, compared
with $109.3 in 1996. The 1997 and 1996 results reflect operating
charges of $35.0 ($22.2 after tax, or $0.21 per share) and $245.0
($169.8 after tax, or $1.57 per share), respectively. Excluding the
effects of the operating charges, worldwide operating profit decreased
by 36% in 1997, compared with the same period a year ago. These
operating results reflect the impact of lower revenues and higher
inventory write-offs as a result of lower customer response to third
and fourth quarter promotional mailings, partially offset by the
benefits of cost-containment initiatives.

The Company reported net income of $133.5, or $1.24 per share in
1997, compared with $80.6, or $0.73 per share in 1996. Excluding the
effects of the operating charges, earnings per share decreased 37% to
$1.45 in 1997, compared with $2.30 in 1996, which includes the benefit
of $0.09 per share due to the savings recognized as a result of the
finalization of the Company's lease termination program in the United
Kingdom.

1996 V. 1995

Worldwide revenues in 1996 were about even at $3,098.1, compared
with the prior year. Slightly higher prices and sales of a
higher-priced product mix were offset by slight declines in volume.
Higher revenues in the United States and Pacific and Other Markets
were offset by lower revenues in Europe.

Worldwide operating profit decreased from $391.9 in 1995 to
$109.3, or by 72%, in 1996. Excluding the effect of the third quarter
charges, worldwide operating profit decreased to $354.3, or by 10%,
which includes $10.0 of savings recognized as a result of the
finalization of the Company's lease termination program in the United
Kingdom. Operating profit decreased due to higher paper and postage
costs and unfavorable results in the Company's European operations.

Earnings per share declined 69% to $0.73 in 1996, compared with
$2.35 in 1995. Excluding the effect of the third quarter charges,
earnings per share decreased to $2.30, or by 2%, in 1996, which
includes the benefit of $0.09 per share due to the savings recognized
as a result of the finalization of the Company's lease termination
program in the United Kingdom. Earnings per share declined less than
operating profit due to a lower effective tax rate, excluding the
effect of other operating items, and the reduction in outstanding
shares due to the Company's share repurchase program.

OTHER INCOME, NET

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Other income, net decreased in the first quarter of 1998 to $6.2,
compared with $8.0 in the prior year. This decrease was primarily
because of lower interest income and lower gains on sales of certain
investments in 1998, which were partially offset by favorable effects
of foreign exchange transactions and hedging activity.

1997 V. 1996

Other income, net for 1997 decreased to $17.4, compared with
$28.4 a year ago. This decrease was primarily because of lower
interest income ($11.4 in 1997, compared with $21.5 in 1996), lower
gains on the sales of certain investments ($7.0 in 1997, compared with
$15.8 in 1996), and higher interest expense ($7.0 in 1997, compared
with $2.4 in 1996), which were partially offset by higher gains on
foreign exchange transactions and hedging activity ($8.5 in 1997,
compared with a loss of $6.1 in 1996).

1996 V. 1995

Other income, net decreased in 1996 to $28.4, compared with $30.6
in 1995. The primary contributor to this decrease was lower interest
income ($21.5 in 1996, compared with $40.1 in 1995), partially offset
by higher gains on the sales of certain investments ($15.8 in 1996,
compared with $8.9 in 1995) and lower expense related to losses on
foreign exchange transactions and hedging activity ($6.1 in 1996,
compared with $10.3 in 1995).

INCOME TAXES

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

For the first quarter of 1998, the reported tax rate was 27.1%.
Excluding the effect of other operating items, the overall effective
tax rate was 37.5% for the first quarter of 1998. For the first
quarter of 1997, the effective tax rate was 36.5%. The higher
effective tax rate in 1998 was primarily due to reduced utilization of
foreign tax credits.

1997 V. 1996

The overall effective tax rate for 1997 was 36.5% compared with a
reported rate of 41.5% for 1996. Excluding the effects of other
operating items, the effective tax rate was 36.5% and 35.5% in 1997
and 1996, respectively. The lower effective rate in 1996 was primarily
attributable to favorable settlements relating to prior years.

1996 V. 1995

The Company reduced its overall effective tax rate, excluding the
effect of other operating items, to 35.5% in 1996 from 37.5% in 1995.
This decrease was primarily attributable to favorable settlements
relating to prior years, as well as effective tax planning.

GEOGRAPHIC AREAS
- -------------------------------------------------------------

OPERATING PROFIT BY GEOGRAPHIC AREA
- -------------------------------------------------------------

OTHER
OPERATING AS
1997 AS REPORTED ITEMS ADJUSTED
- -------------------------------------------------------------

United States $133.8 $15.3 $149.1
Europe 94.1 7.4 101.5
Pacific and Other Markets 13.3 8.9 22.2
Corporate Expense (48.4) 3.4 (45.0)
- -------------------------------------------------------------
$192.8 $35.0 $227.8
- -------------------------------------------------------------

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

OTHER
OPERATING AS
1996(1) AS REPORTED ITEMS ADJUSTED
- -------------------------------------------------------------

United States $ 16.6 $151.0 $167.6
Europe 110.0 63.5 173.5
Pacific and Other Markets 45.6 16.7 62.3
Corporate Expense (62.9) 3.8 (59.1)
- -------------------------------------------------------------
$109.3 $235.0 $344.3
- -------------------------------------------------------------
- -------------------
[FN]
(1) Results for 1996 include the effects of third quarter charges
($245.0) and fourth quarter savings on the finalization of the
Company's lease termination program in the United Kingdom
($10.0).
</FN>

UNITED STATES

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Revenues in the United States decreased from $269.5 in 1997 to
$248.5, or by 8%, in 1998. This decrease was primarily attributable to
lower unit sales in the general books and Condensed Books product
lines within Books and Home Entertainment Products, which were
partially offset by increased revenues in Special Interest Magazines.
The decrease in general books was primarily a result of differences in
the timing of scheduled promotional mailings and lower mail quantities
in 1998; there was one fewer general book mailing in the first quarter
of 1998 than in the prior year. In addition, the decrease was due to
better customer response last year to a stronger general books title.
The decline in Condensed Books was a result of timing of promotional
mailings, as well as a reduction in paid shipments due to fewer
customers carried into 1998 who were participating in the series. The
increase in Special Interest Magazines was primarily a result of the
acquisition of WALKING magazine in the third quarter of 1997.
Operating results decreased significantly in 1998, compared with 1997,
due to the revenue decrease and spending on investment initiatives
such as new product development, testing and list development
projects.

1997 V. 1996

Revenues in the United States decreased from $1,278.9 in 1996 to
$1,236.4, or by 3%, in 1997. This decrease was primarily attributable
to lower unit sales in Books and Home Entertainment Products. Revenues
were also adversely affected by the exclusion of revenues due to the
sale of TRAVEL HOLIDAY magazine in the third quarter of 1996. Within
Books and Home Entertainment Products, the lower unit sales were
principally caused by declines in Condensed Books and music products.
The decrease in Condensed Books and music products sales was caused by
lower customer response to promotional offers. Operating profit
decreased 11% to $149.1 in 1997 compared with $167.6 in 1996 due to
lower revenues and lower customer response to promotional mailings,
partially offset by lower paper costs and the benefit of
cost-containment initiatives.

1996 V. 1995

Revenues in the United States increased in 1996 to $1,278.9, or
by 7%, compared with 1995. Books and Home Entertainment Products
accounted for 6% of this increase. Within Books and Home Entertainment
Products, the increase was attributable to higher revenues in general
books, due to a higher-priced product mix, the launch of a new
illustrated book series and higher music product revenues, which was
partially attributable to increased membership in music series.
Revenues also increased in Other Businesses due to higher sales at
QSP. Operating profit increased 11% to $167.6 in 1996, compared with
1995, due to higher revenues and the benefit of cost-containment
initiatives, partially offset by higher paper and postage costs.

EUROPE

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Revenues in Europe decreased from $275.6 in 1997 to $217.7, or by
21%, in 1998. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues decreased 10%. The revenue decrease
was primarily due to lower unit sales, and, to a lesser extent,
lower-priced product offerings and sales of a lower-priced product mix
of Books and Home Entertainment Products. Within this segment revenues
declined in the series books, general books and Condensed Books
product lines. Lower sales in major markets were a result of lower
customer response to promotional mailings, reduced mail quantities and
lower paid shipments due to fewer customers carried into 1998 for
Condensed Books and series books product lines. These revenue declines
were partially offset by product expansion in Eastern European
markets. Operating profit decreased significantly in 1998, compared
with 1997, as a result of lower revenues, higher proportionate
overhead and promotional spending and increased spending on investment
initiatives such as list development projects.

1997 V. 1996

Revenues in Europe decreased from $1,379.7 in 1996 to $1,172.2,
or by 15%, in 1997. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues decreased 12%. The decrease in
revenues was primarily due to lower unit sales, and, to a lesser
extent, lower-priced product offerings and sales of a lower-priced
product mix within Books and Home Entertainment Products. Revenues
declined in all product lines within Books and Home Entertainment
Products, except for video products. Operating profit decreased from
$173.5 in 1996 to $101.5, or by 41%, in 1997. Current year results
were affected by increased competitive pressures, the continuing
general weakness in European economies, and the Company's ongoing
actions to restore long-term growth in this region. These actions
include the selective modification of the number of promotional
mailings and mail quantity in a given mailing, variation of
promotional formats, and moderation of product prices. The impact of
these items was partially offset by the benefit of lower product
returns and bad debts, and the implementation of cost-containment
initiatives.

1996 V. 1995

Revenues in Europe decreased from $1,455.8 in 1995 to $1,379.7,
or by 5%, in 1996. Excluding the favorable effects of foreign currency
exchange rates, revenues declined 8%. This decline was attributable
primarily to lower volume in Books and Home Entertainment Products,
including Condensed Books, general books and series books. Operating
profit decreased from $225.5 in 1995 to $173.5, or by 23%, in 1996.
These results reflect the Company's investment in restaging its
European operations, lower customer response rates to some of the
Company's promotional mailings in a number of markets and general
weakness in European economies. Higher paper costs also contributed to
the operating profit decline.

PACIFIC AND OTHER MARKETS

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Revenues in Pacific and Other Markets decreased from $98.9 in
1997 to $95.2, or by 4%, in 1998. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues decreased 2%.
Lower Books and Home Entertainment Products revenues were partially
offset by increased READER'S DIGEST magazine circulation revenues in
new countries. Within Books and Home Entertainment Products, the
decline in revenues was due to lower unit sales of Condensed Books,
and, to a lesser extent, lower-priced product offerings and sales of a
lower-priced product mix in the general books product line. Higher
revenues in Latin America, reflecting product expansion primarily in
Brazil, were more than offset by significant revenue declines in
Australia and Canada, because of lower customer response to
promotional mailings. Operating results declined significantly in 1998
compared with 1997, primarily because of lower revenues and higher
proportionate promotional spending.

1997 V. 1996

Revenues in Pacific and Other Markets decreased from $445.6 in
1996 to $439.8, or by 1%, in 1997. This decrease was caused by lower
Books and Home Entertainment Products revenues; however, increased
READER'S DIGEST Magazine circulation revenues in new countries offset
almost three-quarters of this decline. Within Books and Home
Entertainment Products, the decline in revenues was due to
lower-priced product offerings and sales of a lower-priced product
mix, as well as lower unit sales in 1997, primarily in Condensed Books
and general books. Higher revenues in Latin America, reflecting
product expansion in Brazil and Argentina, were offset primarily by
significant revenue declines in South Africa, because of substantially
lower mail quantities and customer response rates and the country's
economic climate, and in Australia, due to lower customer response to
promotional mailings, including the effect of promotional mailing
variations, and increased competitive pressures. Operating profit
decreased 64% in 1997 to $22.2, primarily because of higher
proportionate promotional spending, continuing investments in new
country expansion, and higher inventory write-offs as a result of
lower customer response rates.

1996 V. 1995

Revenues in Pacific and Other Markets increased from $424.9 in
1995 to $445.6, or by 5%, in 1996. Excluding the unfavorable effects
of foreign exchange, revenues increased 10%. This increase was
attributable to Books and Home Entertainment Products, READER'S DIGEST
Magazine and Other Businesses. Within Books and Home Entertainment
Products, excluding the unfavorable effects of foreign currency
exchange rates, all product lines reported revenue increases due
primarily to higher prices and a higher-priced product mix. For
READER'S DIGEST Magazine the increase was primarily attributable to
increased circulation revenues. Revenues for Other Businesses
increased due to the acquisition of QSP Canada. Operating profit
decreased 12% in 1996 to $62.3. The decrease in operating profit was
primarily attributable to higher paper costs, lower response rates to
promotional mailings and formats in South Africa, and investments in
new countries.

BUSINESS SEGMENTS
- -------------------------------------------------------------

OPERATING PROFIT BY BUSINESS SEGMENT
- -------------------------------------------------------------

OTHER
OPERATING AS
1997 AS REPORTED ITEMS ADJUSTED
- -------------------------------------------------------------

READER'S DIGEST Magazine $ 42.7 $ 5.6 $ 48.3
Books and Home
Entertainment Products 175.6 25.5 201.1
Special Interest
Magazines 0.4 -- 0.4
Other Businesses 22.5 0.5 23.0
Corporate Expense (48.4) 3.4 (45.0)
- -------------------------------------------------------------
$192.8 $35.0 $227.8
- -------------------------------------------------------------

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

OTHER
OPERATING AS
1996(1) AS REPORTED ITEMS ADJUSTED
- -------------------------------------------------------------

READER'S DIGEST Magazine $ 11.2 $ 37.6 $ 48.8
Books and Home
Entertainment Products 192.0 130.1 322.1
Special Interest
Magazines (21.1) 21.4 0.3
Other Businesses (9.9) 42.1 32.2
Corporate Expense (62.9) 3.8 (59.1)
- -------------------------------------------------------------
$109.3 $235.0 $344.3
- -------------------------------------------------------------
- -------------------
[FN]
(1) Results for 1996 include the effects of third quarter charges
($245.0) and fourth quarter savings on the finalization of the
Company's lease termination program in the United Kingdom
($10.0).
</FN>

READER'S DIGEST MAGAZINE

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Revenues for READER'S DIGEST Magazine decreased from $174.9 in
1997 to $172.1, or by 2%, in 1998. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues increased 3%. The
increase in revenues was attributable to higher circulation revenues,
and, to a lesser extent, higher advertising revenues. Circulation
declines in several European countries and lower paid copies in the
United States were more than offset by increased circulation levels in
Brazil, Eastern Europe and Thailand. In addition, higher circulation
revenues in the United States were attributable to a more expensive
mix of subscriptions. A lower number of advertising pages in Europe
was more than offset by higher pages in the United States, as a result
of the special anniversary edition of the magazine in 1998, and in
Pacific and Other Markets. The rate per advertising page decreased due
to a lower average price per page in the United States relating to the
anniversary edition, which was offset by a higher negotiated rate per
page on the regular U.S. editions. Circulation declines in certain
European markets, including the Company's major markets, and the
decline of print advertising's share of the overall European
advertising market negatively impacted advertising revenue. Operating
profit for READER'S DIGEST Magazine decreased in the first quarter of
1998 compared with the same period a year ago. The decrease reflects
higher promotional spending to acquire and renew subscribers who
purchase the Company's other products, and spending on investment
initiatives such as list development projects.

1997 V. 1996

Revenues for READER'S DIGEST Magazine decreased from $739.8 in
1996 to $729.2, or by 1%, in 1997. Circulation revenues were about
even year-over-year, and advertising revenues increased slightly from
the prior year, excluding the adverse effect of changes in foreign
currency exchange rates. Increased circulation levels in Latin
America, Eastern Europe and Thailand were offset by lower paid copies
in several European countries and the United States. The increase in
advertising revenues was attributable to a higher number of
advertising pages sold in Pacific and Other Markets and the United
States, offset by a lower number of pages in Europe, and, to a lesser
extent, a higher average price per page in the United States offset by
a lower average price per page in Pacific and Other Markets. Operating
profit for READER'S DIGEST Magazine decreased in 1997 to $48.3
compared with $48.8 in 1996. The decrease reflects lower revenues,
increased promotional spending and investments in new countries,
partially offset by lower paper costs and the benefit of
cost-containment initiatives.

1996 V. 1995

Revenues for READER'S DIGEST Magazine remained about even at
$739.8 in 1996. The slight increase was primarily due to higher
advertising revenues. The increase in advertising revenues was
attributable to higher rates, and, to a lesser extent, higher
advertising pages. Advertising pages increased in the United States
and Pacific and Other Markets but declined in Europe. Circulation
revenues remained even. Lower circulation levels were offset by higher
subscription pricing. Increased circulation levels in Pacific and
Other Markets were more than offset by decreased circulation levels in
Europe. Subscription price increases in Europe and Pacific and Other
Markets were partially offset by lower average subscription prices in
the United States consistent with the Company's long-term growth
strategy. Operating profit for READER'S DIGEST Magazine decreased in
1996 to $48.8 compared with $78.3 in 1995 due primarily to higher
paper and postage costs and increased promotional spending to retain
high-quality subscribers who purchase the Company's other products.

BOOKS AND HOME ENTERTAINMENT PRODUCTS

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Revenues for Books and Home Entertainment Products decreased from
$439.2 in 1997 to $352.0, or by 20%, in 1998. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues
decreased 14%, principally attributable to the Company's United States
and European operations. The lower revenues were predominantly due to
lower unit sales in the general books, Condensed Books and series
books product lines. The decrease in general books sales was primarily
a result of one fewer promotional mailing in the United States in the
first quarter of 1998 than in the prior year and better customer
response last year to a stronger general books title. The decline in
Condensed Books and series books revenues was caused by a combination
of lower customer response to promotional mailings in major markets,
reduced mail quantities in many markets, and lower paid shipments due
to fewer customers carried into 1998, as well as the timing of
Condensed Books mailings in the United States. Reduced revenues in
certain major markets, caused by lower customer response to
promotional mailings, were offset by expansion in Eastern Europe and
Latin America. Operating profit for Books and Home Entertainment
Products decreased significantly in 1998, compared with 1997. These
operating results were affected by lower revenues, higher
proportionate promotional spending and increased spending on
investment initiatives such as new product development, testing, and
list development projects.

1997 V. 1996

Revenues for Books and Home Entertainment Products decreased from
$2,099.4 in 1996 to $1,850.5, or by 12%, in 1997, principally
attributable to the Company's European operations. Excluding the
adverse effect of changes in foreign currency exchange rates, revenues
decreased 10%. Most product lines reported significantly lower
revenues, primarily due to lower unit sales, and, to a lesser extent,
lower-priced product offerings and sales of a lower-priced product
mix. External factors, including weak European economies and increased
competitive pressures globally, impacted revenues. Tactical
implementation of many simultaneous strategic initiatives, including
varying the quantity and frequency of promotional mailings, moderating
product pricing and introducing greater promotion variety and less
aggressive sweepstakes, contributed to lower revenues in 1997.
Operating profit for Books and Home Entertainment Products decreased
in 1997 to $201.1 compared with $322.1 in 1996. These operating
results were affected by the impact of the Company's strategic actions
to restore long-term growth in Europe, lower than anticipated
responses to promotional mailings in Pacific and Other Markets, higher
inventory write-offs as a result of lower customer response to
promotional mailings in the third and fourth quarter, and lower
customer response to Condensed Books promotional mailings.

1996 V. 1995

Revenues for Books and Home Entertainment Products were even at
$2,099.4 in 1996, compared with 1995. Higher prices and sales of a
higher-priced product mix, and, to a lesser extent, the favorable
effect of changes in foreign currency exchange rates, were offset by a
decrease in unit sales. Higher unit sales in the United States and
Pacific and Other Markets were more than offset by lower unit sales in
Europe. Globally, revenues for series books, music and video products
reported healthy gains, offset by substantially lower revenues for
general books and Condensed Books. Operating profit for Books and Home
Entertainment Products decreased in 1996 to $322.1 compared with
$339.3 in 1995 principally due to lower levels of customer response in
Europe offset by strong performance in the United States. Higher paper
and postage costs also reduced profitability.

SPECIAL INTEREST MAGAZINES

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996

Revenues for Special Interest Magazines increased from $15.7 in
1997 to $21.3, or by 35%, in 1998. This increase was primarily
attributable to the acquisition of WALKING magazine in the third
quarter of 1997. Excluding WALKING, revenues increased 9%, principally
due to a higher number of advertising pages sold in the first quarter
of 1998. Operating results improved in 1998 compared with 1997
primarily as a result of the higher advertising revenues.

1997 V. 1996

Revenues for Special Interest Magazines decreased from $91.9 in
1996 to $81.9, or by 11%, in 1997. This decrease was primarily
attributable to the exclusion of revenues due to the sale of TRAVEL
HOLIDAY magazine in the third quarter of 1996. Excluding prior year
revenues from TRAVEL HOLIDAY, revenues increased 8% in 1997 compared
with 1996. The acquisition of WALKING magazine in the third quarter of
1997 accounted for 3% of the increase in revenues. Revenues also
increased due almost equally to higher circulation levels and
advertising pages sold in 1997. Operating performance improved in 1997
compared with 1996, primarily reflecting the increases in circulation
and advertising revenues.

1996 V. 1995

Revenues for Special Interest Magazines decreased in 1996 to
$91.9, or by 4%, compared with the prior year. This decrease was
primarily attributable to the exclusion of revenues due to the sale of
TRAVEL HOLIDAY magazine in the third quarter of 1996. Excluding
results for TRAVEL Holiday, circulation revenues increased slightly
due primarily to higher subscription pricing while advertising
revenues remained about even compared with the prior year. Operating
performance improved in 1996 compared with 1995 primarily due to lower
advertising sales expenses.

OTHER BUSINESSES

1997 V. 1996

Revenues for Other Businesses, net of intersegment sales,
increased in 1997 to $177.4, or by 6%, compared with the prior year,
primarily due to growth in the merchandise catalog business in the
United Kingdom, higher sales at QSP in the United States and the
introduction of a merchandise catalog business in the United States.
Operating profit decreased because of costs associated with the launch
of the Company's World Wide Web navigation service, LOOKSMART, in 1997
and higher proportionate promotional costs associated with the launch
of the catalog business in the United States, which were partially
offset by increased profits at QSP.

1996 V. 1995

Revenues for Other Businesses, net of intersegment sales,
increased in 1996 to $167.0, or by 19%, compared with the prior year,
primarily due to higher sales at QSP in the United States and the
acquisition of QSP Canada. Operating profit increased because of
magazine subscription growth at QSP, offset by higher paper costs.

CORPORATE EXPENSE

Corporate Expense in the first quarter of 1998 was about even
with the first quarter of 1997 at $10.9. Corporate Expense in 1997
decreased 24% to $45.0 compared with $59.1 in 1996 due principally to
lower recruiting and relocation expenses and the benefit of
cost-containment initiatives. Corporate Expense in 1996 of $59.1
increased 6% compared with $56.0 in the prior year primarily due to
higher recruiting and relocation expenses offset by the benefit of
cost-containment initiatives.

FORWARD-LOOKING INFORMATION

The first priority for the Company is to stabilize the results of
its existing product lines, which, in turn, would provide the
resources to fund future growth. The Company's strategy to stabilize
its business includes the restoration of disciplined techniques of
testing promotions and products and the return to the use of more
effective sweepstakes promotions, as well as continued investment in
new product development and list development initiatives. The
Company's growth strategy includes expanding offerings of new and
existing products through new markets and new marketing channels. Due
to the long lead time nature of the Company's business, the effects of
this strategy are expected to impact results starting in fiscal 1999.

The Company continues to evaluate its long-term strategy and
expects to make significant investments in its existing core product
lines. The Company is formulating a new investment strategy on an
annual basis to supersede the $400.0 program previously announced. The
Company is also evaluating its alliances for strategic fit and return
on investment and expects to renegotiate or terminate certain
alliances. For a discussion of certain risks and uncertainties
involved in the Company's business strategy and the implementation
thereof, see "Prospectus Summary - Recent Developments."

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents, short-term investments and marketable
securities decreased $24.8 to $77.6 at September 30, 1997 compared
with June 30, 1997. The decrease was primarily due to dividend
payments of $24.2 and cash used by operations of $88.5, which were
partially offset by proceeds from the sale of other long-term
investments of $46.1 and net proceeds from short-term borrowings of
$43.2.

In the first quarter of 1998, the Company paid a $0.225 per share
dividend on its Common Stock, representing a 50% decrease compared
with $0.45 per share a year ago. At the current rate, the annualized
dividend is $0.90 per share in 1998 compared with $1.80 in 1997.

The Company did not repurchase any shares of Nonvoting Common
Stock in the first quarter of 1998.

In September 1997, the Company entered into an agreement with
Morgan Guaranty Trust Company of New York for an uncommitted line of
credit of $50.0 (the Morgan line of credit) to be used for general
corporate purposes. The loans under the Morgan line of credit are
payable on demand and bear interest at a floating rate based on the
cost of funds of the bank plus a margin. There were no borrowings
outstanding under the Morgan line of credit at September 30, 1997.

The Company is a party to an agreement with The Chase Manhattan
Bank for a line of credit of $75.0 (the Chase line of credit) for a
term of one year to be used for general corporate purposes. The loans
under the Chase line of credit are payable on demand and bear interest
at a floating rate based on the cost of funds of the bank plus a
margin. At September 30, 1997, loans in the amount of $32.7 were
outstanding under the Chase line of credit at a weighted average
interest rate of 5.8%. In addition, various international subsidiaries
of the Company have lines of credit. At September 30, 1997, loans in
the amount of $40.6 were outstanding under international lines of
credit.

The Company is also a party to a Competitive Advance and
Revolving Credit Facility Agreement dated as of November 12, 1996,
with a syndicate of domestic and foreign banks (the credit agreement).
The credit agreement, which has a term of five years, permits
competitive advance and revolving credit borrowings of up to $400.0 by
the Company and its designated subsidiaries. Interest rates can be
based on: the prime rate, the federal funds rate, the London Interbank
Offered Rate (LIBOR), and money market rates. The proceeds of the
borrowings are to be used for general corporate purposes, including
acquisitions, share repurchases and commercial paper backup. The
credit agreement contains certain restrictions on incurrence of debt,
liens and guarantees of indebtedness. The Company must also comply
with certain financial covenants, including a calculation of
consolidated tangible net worth, which calculation was recently
modified. There were no borrowings outstanding under the credit
agreement at September 30, 1997.

The Company believes that its liquidity, capital resources, cash
flow and borrowing capacity are sufficient to fund normal capital
expenditures, working capital requirements, the payment of dividends,
the Company's share repurchase program, and present plans to expand
existing product lines in existing markets, to identify and develop
new products and markets, and to enter into strategic alliances and
make small acquisitions.

BUSINESS OF THE COMPANY

The Company is a Delaware corporation that was originally
incorporated in New York in 1926 and was reincorporated in Delaware in
1951. The mailing address of its principal executive offices is
Pleasantville, New York 10570 and its telephone number is (914)
238-1000.

Effective September 1997, the Company's businesses were
reorganized into two operating groups, Reader's Digest U.S.A. and
Reader's Digest International. Prior to that time, the Company's
businesses had been organized in four operating groups: Reader's
Digest Europe, Reader's Digest U.S.A., Reader's Digest Pacific and a
fourth operating group that operated the Company's school and youth
group fundraising business and focused on developing new products and
entering new marketing channels. For financial information by
geographic area, see "Prospectus Summary - Summary Financial
Information." The following is a discussion of the operations of the
Company based upon the four business segments through which the
Company reports its results of operations: (1) READER'S DIGEST
Magazine; (2) Books and Home Entertainment Products; (3) Special
Interest Magazines and (4) Other Businesses. For financial information
by business segment, see "Selected Consolidated Financial
Information."

READER'S DIGEST MAGAZINE

READER'S DIGEST magazine is a monthly, general interest magazine
consisting of original articles and previously published articles in
condensed form, a condensed version of a previously published or
soon-to-be published full-length book, monthly humor columns, such as
"Laughter, The Best Medicine(R)," "Life In These United States(R),"
"Humor in Uniform(R)," and "All In A Day's Work(R)," and other regular
features, including "Heroes For Today(R)," "It Pays To Enrich Your
Word Power(R)," "News From The World Of Medicine(R)," "Tales Out of
School(R)," "Virtual Hilarity(R)," and "The VerbaL Edge(TM)." DeWitt
and Lila Wallace founded READER'S DIGEST magazine in 1922. As of
September 30, 1997, READER'S DIGEST has a worldwide circulation of
almost 28 million and approximately 100 million readers each month,
generating revenues of $729.2 million in fiscal 1997, as compared with
$739.8 million in fiscal 1996 and $732.9 million in fiscal 1995.
READER'S DIGEST is published in 48 editions and 19 languages,
including a Slovak language edition that began publication in July
1997. In addition, a Korean edition, an Indian edition, a braille
edition and a recorded edition are published by third parties pursuant
to licenses.

CIRCULATION

Based on the most recent audit report issued by the Audit Bureau
of Circulation, Inc. ("ABC"), a not-for-profit organization that
monitors circulation in the United States and Canada, the Company has
determined that the United States-English language edition of READER'S
DIGEST has the largest paid circulation of any United States magazine,
other than those automatically distributed to all members of the
American Association of Retired Persons. Approximately 95% of the
United States paid circulation of READER'S DIGEST consists of
subscriptions. The balance consists of single copy sales at newsstands
and in supermarkets and similar establishments.

READER'S DIGEST is truly a global magazine. Many of its
international editions have the largest paid circulation for monthly
magazines both in the individual countries and in the regions in which
they are published. For most international editions of READER'S
DIGEST, subscriptions comprise about 90% of circulation. The balance
is attributable to newsstand and other retail sales.

The Company maintains its circulation rate base through annual
subscription renewals and new subscriptions. The global circulation
rate base for READER'S DIGEST of 27.7 million includes a circulation
rate base of 15 million for the United States - English language
edition. In the United States, the Company sells approximately five
million new subscriptions each year in order to maintain its
circulation rate base. New subscriptions are sold primarily by direct
mail, with extensive use of sweepstakes entries. The largest
percentage of subscriptions is sold between July and December of each
year. Subscriptions to READER'S DIGEST may be canceled at any time and
the unused subscription price is refunded.

Worldwide revenues from circulation accounted for $558.9 million,
or 77% of the total revenues of READER'S DIGEST magazine, in the
fiscal year ended June 30, 1997.

ADVERTISING

In fiscal 1997, READER'S DIGEST carried 13,484 advertising pages:
1,075 advertising pages in its United States-English language edition
and 12,409 advertising pages in its other editions. The United States
and the larger international editions of READER'S DIGEST offer
advertisers different regional editions, major market editions and
demographic editions. These editions, usually containing the same
editorial material, permit advertisers to concentrate their
advertising in specific markets or to target specific audiences.
READER'S DIGEST sells advertising in both the United States and
international editions principally through an internal advertising
sales force. The Company sells advertisements in multiple editions
worldwide, and offers advertisers discounts for placing advertisements
in more than one edition.

Worldwide revenues from advertising accounted for $170.3 million,
or 23% of the total revenues of READER'S DIGEST magazine, in the
fiscal year ended June 30, 1997.

EDITORIAL

READER'S DIGEST is a reader-driven, family magazine. Editorial
content is, therefore, crucial to the loyal subscriber base that
constitutes the cornerstone of the Company's operations. The editorial
mission of READER'S DIGEST is to inform, enrich, entertain and
inspire. The articles, book section and features included in READER'S
DIGEST cover a broad range of contemporary issues and reflect an
awareness of traditional values.

A substantial portion of the selections in READER'S DIGEST are
original articles written by staff writers or free-lance writers. The
balance is selected from existing published sources. All material is
condensed by READER'S DIGEST editors. The Company employs a
professional staff to research and fact-check all published pieces.

Each international edition has a local editorial staff
responsible for the editorial content of the edition. The mix of
locally generated editorial material, material taken from the United
States edition and material taken from other international editions
varies greatly among editions. In general, the Company's larger
international editions, for example, those in Canada, France, Germany
and the United Kingdom, carry more original or locally adapted
material than do smaller editions.

PRODUCTION AND FULFILLMENT

All editions of READER'S DIGEST are printed by independent third
parties. The United States edition is printed exclusively by one
printer in Pennsylvania under a 10-year contract that commenced in
fiscal 1997. The Company believes that generally there is an adequate
supply of alternative printing services available to the Company at
competitive prices, should the need arise. The Company has developed
plans to minimize recovery time in the event of a disaster at an
existing printing facility.

The principal raw materials used in the publication of READER'S
DIGEST are coated and uncoated paper. The Company has supply contracts
with a number of global suppliers of paper and believes that those
supply contracts provide an adequate supply of paper for its needs and
that, in any event, alternative sources are available at competitive
prices. Paper prices are affected by a variety of factors, including
demand, capacity, pulp supply, and by general economic conditions.

Subscription copies of the United States edition of READER'S
DIGEST are delivered through the United States Postal Service as
"periodicals" class mail. Subscription copies of international
editions are also delivered through the postal service in each
country. For additional information about postal rates and service,
see "--Direct Marketing Operations."

Newsstand and other retail distribution is accomplished through a
distribution network. The Company has contracted in each country with
a magazine distributor for the distribution of READER'S DIGEST.

BOOKS AND HOME ENTERTAINMENT PRODUCTS

The Company publishes and markets, principally by direct mail,
Reader's Digest Condensed Books, series books, general books, recorded
music collections and series and home video products. See "--Direct
Marketing Operations."

CONDENSED BOOKS

Reader's Digest Condensed Books (called "Select Editions" in
certain markets) is a continuing series of condensed versions of
primarily current popular fiction. Condensation reduces the length of
an existing text, while retaining the author's style, integrity and
purpose. As of September 30, 1997, 16 editions of Condensed Books,
published in 12 languages, are marketed in 24 countries. In fiscal
1997, Condensed Books generated worldwide revenues of $305.0 million,
as compared with $370.4 million in fiscal 1996 and $392.1 million in
fiscal 1995.

International editions of Condensed Books generally include some
material from the United States edition or from other international
editions, translated and edited as appropriate, and some condensations
of locally published works. Each local editorial staff determines
whether existing Condensed Books selections are appropriate for their
local market.

The Company publishes six volumes of Condensed Books a year in
the United States. Some of the Company's international subsidiaries
also publish six volumes a year, while others publish five.

SERIES BOOKS

The Company markets two types of series books: reading series and
illustrated series. These book series may be open-ended continuing
series, or may consist of a limited number of volumes. Series books
are published in nine languages and marketed in 18 countries. In
fiscal 1997, series books generated worldwide revenues of $209.5
million, as compared with $264.3 million in fiscal 1996 and $236.6
million in fiscal 1995.

Reading series marketed in the United States include TODAY'S BEST
NONFICTION, which consists of five volumes per year each generally
containing condensed versions of four contemporary works of nonfiction
and THE WORLD'S BEST READING, consisting of full-length editions of
classic works of literature, of which six volumes are published each
year. TODAY'S BEST NONFICTION is published in 10 countries in three
languages and THE WORLD'S BEST READING is published in eight countries
in three languages.

The Company markets illustrated series, which are generally
closed-ended, in the United States and several other countries.

GENERAL BOOKS

The Company's general books consist primarily of reference books,
cookbooks, "how-to" and "do-it-yourself" books, children's books and
books on subjects such as history, travel, religion, health, nature
and the home. General books are published in 16 languages and are
marketed in 37 countries. In fiscal 1997, general books generated
worldwide revenues of $675.9 million, as compared with $753.5 million
in fiscal 1996 and $808.7 million in fiscal 1995.

New general books are generally original Reader's Digest books,
but may also be books acquired from other publishers. During the
development period for an original Reader's Digest book, the Company
conducts extensive research and prepares an appropriate marketing
strategy for the book.

Although most sales of a general book will result from the
initial bulk promotional mailing, substantial additional sales occur
through subsequent promotions, catalog sales and the use of sales
inserts in mailings for other Reader's Digest products. The Company
also distributes its books for retail sale in stores, through
third-party distributors.

MUSIC

The Company publishes recorded music packages on cassettes and
compact discs, which it sells principally by direct mail. The music
packages are generally collections of previously recorded and newly
commissioned material by a variety of artists, although they may
include selections from the Company's 17,000-selection library. The
collections span a broad range of musical styles. In certain markets,
the Company also sells music series, which are marketed in the same
manner as Condensed Books and series books. The marketing strategy for
music packages is similar to that for general books. The Company
markets music products in 32 countries, offering different music
products in the various international markets because of diverse
tastes. In fiscal 1997, music products generated worldwide revenues of
$404.2 million, as compared with $460.1 million in fiscal 1996 and
$435.9 million in fiscal 1995.

TELEVISION AND VIDEO

The Company's television and home video products are in genres
similar to its general books. Several original programs have won
awards of excellence, including five Emmy awards, and have appeared on
the Disney Channel and the Discovery Channel. The Company continues to
expand its video operations in the United States and in international
markets and is presently marketing video products principally by
direct mail in the United States and 30 other countries. Most of the
Company's original programs have been licensed to cable television
networks. The Company also sells its home video products through
retail establishments. In fiscal 1997, home video products generated
worldwide revenues of $243.5 million, as compared with $241.3 million
in fiscal 1996 and $218.7 million in fiscal 1995.

PRODUCTION AND FULFILLMENT

The various editions of Condensed Books are printed and bound by
third-party contractors. The Company is a party to an exclusive
agreement through 2002 for printing English language Condensed Books
distributed in the United States and Canada. The Company solicits bids
for the printing and binding of each general book or book series.
Production and manufacture of music and video products is typically
accomplished through third parties.

The principal raw material necessary for the publication of
Condensed Books, series books and general books is paper. The Company
has a number of paper supply arrangements relating to paper for
Condensed Books. Paper for series books and general books is purchased
for each printing. The Company believes that existing contractual and
other available sources of paper provide an adequate supply at
competitive prices. Third parties arrange for the acquisition of some
of the necessary raw materials for the manufacture of music and video
products.

Fulfillment, warehousing, customer service and payment processing
are conducted principally by independent contractors. Most of the
Company's products are packaged and delivered to the Postal Service
directly by the printer or supplier. For information about postal
rates and service, see "--Direct Marketing Operations."

In all of the Company's direct marketing sales, a customer may
return any book or home entertainment product to the Company either
prior to payment or after payment for a refund. The Company believes
that its returned goods policy is essential to its reputation and also
elicits a greater number of orders, many of which are not returned
because of the generally high satisfaction rate of consumers with the
Company's products. This policy and a "first book free" policy for
Condensed Books and series books result in a significant amount of
returned goods.

Sales of the Company's books and home entertainment products are
seasonal to some extent. In the direct marketing industry as a whole,
the winter months have traditionally had higher consumer response than
other times of the year. Sales are also higher during the
pre-Christmas season than in spring and summer.

DIRECT MARKETING OPERATIONS

The sale of magazine subscriptions, Condensed Books, series
books, general books, music and video products, as well as certain
other products, is accomplished principally through direct mail
solicitations to households on the Company's customer lists, usually
accompanied by sweepstakes entries and, in some cases, premium
merchandise offers. For many years the Company has been acknowledged
as a pioneer and innovator in the direct mail industry.

As part of its growth strategy, the Company has begun to pursue
increased distribution of its products through direct response
channels other than direct mail, such as direct response television,
telemarketing and the Internet, as well as expanded direct marketing
channels, such as catalogs and clubs.

The Company is adapting the editorial content and the marketing
methods of its magazines and books and home entertainment products to
new technologies, such as computer on-line services. In 1997, the
Company launched READER'S DIGEST WORLD, a global World Wide Web site
(www.readersdigest.com) that links the Company's 13 local and
international Web sites, for shopping and information about the
Company's products.

To promote the sale of its products in the United States, the
Company usually offers a sweepstakes in its promotional mailings.
Prizes totaled about $15 million for the 1997 edition of the
sweepstakes. Generally, each of the Company's international
subsidiaries sponsors its own sweepstakes, the mechanics of which vary
from jurisdiction to jurisdiction, depending upon local law.

From time to time, the Company is involved in proceedings
concerning its direct marketing promotions. Also from time to time,
more restrictive laws or regulations governing sweepstakes or direct
marketing are considered in some jurisdictions, principally in Europe.
The Company does not believe that such proceedings and proposed laws
and regulations will have a material adverse effect on the Company's
direct marketing business.

The Company is subject to postal rate increases, which affect its
product deliveries, promotional mailings and billings. Postage is one
of the Company's largest expenses in its promotional and billing
activities. In the past, the Company has had sufficient advance notice
of most increases in postal rates so that the higher rates could be
factored into the Company's pricing strategies and operating plans.
Because increased prices (or increased delivery charges paid by
customers) may have a negative effect on sales, the Company may
strategically determine from time to time the extent, if any, to which
these cost increases are passed on to its customers.

The Company relies on postal delivery service in the
jurisdictions in which it operates for timely delivery of its products
and promotional mailings. In the United States and most international
markets, delivery service is generally satisfactory. Some
international jurisdictions, however, experience periodic work
stoppages in postal delivery service or less than adequate postal
efficiency, although these problems have not had a significant impact
on the Company.

In some states in the United States and in some foreign
jurisdictions, some or all of the Company's products are subject to
sales tax or value added tax. Tax, like delivery, is generally stated
separately on bills where permitted by applicable law. Nonetheless,
tax increases or imposition of new taxes increases the total cost to
the customer and thus may have a negative effect on sales. Moreover,
in jurisdictions where applicable tax must be included in the purchase
price, the Company may be unable to fully recover from customers the
amount of any tax increase or new tax.

MANAGEMENT INFORMATION SYSTEMS AND CUSTOMER LIST ENHANCEMENT

The size and quality of the Company's computerized customer list
of current and prospective customers in each country in which it
operates contribute significantly to its business and the Company is
constantly striving to improve its lists. The Company believes that
its United States list of over 50 million households - over half the
total number of households in the country - is one of the largest
direct response lists in the United States. The Company's
international lists include a comparable number of households, in the
aggregate.

The Company is making and will continue to make significant
investments in management information systems in order to improve its
operating efficiencies, increase the level of service provided to its
customer base and facilitate globalization of the Company.

List management activity is limited in some international
subsidiaries because local jurisdictions, particularly in Europe, have
data protection laws or regulations prohibiting or limiting the
exchange of such information. Certain jurisdictions also prohibit the
retention of information, other than certain basic facts, about
noncurrent customers. Although data protection laws in effect from
time to time may hinder the Company's list enhancement capacity, the
Company believes that current laws and regulations do not prevent the
Company from engaging in activities necessary to its business.

SPECIAL INTEREST MAGAZINES

The Company publishes several special interest magazines that it
deems consistent with its image, editorial philosophy and market
expertise. THE FAMILY HANDYMAN magazine provides instructions and
guidance for "do-it-yourself" home improvement projects. NEW CHOICES:
LIVING EVEN BETTER AFTER 50 magazine is aimed at active, mature
readers and provides information on entertainment, travel, health and
leisure time activities. AMERICAN HEALTH FOR WOMEN magazine provides
helpful information on medicine, nutrition, psychology and fitness as
those issues relate to women. In 1997, the Company acquired WALKING
magazine, which provides information on health and fitness for walking
enthusiasts. These magazines are sold by subscription and on the
newsstand. Like most magazines, the Company's special interest
magazines are highly dependent on advertising revenue. Each of these
magazines publishes 10 issues per year, except WALKING, which
publishes six times per year. The Company also publishes MONEYWISE
magazine, a magazine devoted to helping families manage their
finances, in the United Kingdom.

The following table sets forth the circulation rate base of each
of the Company's United States special interest magazines at June 30,
1997, as well as the number of advertising pages carried for the
fiscal year ended June 30, 1997. Circulation rate base data is as
reported to ABC.

NUMBER OF
CIRCULATION ADVERTISING
RATE BASE PAGES CARRIED
--------- -------------
THE FAMILY HANDYMAN 1,000,000 580
AMERICAN HEALTH FOR WOMEN 900,000 461
NEW CHOICES: LIVING EVEN
BETTER AFTER 50 600,000 486
WALKING 625,000 327

MONEYWISE had a circulation rate base of 107,800 as of the end of
fiscal 1997 and carried 515 pages of advertising.

Of total revenues of $81.9 million for the Company's special
interest magazines in fiscal 1997, 61% was generated by circulation
revenues and 39% by advertising revenues.

The U.S. magazines are promoted to the Company's U.S. customer
list and the Company's other products are promoted to each magazine's
customer list, as appropriate. This strategy helps to expand the
Company's customer base for all of its products.

QSP

QSP is in the business of assisting schools and youth groups in
the United States and Canada in their fundraising efforts. QSP's staff
helps schools and youth groups prepare fundraising campaigns in which
participants sell magazine subscriptions, music and video products,
books, food and gifts. QSP derives its revenue from a portion of the
proceeds of each sale. Several hundred publishers (including the
Company) make magazine subscriptions available to QSP at a substantial
discount. QSP also obtains discounted music products from a large
music publisher. Processing of magazine subscription orders and
payments is performed for QSP by an independent contractor.

COMPETITION AND TRADEMARKS

Although READER'S DIGEST magazine is a unique and
well-established institution in the magazine publishing industry, it
competes with other magazines for subscribers and with magazines and
all other media, including radio and television, for advertising. The
Company believes that the extensive and longstanding international
operations of READER'S DIGEST provide the Company with a significant
advantage over competitors seeking to establish a global publication.

The Company owns numerous trademarks that it uses in its business
worldwide. Its two most important trademarks are "Reader's Digest" and
the "Pegasus" logo. The Company believes that the name recognition,
reputation and image that it has developed in each of its markets
significantly enhance customer response to the Company's direct
marketing sales promotions. Accordingly, trademarks are important to
the Company's business and the Company aggressively defends its
trademarks.

The Company believes that its name, image and reputation, as well
as the quality of its customer lists, provide a significant
competitive advantage over many other direct marketers. However, the
Company's books and home entertainment products business is in
competition with companies selling similar products at retail as well
as by direct marketing. Because tests show that consumers' responses
to direct marketing promotions can be adversely affected by the
overall volume of direct marketing promotions, the Company is also in
competition with all other direct marketers, regardless of whether the
products being offered are similar to the Company's products.

Each of the Company's special interest magazines is in
competition with other magazines of the same genre for readers and
advertising. Nearly all of the Company's products compete with other
products and services that utilize leisure activity time or disposable
income.

EMPLOYEES

As of June 30, 1997, the Company employed approximately 5,900
persons worldwide; approximately 2,200 were employed in the United
States and 3,700 were employed by the Company's international
subsidiaries. The Company's relationship with its employees is
generally satisfactory.

PROPERTIES

The Company's headquarters and principal operating facilities are
situated on approximately 120 acres in Westchester County, New York,
much of which the Company acquired in 1940. The site includes five
principal buildings aggregating approximately 697,000 square feet that
house executive, administrative, editorial and operational offices,
and data processing and other facilities. In New York City, the
Company leases approximately 181,000 square feet of office space in a
total of three buildings, portions of which are used as editorial
offices for its books and home entertainment products business, as
advertising sales offices for READER'S DIGEST magazine and as offices
for the Company's special interest magazines. The Company leases space
totaling approximately 52,000 square feet for an editorial bureau,
advertising sales offices and other purposes in various cities in the
United States. A subsidiary of the Company also leases 36,000 square
feet of office space in Westport, Connecticut.

QSP leases approximately 163,000 square feet in Conyers, Georgia,
4,000 square feet in Danbury, Connecticut, and 21,000 square feet in
Ridgefield, Connecticut.

The Company owns approximately 1,613,200 square feet and leases
approximately 531,000 square feet of space outside the United States
that is utilized by the Company's international operating subsidiaries
principally as headquarters, administrative and editorial offices and
warehouse space. The foregoing properties owned by the Company include
207,000 square feet of space in Swindon, England, in a building owned
by the Company on land leased by the Company through 2076.

The Company believes that its current facilities, together with
expansions and upgrading of facilities presently underway or planned,
are adequate to meet its present and reasonably foreseeable needs. The
Company also believes that adequate space will be available to replace
any leased facilities for which the leases expire in the near future.

LEGAL PROCEEDINGS

The Company and its subsidiaries are defendants in various
lawsuits and claims arising in the regular course of business. Based
on the opinions of management and counsel for such matters,
recoveries, if any, by plaintiffs and claimants would not materially
affect the financial position of the Company or its results of
operations.

MANAGEMENT

DIRECTORS

The Board of Directors currently consists of eight members who
are elected annually to hold office until the next Annual Meeting or
until their successors are duly elected and qualified. The Board of
Directors is responsible for the management of the Company's business.

Set forth below opposite the name and age of each Director are
the Director's present positions and offices with the Company, the
year in which the Director was first elected a Director of the Company
and the Director's principal occupations during the past five years.

POSITIONS AND OFFICES WITH THE COMPANY AND
PRINCIPAL OCCUPATIONS DURING THE
NAME AND AGE PAST FIVE YEARS
- --------------------- -------------------------------------------

George V. Grune
(68).............. Mr. Grune returned to the Company to
serve as Chairman of the Board and Chief
Executive Officer on August 11, 1997,
after having previously served as
Chairman of the Board of the Company
until his retirement in August 1995 and
as Chief Executive Officer until August
1994. Mr. Grune first joined the Company
in 1960 and was a member of the Board of
Directors from 1976 to 1995. Mr. Grune
has also served as Chairman of the DeWitt
Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund,
Inc. since July 1987. Mr. Grune is also a
director of Avon Products, Inc., The
Chase Manhattan Corporation, CPC
International, Inc. and Federated
Department Stores, Inc.

Melvin R. Laird
(75).............. Mr. Laird has been a member of the Board
of Directors of the Company since 1990.
He has served as Senior Counsellor for
national and international affairs since
1974 and was elected to the additional
position of Vice President in 1989. Mr.
Laird joined the Company in 1974. Mr.
Laird also serves as a director of IDS
Mutual Fund Group.

Lynne V. Cheney
(56).............. Dr. Cheney joined the Board of Directors
in 1993. She is an author, lecturer and
television commentator with CNN and has
been a senior fellow of the American
Enterprise Institute for Public Policy
Research since January 1993. She served
as Chairman of the National Endowment for
the Humanities from May 1986 to January
1993. Dr. Cheney is also a director of
FPL Group, Inc. (parent of Florida Power
& Light Company), IDS Mutual Fund Group,
Lockheed-Martin Corporation and Union
Pacific Resources Group, Inc.

M. Christine DeVita
(47).............. Ms. DeVita has been a member of the Board
of Directors of the Company since 1993.
She has been President of the DeWitt
Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund,
Inc. since June 1989.

James E. Preston
(64).............. Mr. Preston has been a member of the
Board of Directors of the Company since
1994. He became Chairman of the Board of
Avon Products, Inc. (beauty and related
products) in January 1989 and has been
Chief Executive Officer since 1988,
holding the additional position of
President from 1988 until November 1993.
Mr. Preston also serves on the boards of
directors of Aramark, Inc. and Woolworth
Corporation.

Robert G. Schwartz
(69).............. Mr. Schwartz has been a member of the
Board of Directors of the Company since
1989. He retired in April 1993 as
Chairman of the Board, President and
Chief Executive Officer of Metropolitan
Life Insurance Company, having served in
that position since September 1989. Mr.
Schwartz also serves on the boards of
directors of COMSAT Corporation,
Consolidated Edison Co. of New York,
Inc., Lone Star Industries, Inc., Lowe's
Companies, Inc., Mobil Corporation and
Potlatch Corporation.

C.J. Silas
(65).............. Mr. Silas has been a member of the Board
of Directors of the Company since 1992.
He retired in May 1994 as Chairman and
Chief Executive Officer of Phillips
Petroleum Company, positions he had held
since 1985. Mr. Silas is also a director
of Halliburton Company.

William J. White
(59).............. Mr. White has been a member of the Board
of Directors of the Company since 1996.
He has been Chairman of the Board of Bell
& Howell Company (information access and
mail processing systems) since 1990 and
served as Chief Executive Officer from
February 1990 to March 1997 and as
President from February 1990 to February
1995. Mr. White is also a director of
Ivex Packaging Corporation and TJ
International, Inc.

EXECUTIVE OFFICERS

The following paragraphs set forth the name, age and offices with
the Company of each present executive officer of the Company, the
period during which each executive officer has served as such and each
executive officer's business experience during the past five years:

NAME AND AGE POSITIONS AND OFFICES WITH THE COMPANY
- --------------------- -------------------------------------------
George V. Grune
(68).............. Mr. Grune returned to the Company to
serve as Chairman of the Board and Chief
Executive Officer on August 11, 1997,
after having previously served as
Chairman of the Board of the Company
until his retirement in August 1995 and
as Chief Executive Officer until August
1994. Mr. Grune first joined the Company
in 1960.

M. John Bohane
(61).............. Mr. Bohane has been Senior Vice President
of the Company and President,
International Operations since September
8, 1997. He first joined the Company in
1964 and served in a number of executive
capacities, including President, Direct
Marketing Group, until leaving the
Company in July 1991. Prior to rejoining
the Company, Mr. Bohane served as
President and Chief Executive Officer of
Newfield Publications from April 1994 to
July 1995 and as Vice President of
Corporate Database Marketing of
Time-Warner, Inc., from April 1992 to
December 1993.

Peter J.C. Davenport

(57).............. Mr. Davenport has been Senior Vice
President, Global Marketing of the
Company since September 8, 1997. He
served as Senior Vice President, Global
Direct Marketing from January 1994 until
his retirement in March 1997 and as Vice
President, Global Direct Marketing from
September 1991 to January 1994. Mr.
Davenport first joined the Company in
1958.

Richard A. Garvey
(49).............. Mr. Garvey has been Senior Vice
President, Corporate Planning and New
Business Development since September 8,
1997 and was a Vice President and Group
President, Global Marketing and New
Channels of the Company from the time he
joined the Company in September 1996. He
was previously Vice President, Marketing
of LEGO Systems, Inc. (children's
educational and entertainment products).

Marcia M. Lefkowitz
(53).............. Ms. Lefkowitz has been a Senior Vice
President and President of Reader's
Digest U.S.A. since September 8, 1997.
Prior thereto, Ms. Lefkowitz served as
the Company's Senior Consultant for
Marketing and Marketing Systems Projects
from November 1995, as Vice President,
Marketing, Reader's Digest U.S.A. from
July 1993, Vice President, Marketing
Systems from February 1993 and Vice
President, Global New Business
Development prior thereto. Ms. Lefkowitz
joined the Company in 1967.

George S. Scimone
(50).............. Mr. Scimone has been Vice President and
Chief Financial Officer of the Company
since September 8, 1997. Prior thereto,
he was a Vice President and President,
Reader's Digest U.S.A. from November 1996
and Vice President and Corporate
Controller from September 1995. Prior to
joining the Company, Mr. Scimone was
Business Chief Financial Officer,
Electrical Distribution and Control of
General Electric Company.

Christopher P. Willcox
(51).............. Mr. Willcox has been Senior Vice
President and Editor-in-Chief of READER'S
DIGEST magazine since March 1996. He
served as World-wide Executive Editor
from June 1994 to March 1996, Executive
Editor, International from October 1991
to June 1994 and Assistant Managing
Editor from 1990 to 1991. He joined the
Company in 1988.

Pursuant to the By-Laws of the Company, officers serve at the
pleasure of the Board of Directors. Officers of the Company are
elected annually to serve until their respective successors are
elected and qualified.

USE OF PROCEEDS

The Company will not receive any proceeds from the sales of the
shares of Nonvoting Common Stock. All of the shares of Nonvoting
Common Stock being offered are beneficially owned by the Selling
Stockholders.

PRINCIPAL STOCKHOLDERS

The following table shows, based on information reported to the
Company by or on behalf of such persons, the ownership, as of November
30, 1997, of the Company's voting securities by the only persons
known to the Company to be the beneficial owners of more than five
percent of the Voting Common Stock, the only class of voting
securities of the Company outstanding:

NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------

DeWitt Wallace-Reader's 7,750,000 shares 35.69%
Digest Fund, Inc. (sole voting and
Two Park Avenue investment power)
New York, NY 10016 (1)

Lila Wallace-Reader's 7,750,000 shares 35.69%
Digest Fund, Inc. (sole voting and
Two Park Avenue investment power)
New York, NY 10016 (1)

State Street Bank and Trust 1,716,057 shares 7.90%
Company, (shared voting
as trustee of The Reader's and investment
Digest Employees power)
Profit-Sharing Plan (2)

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

[FN]
(1) As of November 30, 1997, the DeWitt Wallace-Reader's Digest
Fund, Inc. also owned 6,117,240 shares of Nonvoting Common Stock,
which, together with its holding of Voting Common Stock,
represented 13.04% of the total outstanding common stock of the
Company. The Lila Wallace-Reader's Digest Fund, Inc. also owned
2,439,558 shares of Nonvoting Common Stock, which, together with
its holding of Voting Common Stock, represented 9.58% of the
total outstanding common stock of the Company.

(2) State Street Bank and Trust Company ("State Street") is trustee
of the Trust created by the Trust Agreement amended and restated
as of July 1, 1992 between The Reader's Digest Association, Inc.
and State Street, as trustee, relating to The Reader's Digest
Employees Profit-Sharing Plan (the "Profit-Sharing Plan").
According to the Schedule 13G filed by State Street in such
capacity and received by the Company, State Street may be deemed
to have shared voting and shared dispositive power over the
shares listed, but has disclaimed beneficial ownership of all
such shares.
</FN>

Each of the DeWitt Wallace-Reader's Digest Fund, Inc. and the
Lila Wallace-Reader's Digest Fund, Inc. (collectively, the "Funds")
has five members and a board consisting of five directors. Ms. DeVita
and Mr. Silas, who are Directors of the Company, and Mr. Grune, who is
Chairman of the Board and Chief Executive Officer of the Company, are
also members and directors of each of the Funds.

It has been the Company's objective since fiscal 1990 that the
Company's employee benefit plans, including the Profit-Sharing Plan,
would hold up to 20% of the Voting Common Stock, or approximately 4%
of the equity in Common Stock of the Company, by the end of fiscal
1999. As of November 30, 1997, approximately 7.90% of the outstanding
Voting Common Stock is held by the Profit-Sharing Plan, which is the
only employee benefit plan that holds such stock.

In order to avoid the imposition of excise taxes, commencing in
the year 2000 the Funds together may not own more than 50% of the
voting stock or value of the Company. Accordingly, the Funds must
reduce their aggregate holdings of Voting Common Stock to 50% by the
year 2000. The Funds presently own approximately 71% of the
outstanding Voting Common Stock. The Funds will be required to dispose
of between 3-to-4.5 million shares of Voting Common Stock by the year
2000 (depending on the amount of Voting Common Stock outstanding,
including the amount held by the Company's employee benefit plans), in
order to avoid the imposition of excise taxes. No determination has
been made at this time as to the manner in which, or the time during
which, further reductions in ownership of Voting Common Stock will be
effected. The Funds intend to retain 50% of the Voting Common Stock as
long-term investors.

SELLING STOCKHOLDERS

Pursuant to the Contracts (as defined in the Trust Prospectus), a
specified number of shares of Nonvoting Common Stock will be required
to be delivered to the Trust by the Selling Stockholders listed below
(the "Selling Stockholders") upon exchange of the Automatic Common
Exchange Securities. The following table sets forth certain
information for each Selling Stockholder with respect to (i) such
Selling Stockholder's beneficial ownership of the Nonvoting Common
Stock as of the date of this Prospectus and (ii) the maximum number of
shares of such Selling Stockholder that may be delivered to the Trust
pursuant to the applicable Contract (without taking into account the
Underwriters' over-allotment option). The Selling Stockholder's
beneficial ownership of the Nonvoting Common Stock will not change as
a result of the offering of the Automatic Common Exchange Securities
unless, until and to the extent, the Selling Stockholders deliver
shares of Nonvoting Common Stock to the Trust pursuant to the
Contracts.

SHARES OF % OF SHARES
NONVOTING OF NONVOTING MAXIMUM NUMBER OF
COMMON STOCK COMMON STOCK SHARES OF NONVOTING
BENEFICIALLY BENEFICIALLY COMMON STOCK
OWNED AS OF OWNED AS OF DELIVERABLE TO TRUST
SELLING STOCKHOLDER DECEMBER 18, 1997 DECEMBER 18, 1997 PURSUANT TO CONTRACT
- ------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>

Lila Acheson and DeWitt
Wallace Fund for
Lincoln Center(1) 6,380,759 7.5 2,011,312

DeWitt Wallace Fund for
Macalester College(1)(2) 5,957,310 7.0 2,978,655

Community Funds, Inc. 3,254,188 3.8 1,025,769

Lila Acheson and DeWitt
Wallace Fund for Hudson
Highlands(1)(3) 5,510,657 6.5 2,646,902

Lila Acheson Wallace
Fund for the New York
Zoological Society(1)(3) 2,900,346 3.4 914,233

DeWitt Wallace Fund for
Memorial Sloan-Kettering
Cancer Center(1)(3) 2,320,277 2.7 731,386

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

<FN>
(1) Mr. Grune, the Chairman of the Board and Chief Executive Officer
of the Company, is President, a member and director of the Lila
Acheson and DeWitt Wallace Fund for Lincoln Center, the DeWitt
Wallace Fund for Macalester College, the Lila Acheson and DeWitt
Wallace Fund for the Hudson Highlands, the Lila Acheson Wallace
Fund for the New York Zoological Society and the DeWitt Wallace
Fund for Memorial Sloan-Kettering Cancer Center.

(2) Mr. Laird, a director, Senior Counselor for national and
international affairs and Vice President of the Company, is a
member and director of The DeWitt Wallace Fund for Macalester
College.

(3) Ms. DeVita, a director of the Company, is a member and director
of the Lila Acheson and DeWitt Wallace Fund for the Hudson
Highlands, the Lila Acheson Wallace Fund for the New York
Zoological Society and the DeWitt Wallace Fund for Memorial
Sloan-Kettering Cancer Center.
</FN>
</TABLE>

The Company has agreed to indemnify each of the Selling
Stockholders, its directors, officers and certain controlling persons
against certain liabilities, including liabilities under the
Securities Act.

DESCRIPTION OF CAPITAL STOCK

The following statements are subject to the detailed provisions
of the Company's Restated Certificate of Incorporation and By-Laws, do
not purport to be complete, and are qualified in their entirety by
reference thereto.

The Company is authorized to issue 200,000,000 shares of
Nonvoting Common Stock, par value $0.01 per share, of which 84,598,818
were issued and outstanding as of November 30, 1997 and 25,000,000
shares of Voting Common Stock, par value $0.01 per share, of which
21,716,057 shares were issued and outstanding as of November 30, 1997.

The Company is also authorized to issue 40,000 shares of
Preferred Stock (the "First Preferred Stock"), par value $1.00 per
share, 120,000 shares of Second Preferred Stock (the "Second Preferred
Stock"), par value $1.00 per share, 230,000 shares of Third
Subordinated Preferred Stock (the "Third Preferred Stock"), par value
$1.00 per share (the First Preferred Stock, Second Preferred Stock and
Third Preferred Stock collectively, the "Preferred Stock") and
25,000,000 shares of Preference Stock, par value $0.01 per share,
issuable in series (the "Preference Stock").

As of November 30, 1997, there were outstanding 29,720 shares of
First Preferred Stock, 103,720 shares of Second Preferred Stock and
155,022 shares of Third Preferred Stock. No shares of Preference Stock
have been issued.

The Preference Stock is issuable in series, and the Board of
Directors has authority to designate the powers, preferences and
rights pertaining to each series, subject to certain limitations
relating to voting rights (described below) and convertibility into
voting stock of the Company.

The Preferred Stock is primarily held by various charities and
charitable remainder annuity trusts, all of which received their
shares, directly or indirectly, by gift or bequest from DeWitt and
Lila Wallace.

VOTING RIGHTS

Holders of Nonvoting Common Stock and Preferred Stock have no
voting power for any purpose whatsoever, except as otherwise provided
by law. Holders of Voting Common Stock have full voting power for all
purposes, except as otherwise required by law and except that the
Board of Directors may designate one or more series of Preference
Stock, the holders of which may have the right to elect an aggregate
of no more than two additional directors in the event of dividend
arrearages specified in the designation. The Board of Directors may
designate one or more series of Preference Stock with additional
voting rights, if the designation is approved by the holders of Voting
Common Stock.

DIVIDEND AND LIQUIDATION RIGHTS

Holders of First Preferred Stock and Second Preferred Stock are
entitled to receive an annual dividend of $4.00 per share, and holders
of Third Preferred Stock are entitled to receive an annual dividend of
$5.00 per share. Holders of all classes of Preferred Stock are
entitled to a liquidation preference of $100.00 per share (together
with an amount equal to all accrued and unpaid dividends) and are
entitled to receive $105.00 per share, together with unpaid, accrued
dividends, upon a redemption of shares of Preferred Stock by the
Company. Subject to these rights of holders of Preferred Stock, and
subject to such rights of holders of Preference Stock that may become
outstanding pursuant to designation by the Board of Directors, holders
of Nonvoting Common Stock and holders of Voting Common Stock
participate equally, on a per share basis, in such dividends as may be
declared by the Board of Directors out of funds legally available for
that purpose and in distributions of assets upon liquidation or
otherwise, except that (i) any dividend or other distribution upon the
Common Stock of the Company that is payable in the Common Stock of the
Company may be paid only in Nonvoting Common Stock to holders of
Nonvoting Common Stock and only in Voting Common Stock to holders of
Voting Common Stock and (ii) any dividend or other distribution upon
the Common Stock of the Company that is payable in common stock of any
subsidiary of the Company may be paid to holders of Voting Common
Stock only in common stock of the subsidiary having full voting rights
and may be paid to holders of Nonvoting Common Stock only in common
stock of the subsidiary having no voting rights other than those
prescribed by law. In the case of any split or reverse split of Common
Stock, the number of shares of Nonvoting Common Stock and the number
of shares of Voting Common Stock must be increased or decreased, as
the case may be, in the same proportion, share and share alike.

GENERAL

No holder of Voting Common Stock or Nonvoting Common Stock has
any preemptive right to subscribe for any securities of the Company.
All outstanding shares of Voting Common Stock and Nonvoting Common
Stock are validly issued, fully paid and nonassessable.

TRANSFER AGENT AND REGISTRAR

Chase Mellon Shareholder Services, LLC acts as transfer agent and
registrar for the Nonvoting Common Stock and the Voting Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Rule 144 under the Securities Act ("Rule 144"), as currently in
effect, provides that a person (or persons whose sales are aggregated)
who is an affiliate of the Company, or who has beneficially owned for
at least one (1) year shares which were issued and sold in reliance
upon exemptions from registration under the Securities Act
("Restricted Shares"), is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of that class of stock or the
average weekly trading volume in that class of stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and
the availability of current public information about the Company.
However, a person who is not deemed to have been an "affiliate" of the
Company at any time during the three months preceding a sale, and who
has beneficially owned Restricted Shares for at least two years, may
sell such shares under Rule 144 without regard to volume limitations,
manner-of-sale provisions, notice requirements or the availability of
current public information about the Company.

The Selling Stockholders, the Lila Acheson Wallace Fund for The
Metropolitan Museum of Art, the DeWitt Wallace Fund for Colonial
Williamsburg and the Funds may be deemed to be affiliates of the
Company depending upon a variety of factors, including whether the
Selling Stockholders are under common control with the Company. In
addition, if these stockholders are deemed to be affiliates of the
Company and act in concert in disposing of the Nonvoting Common Stock
of the Company, their sales could be aggregated for purposes of
determining the number of shares permitted to be sold by them under
Rule 144. As of November 30, 1997, the Company had outstanding
84,598,818 shares of Nonvoting Common Stock. Of these shares,
39,991,606 shares are freely tradable by persons without restriction
or registration under the Securities Act, 26,323,537 shares are owned
by the Selling Stockholders (and will continue to be owned by them
after the offering of the Automatic Common Exchange Securities),
6,826,531 shares are owned by the Lila Acheson Wallace Fund for The
Metropolital Museum of Art, 2,900,346 shares are owned by the DeWitt
Wallace Fund for Colonial Williamsburg and 8,556,798 shares are owned
by the Funds. Any such shares held by affiliates may be sold in
accordance with Rule 144.

The Selling Stockholders, the Lila Acheson Wallace Fund for The
Metropolitan Museum of Art and the DeWitt Wallace Fund for Colonial
Williamsburg have agreed with the Underwriters not to sell any shares
of Nonvoting Common Stock and the Funds have agreed with the
Underwriters not to sell any shares of Nonvoting Common Stock or
Voting Common Stock for a period of 180 days after the closing of the
offering of the Automatic Common Exchange Securities, without the
prior written consent of the Underwriters.

On November 30, 1997, the Company had outstanding 21,716,057
shares of Voting Common Stock. Of these shares, 17,216,057 are held by
the Funds and the Profit Sharing Plan and may be sold in accordance
with Rule 144.

As of November 25, 1997, employees of the Company held options to
purchase an aggregate of 8,549,784 shares of Nonvoting Common Stock at
exercise prices ranging from $20.00 to $55.125 per share.

No precise predictions can be made as to the effect, if any, that
market sales of shares of Voting Common Stock or Nonvoting Common
Stock or the availability of shares of Voting Common Stock or
Nonvoting Common Stock for sale will have on the market price for the
Nonvoting Common Stock. Nevertheless, sales of substantial amounts of
Voting Common Stock or Nonvoting Common Stock could adversely affect
prevailing market prices for the Nonvoting Common Stock.

PLAN OF DISTRIBUTION

The Automatic Common Exchange Securities will be distributed as
described in the Trust Prospectus under the caption "Underwriting."
Goldman, Sachs & Co. has from time to time performed investment
banking and financial advisory services for the Company, and Lazard
Freres & Co. LLC has from time to time acted as financial advisor to
the Selling Stockholders and certain related entities.

TRUST PROSPECTUS

The Automatic Common Exchange Securities are being offered
pursuant to the Trust Prospectus. This Prospectus relates only to the
Nonvoting Common Stock that may be delivered upon exchange of the
Automatic Common Exchange Securities. The Company takes no
responsibility for any information included in or omitted from the
Trust Prospectus. The Trust Prospectus does not constitute a part of
this Prospectus nor is it incorporated by reference herein.

VALIDITY OF SECURITIES

The validity of the shares of Nonvoting Common Stock being
offered hereby will be passed upon for the Company by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York and certain legal matters will be
passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy,
New York, New York. Laraine S. Rothenberg, a member of Fried, Frank,
Harris, Shriver & Jacobson, is a member and director of each of the
Funds and the Lila Acheson and DeWitt Wallace Fund for Lincoln Center,
one of the Selling Stockholders.

EXPERTS

The financial statements of the Company as of June 30, 1997 and
1996, and for each of the years in the three-year period ended June
30, 1997, have been incorporated by reference herein and in this
Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference,
and upon the authority of said firm as experts in accounting and
auditing.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company
with the Commission pursuant to the Exchange Act, are incorporated by
reference and made a part of this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997; (ii) all
other reports filed pursuant to Section 13(a) or 15(d) of the Exchange
Act since June 30, 1997, specifically including the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1997 and the Company's Current Reports on Form 8-K dated July 11,
1997, August 11, 1997, September 8, 1997, October 6, 1997 and November
24, 1997; (iii) the Company's Proxy Statement dated October 27, 1997
relating to the 1997 Annual Meeting of Stockholders held December 12,
1997 with respect to the information required to be included herein by
Items 401 (management), 402 (executive compensation) and 404 (certain
relationships and related transactions) of Regulation S-K promulgated
under the Securities Act and the Exchange Act and (iv) the description
of the Common Stock contained in the Company's registration statement
on Form 8-A filed January 16, 1990.

All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering shall be
deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document or information incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that
also is, or is deemed to be, incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

The making of a modifying or superseding statement shall not be
deemed an admission that the modified or superseded statement, when
made, constituted a misrepresentation, an untrue statement of a
material fact or an omission to state a material fact that is required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances in which it was made.

THE COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS
PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS OR INFORMATION REFERRED
TO ABOVE THAT HAS BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS
PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS SHOULD BE
DIRECTED TO C.H.R. DUPREE, ACTING SECRETARY, THE READER'S DIGEST
ASSOCIATION, INC., READER'S DIGEST ROAD, PLEASANTVILLE, NEW YORK
10570, TELEPHONE: (914) 238-1000.

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

NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY
INFORMATION OR TO 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 THE SOLICITATION OF AN 10,308,257 SHARES
OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT THE READER'S DIGEST ASSOCIATION, INC.
RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO CLASS A NONVOTING COMMON STOCK
BUY SUCH SECURITIES IN ANY (PAR VALUE $0.01 PER SHARE)
CIRCUMSTANCES IN WHICH SUCH OFFER
OR SOLICITATION IS UNLAWFUL. -----------------------
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE [LOGO]
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY -----------------------
IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR GOLDMAN, SACHS & CO.
THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME LAZARD FRERES & CO. LLC
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
Page
Available Information..........2
Prospectus Summary.............3
Recent Developments............4
Price Range Of Nonvoting
Common Stock And Dividend
Information...................9
Capitalization................10
Selected Consolidated
Financial Information........11
Management's Discussion
And Analysis Of Financial
Condition And Results Of
Operations...................12
Business Of The Company.......24
Properties....................32
Legal Proceedings.............32
Management....................32
Use Of Proceeds...............36
Principal Stockholders........37
Selling Stockholders..........38
Description Of Capital Stock..40
Plan Of Distribution..........42
Trust Prospectus..............42
Validity Of Securities........42
Experts.......................43
Incorporation Of Certain
Documents By Reference.......43

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following are the estimated expenses, other than underwriting
discounts and commissions, to be incurred in connection with the
issuance and distribution of the securities registered under this
Registration Statement:

Fees and expenses of qualification
under state securities laws
(including legal fees)........... 5,000
Printing and engraving expenses..... 99,500
Legal fees and expenses............. 650,000
Accounting fees and expenses........ 50,000
Miscellaneous....................... 20,000
----------
Total............................ $ 824,500
==========
--------------------------------------
The Selling Shareholders will bear all of such expenses.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation provides that the
Company shall indemnify each officer or director of the Company to the
fullest extent permitted by law, subject to the limitations set forth
in its By-Laws. The By-Laws provide that the Company shall indemnify
to the fullest extent permitted by law any person made or threatened
to be made a party to any action, suit or proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a
director or officer of the Company or serves or served at the request
of the Company or any other enterprise as a director or officer.
Expenses incurred by any such person in defending any such action,
suit or proceeding shall be paid or reimbursed by the Company promptly
upon receipt by it of an undertaking of such person to repay such
expenses if it shall ultimately be determined that such person is not
entitled to be indemnified by the Company. The rights of any person
under the By-Laws shall be enforceable against the Company by such
person, who shall be presumed to have relied upon them in serving or
continuing to serve as a director or officer as provided above.
Notwithstanding the foregoing, and except as otherwise provided by
law, the Company may not make any payment for indemnification pursuant
to the By-Laws to any person to the extent of the amount of such
payment that would result in the imposition of an excise tax under
Chapter 42 of the Internal Revenue Code of 1986, as amended.

Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under
specified circumstances, to indemnify their directors, officers,
employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceedings. The Delaware General Corporation
Law also provides that Delaware corporations may purchase insurance on
behalf of any director, officer, employee or agent.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1.1 Restated Certificate of Incorporation of The
Reader's Digest Association, Inc. filed with the
State of Delaware on February 7, 1990, filed as
Exhibit 3.1.1 to the Registrant's Annual Report on
Form 10-K for the year ended June 30, 1993, is
incorporated herein by reference.

4.1.2 Certificate of Amendment of the Certificate of
Incorporation of The Reader's Digest Association,
Inc. filed with the State of Delaware on February
22, 1991, filed as Exhibit 3.1.2 to the
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, is incorporated herein by
reference.

4.2 Amended and Restated By-Laws of The Reader's Digest
Association, Inc., effective February 22, 1991,
filed as Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended June 30,
1993, is incorporated herein by reference.

4.3 $400,000,000 Competitive Advance and Revolving
Credit Facility Agreement dated as of November 12,
1996 between the registrant, the Borrowing
Subsidiaries, The Chase Manhattan Bank and J.P.
Morgan Securities Inc., filed as Exhibit 10.23 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996, is
incorporated herein by reference.

4.4 First Amendment dated as of September 17, 1997 to
the $400,000,000 Competitive Advance and Revolving
Credit Facility Agreement dated as of November 12,
1996 among the registrant, the Borrowing
Subsidiaries, The Chase Manhattan Bank and J.P.
Morgan Securities Inc., filed as Exhibit 10.29 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, is
incorporated herein by reference.

Note: Pursuant to the provisions of paragraph
(b)(4)(iii) of Item 601 of Regulation S-K, the
registrant hereby undertakes to furnish to the
Commission upon request copies of the instruments
pursuant to which it and its subsidiaries hold
long-term debt of the registrant, none of which
instruments governs indebtedness exceeding 10% of
the total assets of the registrant and its
subsidiaries on a consolidated basis.

*5.1 Opinion of Fried, Frank, Harris, Shriver and Jacobson as
to the validity of the Class A Nonvoting Common Stock
being registered.

23.1 Consent of KPMG Peat Marwick LLP.

*23.2 Consent of Fried, Frank, Harris, Shriver and Jacobson
(included in Exhibit 5.1).

24.1 Power of Attorney (included in the signature pages to
this Registration Statement).
[FN]
* To be filed by Amendment.
</FN>

(b) Financial Statement Schedules.

Schedule II: Valuations and Qualifying Accounts

All other financial statement schedules relating to the
Registrant are omitted because they are not required or because the
required information, if material, is contained in the consolidated
financial statements or Notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of action, suit or proceeding) is
asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(3) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.

(4) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-3 to
be signed on its behalf by the undersigned, thereunto duly authorized,
in Pleasantville, New York on December 18, 1997.

THE READER'S DIGEST ASSOCIATION, INC.

/s/ George V. Grune
By: --------------------------------
Name: George V. Grune
Title: Chairman of the Board and
Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints George S. Scimone, Ayesha Zafar
and Clifford H.R. DuPree, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for such person and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully and to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents,
and any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date first above indicated:

Signature Title

/s/ George V. Grune Chairman of the Board and Chief
- ------------------------ Executive Officer and Director
George V. Grune (Principal Executive Officer)

/s/ George S. Scimone Vice President and Chief
- ------------------------ Financial Officer (Principal
George S. Scimone Financial Officer)

/s/ Ayesha Zafar Vice President and Corporate
- ------------------------ Controller (Controller)
Ayesha Zafar

/s/ Lynne V. Cheney Director
- ------------------------
Lynne V. Cheney

/s/ M. Christine DeVita Director
- ------------------------
M. Christine DeVita

/s/ Melvin R. Laird Director
- ------------------------
Melvin R. Laird

/s/ James E. Preston Director
- ------------------------
James E. Preston

/s/ Robert G. Schwartz Director
- ------------------------
Robert G. Schwartz

/s/ C.J. Silas Director
- ------------------------
C.J. Silas

/s/ William J. White Director
- ------------------------
William J. White

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------ -----------

4.1.1 Restated Certificate of Incorporation of The
Reader's Digest Association, Inc. filed with the
State of Delaware on February 7, 1990, filed as
Exhibit 3.1.1 to the Registrant's Annual Report on
Form 10-K for the year ended June 30, 1993, is
incorporated herein by reference.

4.2 Amended and Restated By-Laws of The Reader's
Digest Association, Inc., effective February 22,
1991, filed as Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended June
30, 1993, is incorporated herein by reference.

*5.1 Opinion of Fried, Frank, Harris, Shriver and
Jacobson as to the validity of the Class A
Nonvoting Common Stock being registered.

23.1 Consent of KPMG Peat Marwick LLP.

*23.2 Consent of Fried, Frank, Harris, Shriver and
Jacobson (included in Exhibit 5.1).

24.1 Power of Attorney (included in the signature pages
to this Registration Statement.
[FN]
* To be filed by Amendment.
</FN>

The Board of Directors
The Reader's Digest Association, Inc.

We consent to the use of our report incorporated herein by
reference and to the reference to our firm under the heading "Experts"
in the prospectus.

KPMG PEAT MARWICK LLP

New York, New York
December 18, 1997