FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2001

                                       OR

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

                For the transition period from _______ to _______

                         Commission file number: 1-10434


                      THE READER'S DIGEST ASSOCIATION, INC.
             (Exact name of registrant as specified in its charter)


                      Delaware                  13-1726769


          (State or other jurisdiction of         (I.R.S.
           incorporation or organization)         Employer
                                               Identification
                                                    No.)

              Pleasantville, New York            10570-7000


          (Address of principal executive        (Zip Code)
                      offices)

                                 (914) 238-1000

          (Registrant's telephone number, including area code)

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

   Indicate by check mark whether the registrant (1) has filed all reports
   required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
   1934 during the preceding 12 months (or for such shorter period that the
   registrant was required to file such reports), and (2) has been subject to
   such filing requirements for the past 90 days. Yes [X] No [ ]

   As of October 31, 2001, the following shares of the registrant's common stock
   were outstanding:

   Class A Nonvoting Common Stock, $0.01 par value: 87,589,233 shares
   Class B Voting Common Stock, $0.01 par value:    12,432,164 shares

                                                   Page 1 of 21 pages.

<PAGE>




         THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES

                               Index to Form 10-Q

                               September 30, 2001


   Part I - Financial Information                                       Page No.

   The Reader's Digest Association, Inc. and Subsidiaries
   Consolidated Condensed Financial Statements (unaudited):

      Consolidated Condensed Statements of Income
        for the three-month periods ended September 30, 2001 and 2000       3

      Consolidated Condensed Balance Sheets
        as of September 30, 2001 and June 30, 2001                          4

      Consolidated Condensed Statements of Cash Flows for the three-month
        periods ended September 30, 2001 and 2000                           5

      Notes to Consolidated Condensed Financial Statements                  6


   Management's Discussion and Analysis
      of Financial Condition and Results of Operations                     13


   Part II - Other Information                                             19


             The Reader's Digest Association, Inc. and Subsidiaries
                   Consolidated Condensed Statements of Income
              Three-month periods ended September 30, 2001 and 2000
                      (In millions, except per share data)
                                   (unaudited)




<TABLE>

                                                         Three-month periods ended
                                                               September 30,
                                                               2001        2000
                                                                         RESTATED
                                                                         (Note 7)

<S>                                                        <C>          <C>
Revenues                                                   $   497.5    $   551.5

Product, distribution and editorial expenses                  (207.5)      (208.8)
Promotion, marketing and administrative expenses              (287.2)      (298.4)
                                                           ---------    ---------
  Operating profit                                               2.8         44.3

Other expense, net                                              (4.5)        (3.6)
                                                           ---------    ---------
  (Loss) Income before provision for income taxes               (1.7)        40.7

Provision for income taxes                                       0.6        (18.4)
                                                           ---------    ---------
  Net (loss) income                                        $    (1.1)   $    22.3
                                                           =========    =========


Basic earnings per share:

  Weighted average common shares outstanding                   101.9        102.9

  Basic earnings per share                                 $   (0.01)   $    0.21
                                                           =========    =========
Diluted earnings per share:

  Adjusted weighted average common shares outstanding          101.9        104.2

  Diluted earnings per share                               $   (0.01)   $    0.21
                                                           =========    =========
Dividends per common share                                 $    0.05    $    0.05
                                                           =========    =========
</TABLE>


   See accompanying Notes to Consolidated Condensed Financial Statements.


<PAGE>


             The Reader's Digest Association, Inc. and Subsidiaries
                      Consolidated Condensed Balance Sheets
                   As of September 30, 2001 and June 30, 2001
                                  (In millions)
                                   (unaudited)




<TABLE>

                                                        September 30,     June 30,
                                                             2001           2001
  Assets                                                                  RESTATED
                                                                          (Note 6)

<S>                                                      <C>           <C>
  Cash and cash equivalents                              $     52.2    $     35.4
  Accounts receivable, net                                    322.4         274.8
  Inventories, net                                            200.2         167.4
  Prepaid and deferred promotion costs                        112.8         106.7
  Prepaid expenses and other current assets                   209.7         192.1
                                                         ----------    ----------
Total current assets                                          897.3         776.4

Property, plant and equipment, net                            161.8         160.2
Goodwill and other intangible assets, net                     406.5         409.8
Other noncurrent assets                                       340.0         334.5
                                                         ----------    ----------
Total assets                                             $  1,805.6    $  1,680.9
                                                         ==========    ==========
Liabilities and stockholders' equity
  Loans and notes payable                                $    303.5    $    160.3
  Accounts payable                                             87.9          86.4
  Accrued expenses                                            289.5         251.1
  Income taxes payable                                         46.2          41.2
  Unearned revenue                                            303.4         291.6
  Other current liabilities                                     8.3          28.9
                                                         ----------    ----------
Total current liabilities                                   1,038.8         859.5

Other noncurrent liabilities                                  351.6         361.6
                                                         ----------    ----------
Total liabilities                                           1,390.4       1,221.1

  Capital stock                                                23.8          29.6
  Paid-in capital                                             225.9         226.1
  Retained earnings                                         1,184.2       1,191.3
  Accumulated other comprehensive loss                        (86.3)        (84.6)
  Treasury stock, at cost                                    (932.4)       (902.6)
                                                         ----------    ----------
Total stockholders' equity                                    415.2         459.8
                                                         ----------    ----------
Total liabilities and stockholders' equity               $  1,805.6    $  1,680.9
                                                         ==========    ==========
</TABLE>

See accompanying Notes to Consolidated Condensed Financial Statements.



<PAGE>


             The Reader's Digest Association, Inc. and Subsidiaries
                 Consolidated Condensed Statements of Cash Flows
              Three-month periods ended September 30, 2001 and 2000
                                  (In millions)
                                   (unaudited)





<TABLE>
                                                             Three-month periods ended
                                                                     September 30,
                                                                  2001         2000
  Cash flows from operating activities                                       RESTATED
                                                                             (Note 7)

<S>                                                            <C>          <C>
  Net (loss) income                                            $   (1.1)    $   22.3
  Equity in losses of BrandDirect Marketing, Inc.                    --          7.7
  Depreciation and amortization                                     8.2         11.5
  Net gain on the sales of a business, certain assets
    and certain investments                                        (0.7)        (3.9)
  Changes in assets and liabilities, net                          (96.8)      (156.0)
                                                               --------     --------
Net change in cash due to operating activities                    (90.4)      (118.4)
                                                               --------     --------

Cash flows from investing activities

  Proceeds from maturities and sales of marketable
    securities and short-term investments                           0.1          6.6
  Purchases of marketable securities and investments               (0.1)        (0.5)
   Proceeds from other long-term investments                        2.2          2.3
  Proceeds from sales of property, plant and equipment              0.1          0.3
   Investments in and advances to BrandDirect Marketing, Inc.        --        (20.0)
  Capital expenditures                                             (6.2)       (10.6)
                                                               --------     --------
Net change in cash due to investing activities                     (3.9)       (21.9)
                                                               --------     --------
Cash flows from financing activities

  Short-term borrowings, net                                      143.5        160.5
  Dividends paid                                                   (5.5)        (5.5)
  Common stock repurchased                                        (28.7)        (3.6)
  Proceeds from employee stock purchase plan
   and exercise of stock options                                    0.5          1.8
  Other, net                                                        0.4         (3.5)
                                                               --------     --------
Net change in cash due to financing activities                    110.2        149.7
                                                               --------     --------
Effect of exchange rate changes on cash                             0.9         (7.4)
                                                               --------     --------
Net change in cash and cash equivalents                            16.8          2.0

Cash and cash equivalents at beginning of period                   35.4         49.7
                                                               --------     --------
Cash and cash equivalents at end of period                     $   52.2     $   51.7
                                                               ========     ========

</TABLE>

See accompanying Notes to Consolidated Condensed Financial Statements.



<PAGE>



             The Reader's Digest Association, Inc. and Subsidiaries
              Notes to Consolidated Condensed Financial Statements
                      (In millions, except per share data)
                                   (unaudited)

   Unless indicated otherwise, references in Notes to Consolidated Condensed
   Financial Statements to "we," "our" and "us" are to The Reader's Digest
   Association, Inc. and its subsidiaries. All references to 2002 and 2001,
   unless otherwise indicated, are to fiscal 2002 and fiscal 2001, respectively.
   Our fiscal year represents the period from July 1 through June 30.

   (1)     Basis of Presentation and Use of Estimates

   The accompanying consolidated financial statements include the accounts of
   The Reader's Digest Association, Inc. and its subsidiaries. The preparation
   of these financial statements in conformity with accounting principles
   generally accepted in the United States requires management to make estimates
   and assumptions that affect the reported amounts of assets and liabilities,
   the disclosure of contingent assets and liabilities, and the reported amounts
   of operating revenues and expenses. These estimates are based on management's
   knowledge of current events and actions that we may undertake in the future,
   yet actual results may ultimately differ from those estimates.

   We report on a fiscal year beginning July 1. The three-month periods ended
   September 30, 2001 and 2000 are the first fiscal quarters of 2002 and 2001,
   respectively. Operating results for any interim period are not necessarily
   indicative of the results for an entire year due to the seasonality of our
   business.

   In December 1999, the Securities and Exchange Commission (SEC) issued Staff
   Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
   No. 101). The principal changes we recorded as a result of SAB No. 101 relate
   to gross versus net presentation of revenue as prescribed by the Emerging
   Issues Task Force Abstract No. 99-19, Reporting Revenue Gross as a Principal
   versus Net as an Agent (EITF 99-19). We adopted EITF 99-19 concurrently with
   SAB No. 101 in the fourth quarter of 2001, and accordingly, certain prior
   year amounts have been reclassified to conform to our current year
   presentation:

   -  Magazine advertising agency commission costs have been reclassified to
      present advertising revenues net of these costs in accordance with SAB No.
      101. These costs, totaling $6.5 for the first quarter of 2001, were
      originally recorded in promotion, marketing and administrative expenses
      and have been reclassified to revenues.

   -  Magazine and music product remittances to publishers have been
      reclassified to present revenues net of these costs in accordance with SAB
      No. 101. These costs, totaling $1.7 for the first quarter of 2001, were
      originally recorded in product, distribution and editorial expenses and
      have been reclassified to revenues.

   Other expense, net and net income have been restated in 2001 to reflect
   equity in losses (including goodwill amortization associated with our
   investment) of BrandDirect Marketing, Inc. (Note 7). This restatement was the
   result of changing the method of accounting for this investment from the cost
   to the equity method.

   New Accounting Standards

   On July 1, 2001, we adopted Statement of Financial Accounting Standards
   (SFAS) No. 141, Business Combinations. As a result, the purchase method of
   accounting will be used for all business combinations initiated after June
   30, 2001. We have not had any business combinations subsequent to the
   adoption of this statement.

   Effective July 1, 2001, we elected early adoption of SFAS No. 142,
   Goodwill and Other Intangible Assets (Note 8).  Under SFAS No. 142
   goodwill is no longer amortized, but reviewed for impairment at
   least annually.  Accordingly, no goodwill amortization was
   recognized during the first quarter of 2002.  We expect to complete
   our transitional goodwill impairment assessment by the end of the
   second quarter.  Any impairment will be treated as a change in
   accounting principle in accordance with SFAS No. 142.




<PAGE>


   (2)     Basic and Diluted Earnings Per Share

   Basic earnings per share is computed by dividing net income less preferred
   stock dividend requirements ($0.3 for each of the three-month periods ended
   September 30, 2001 and 2000) by the weighted average number of common shares
   outstanding during the period. Diluted earnings per share is computed in the
   same manner except that the weighted average number of common shares
   outstanding assumes the exercise and conversion of certain dilutive stock
   options and vesting of restricted stock (0.4 million shares were antidilutive
   as of September 30, 2001 and 1.3 million shares were dilutive as of September
   30, 2000).

   For the three-month periods ended September 30, 2001 and 2000, basic and
   diluted earnings per share were $(0.01) and $0.21, respectively.


   (3)    Revenues and Operating Profit by Reporting Segments

   Reportable segments were modified during the fourth quarter of 2001 to
   reflect our new internal management organization. The accounting policies of
   our segments are the same as those described in Note 1 to the consolidated
   financial statements included in our 2001 Annual Report to Stockholders. In
   addition, we allocate all corporate administrative costs to reporting
   segments.

                                                Three-month periods ended
                                                      September 30,
                                                   2001           2000

Revenues:
  North America Books and Home Entertainment    $  133.7        $  161.6
  U.S. Magazines                                   114.5           117.4
  International Businesses                         238.2           263.8
  New Business Development                          11.1             8.7
                                                --------        --------
Total revenues                                  $  497.5        $  551.5
                                                ========        ========
Operating Profit (Loss):
  North America Books and Home Entertainment    $   (9.8)       $   23.8
  U.S. Magazines                                     1.1            (2.3)
  International Businesses                          13.7            29.4
  New Business Development                          (2.2)           (6.6)
                                                --------        --------
Total operating profit                          $    2.8        $   44.3
                                                ========        ========




<PAGE>


   (4)       Comprehensive Loss

   Accumulated other comprehensive loss as reported in the balance sheet as of
   September 30, 2001 and September 30, 2000, primarily represents unrealized
   losses on certain investments and foreign currency translation adjustments.
   The components of comprehensive loss, net of related tax, for the three-month
   periods ended September 30, 2001 and 2000 were as follows:

<TABLE>
                                                          Three-month periods ended
                                                                 September 30,
                                                                2001        2000
                                                                          Restated
                                                                           (Note 7)

<S>                                                           <C>         <C>
Net income                                                    $ (1.1)     $  22.3
Change in:
  Foreign currency translation adjustments                       2.5        (11.3)
  Net unrealized losses on certain investments, net
    of deferred taxes of $1.9 and $23.7, respectively           (3.6)       (44.1)
  Net unrealized (losses) gains on certain derivative
   transactions, net of deferred taxes of $0.3 and $(0.6)       (0.6)         1.0
                                                              ------      -------
Total comprehensive loss                                      $ (2.8)     $ (32.1)
                                                              ======      =======
</TABLE>

Net unrealized losses on certain investments, net of related tax, principally
represent our investment in the voting common shares of LookSmart, Ltd.


   (5) Other Operating Items

   Other operating items represent charges related primarily to the streamlining
   of our organizational structure and the strategic repositioning of certain
   businesses. There were no charges recorded during the three-month periods
   ended September 30, 2001 and 2000. The components of other operating items
   are described in further detail below:

   -  Severance Costs - For each reporting period, we identify the employees who
      are to be separated from our operations as a result of actions taken to
      streamline our organizational structure. This separation is accomplished
      through a combination of voluntary and involuntary severance programs. Of
      the 380 employees identified at June 30, 2001 to be separated during 2002,
      approximately 30% of the total employees identified were severed in the
      first quarter of 2002, with the majority in the United States.

   -  Contract Terminations - These charges represent anticipated costs to
      terminate contractual obligations in connection with streamlining
      activities.


   -  Impairment Losses - As a result of restructuring activities, we may incur
      charges related to the carrying value of certain assets.


   At September 30, 2001, we had accruals for other operating items of $30.6,
   primarily for severance costs. At June 30, 2001, these accruals totaled
   $33.3. During the three-month period ended September 30, 2001, we made
   payments of $2.7 related to primarily to severance costs.




<PAGE>


   (6) Inventories

                                              September 30,    June 30,
                                                  2001           2001
                                                               RESTATED

  Raw materials                                 $  13.2        $  12.0
  Work-in-progress                                 19.1           19.2
  Finished goods                                  167.9          148.1
                                                -------        -------
  Total inventories                             $ 200.2        $ 167.4
                                                =======        =======

   During the first quarter of 2002, we changed our method of accounting for
   inventories in the United States, except for Books Are Fun, Ltd., from the
   last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method.
   Books Are Fun was already recording their inventory according to the FIFO
   method. We believe that the new method of accounting for inventories is
   preferable because it provides consistency in accounting for inventories that
   are being managed globally as a result of our worldwide system implementation
   project and because it better measures the current value of such inventories
   and provides a more accurate reflection of our financial position.

   The consolidated balance sheet as of June 30, 2001 has been restated to
   reflect this change in accordance with the requirements of APB Opinion No.
   20, Accounting Changes. The restatement did not have a material impact on
   consolidated net income or the related earnings per share amounts in any
   prior period. The restatement had no cash flow impact. To account for the
   change, we increased retained earnings, net of a deferred tax liability, by
   $3.6 and increased inventory by $5.8 on July 1, 2000.


   (7)     Investments

   Available-for-Sale Marketable Securities

   Marketable securities included in other noncurrent assets on the balance
   sheet primarily represents the fair market value (based on quoted market
   prices) of our investments in LookSmart, Ltd. and WebMD Corporation. These
   securities are accounted for and classified as available-for-sale securities.
   As of September 30, 2001, the market value of those shares totaled $3.0 for
   LookSmart ($7.4 as of June 30, 2001) and $1.8 for WebMD ($3.0 as of June 30,
   2001).

   Investments, Equity Method

   During the second quarter of 2001, we changed our method of accounting for
   our investment in BrandDirect Marketing, Inc. from the cost method to the
   equity method of accounting. Due to additional funding in the form of an
   advance and other changes in circumstances, we obtained the ability to
   exercise significant influence as defined in APB Opinion No.18, The Equity
   Method of Accounting for Investments in Common Stock. Accordingly, other
   expense, net and net income for the three-month period ended September 30,
   2000 have been restated in accordance with APB Opinion No. 18, to reflect the
   equity in losses of this investment of $7.7 (including goodwill
   amortization). As of June 30, 2001, we had written-off our investment in
   BrandDirect Marketing to zero.

   Licensing Agreement

   In May 2000, we entered into a long-term licensing agreement with World's
   Finest Chocolate, Inc. The cost of entering into the agreement was assigned
   to distribution rights, included in intangible assets on the balance sheet.
   These rights are being amortized using the straight-line method over the
   initial period of the agreement (10 years). Under the terms of the agreement,
   QSP, Inc. has a long-term commitment to purchase World's Finest Chocolate
   products and the exclusive right to sell those products for fundraising
   purposes. Our purchase commitment is based on annual minimum tonnage amounts.




<PAGE>


   (8)     Goodwill and Intangible Assets, Net

   On July 1, 2001, we elected early adoption of SFAS No. 141, Business
   Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. In
   accordance with SFAS No. 141, the purchase method of accounting is to be used
   for all business combinations initiated after June 30, 2001. We have not had
   any business combinations subsequent to our adoption of the standard. SFAS
   No. 142 requires that goodwill amortization is no longer to be recorded and
   that the carrying amount of goodwill be evaluated at least annually for
   recoverability. Accordingly, we have not recorded any goodwill amortization
   during the first quarter of 2002. Furthermore, we will test our goodwill for
   any transitional impairment during the second quarter of 2002 and, if
   necessary, adjust the carrying value of our goodwill.

   The changes in the carrying amount of goodwill for the three-month period
   ended September 30, 2001 are as follows:
<TABLE>

                                      North America
                                        Books and
                                           Home            U.S.        New Business
                                      Entertainment     Magazines       Development       Total

<S>                                      <C>             <C>            <C>              <C>
  Balance as of June 30, 2001            $ 323.6         $ 30.0         $  11.6          $ 365.2
    Identified intangible assets            (1.3)            --            (0.9)            (2.2)
                                         -------         ------          ------          -------
  Balance as of September 30, 2001       $ 322.3         $ 30.0         $  10.7          $ 363.0
                                         =======         ======          ======          =======
</TABLE>

   Included in our balance sheet as of September 30, 2001 are the following
   categories of acquired intangible assets.

                                                   September 30, 2001
                                                   Gross          Net

  Goodwill (Excess of cost over fair value of net assets of businesses acquired:
    North America Books and Home                  $ 354.7      $ 322.3
    Entertainment
    U.S. Magazines                                   39.7         30.0
    New Business Development                         12.4         10.7
                                                  -------      -------
  Total goodwill                                  $ 406.8      $ 363.0
                                                  =======      =======

  Intangible Assets (finite lives):
    Licensing agreement                           $  43.1      $  37.2
    Customer lists                                   23.3          5.1
    Trademarks and noncompete agreements              3.0          1.2
                                                  -------      -------
  Total intangible assets (finite lives)          $  69.4      $  43.5
                                                  =======      =======

   Amortization related to intangible assets (finite lives) amounted to $1.7 for
   the three-month period ended September 30, 2001 ($1.4 for the three-month
   period ended September 30, 2000). In accordance with SFAS No. 142, we
   reassessed the useful lives of all other intangible assets. There were no
   changes to such lives and there are no expected residual values associated
   with these intangible assets. Our licensing agreement intangible asset is
   being amortized over 10 years while customer lists are being amortized over
   principally over five years. Estimated fiscal year amortization expense is as
   follows: 2002 - $7.0; 2003 - $5.8; 2004 - $4.7; 2005 - $4.5 and 2006 - $4.5.



<PAGE>


   The following table reconciles the prior period's reported net income to its
   respective pro forma balance adjusted to exclude goodwill amortization, which
   is no longer recorded under SFAS No. 142.

                             For the three-month period ended September 30, 2000
                                                    Earnings Per Share
                                      Amount        Basic       Diluted

  Net income                          $ 22.3        $0.21        $0.21
    Add back goodwill amortization       5.1         0.05         0.05
                                      ------        -----        -----
   Adjusted net income                $ 27.4        $0.26        $0.26
                                      ======        =====        =====

   (9) Derivative Instruments

   Risk Management and Objectives

   In the normal course of business, we are exposed to market risk from the
   effect of foreign exchange rate fluctuations on the U.S. dollar value of our
   foreign subsidiaries' results of operations and financial condition. A
   significant portion of our risk is associated with foreign exchange rate
   fluctuations of the euro and the British pound. We purchase foreign currency
   option and forward contracts to minimize the effect of fluctuating foreign
   currencies on our subsidiaries' earnings and specifically identifiable
   anticipated transactions. In addition, we enter into forward contracts to
   minimize the effect of fluctuating foreign currency exchange rates on certain
   foreign currency denominated assets and liabilities. Generally, we purchase
   foreign currency option and forward contracts over periods ranging up to 12
   months. As a matter of policy, we do not speculate in financial markets and,
   therefore, we do not hold financial instruments for trading purposes. We
   continually monitor foreign currency risk and the use of derivative
   instruments.

   Strategies and Description of Derivative Instruments

   The following is a brief description of our derivative transactions.
   -  We enter into option contracts to hedge against the foreign
      currency risk associated with intercompany royalty fees paid to us by our
      foreign subsidiaries. The contract amounts of these options are based on
      forecasted future revenues earned by our subsidiaries. These contracts are
      designated as and qualify for cash flow hedge accounting.

   -  Similarly, option contracts are used to economically hedge against foreign
      currency risk associated with operating cash flows of our foreign
      subsidiaries. The contract amounts of these options are based on
      forecasted cash flows from operating profit recognized by our
      subsidiaries. These contracts do not qualify for hedge accounting
      treatment.

   -  We utilize foreign currency forward contracts to economically hedge
      against foreign currency risk associated with anticipated or forecasted
      transactions, as well as foreign currency denominated loans due to and
      from our foreign subsidiaries. These transactions do not qualify for hedge
      accounting treatment.

   Quantitative Disclosures of Derivative Instruments

   Cash Flow Hedges - For the three-month period ended September 30, 2001,
   changes in the spot value of the foreign currencies associated with option
   contracts designated and qualifying as cash flow hedges of forecasted
   intercompany royalty payments amounted to a loss of $(0.6), net of deferred
   taxes of $0.3 (gain of $1.0, net of deferred taxes of $0.6, for the
   three-month period ended September 30, 2000). These changes are reported in
   accumulated other comprehensive loss included in stockholders' equity on the
   balance sheet. The gains and losses are deferred until the underlying
   transaction is recognized in earnings.

   The ineffective portion of the change in market value of these option
   contracts, specifically the time-value component of $(0.1), was recognized as
   a loss in other expense, net on the income statement for the three-month
   period ended September 30, 2001 (loss of $(0.7) for the three-month period
   ended September 30, 2000). The fair value of the option contracts at
   September 30, 2001, of $0.7 ($1.8 as of June 30, 2001) is included in prepaid
   expenses and other current assets on the balance sheet.

   We anticipate that the net gains in accumulated other comprehensive loss
   relating to foreign currency option contracts existing at September 30, 2001
   will be recognized as gain (loss) on foreign exchange during the 12-month
   period ended September 30, 2002. As of September 30, 2001, the approximate
   length of time over which we will hedge our exposure to the variability in
   future cash flows associated with foreign currency royalty fees is 12 months.
   There were no cash flow hedges discontinued during the three-month periods
   ended September 30, 2001 or 2000.

   Other Derivatives - For the three-month period ended September 30, 2001,
   changes in the spot value of the foreign currencies and contract settlements
   associated with option and forward contracts amounted to a loss of $(3.0)
   (gain of $9.8 for the three-month period ended September 30, 2000). These
   changes are reported in gain (loss) on foreign exchange included in other
   expense, net on the income statement. This effect would generally be offset
   by the translation of the assets, liabilities and future operating cash flows
   being hedged. The fair value of the option and forward contracts as of
   September 30, 2001, of $3.5 ($6.6 as of June 30, 2001) is included in prepaid
   expenses and other current assets on the balance sheet.


   (10) Debt

   As described in Note 10 to the consolidated financial statements included in
   our 2001 Annual Report to Stockholders, on July 27, 2001, we replaced a 1996
   credit agreement with a Five-Year Revolving Credit and Competitive Advance
   Facility Agreement (Five-Year Facility) that expires on July 27, 2006, and a
   364-Day Revolving Credit and Competitive Advance Facility Agreement (364-Day
   Facility) that expires on July 26, 2002 (the Credit Agreements). Together,
   these Credit Agreements allow for up to $385.0 in principal amount of
   borrowings ($192.5 for each agreement). At September 30, 2001, short-term
   borrowings aggregated $303.2 ($192.5 on the Five-Year Facility and $110.7 on
   the 364-Day Facility). These amounts are included in loans and notes payable
   on the balance sheet.


   (11) Share Repurchase Authorization

   In January 2000, we announced authorization to repurchase up to 5.0 million
   shares of our outstanding Class A nonvoting common stock. As of June 30,
   2001, we had completed all purchases (amounting to $167.6) against the
   January 2000 Repurchase Authorization. In May 2001, we announced
   authorization to repurchase up to a total of $250.0 in shares of our
   outstanding Class A nonvoting common stock, which superseded a
   5.0-million-share repurchase authorization announced in October 2000. During
   the three-month period ended September 30, 2001, we purchased approximately
   2.1 million shares totaling $36.7 under the May 2001 Repurchase Authorization
   ($28.7 of this amount settled in cash). During the three-month period ended
   September 30, 2000, we had purchased approximately 0.2 million shares
   totaling $6.7 under the January 2000 Repurchase Authorization ($3.6 of this
   amount settled in cash).



<PAGE>


             The Reader's Digest Association, Inc. and Subsidiaries
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations
                  (Dollars in millions, except per share data)


   Unless indicated otherwise, references in Management's Discussion and
   Analysis to "we," "our" and "us" are to The Reader's Digest Association, Inc.
   and its subsidiaries. All references to 2002 and 2001, unless otherwise
   indicated, are to fiscal 2002 and fiscal 2001, respectively. Our fiscal year
   represents the period from July 1 through June 30.

   The following discussion and analysis provides information that we believe is
   relevant to an assessment and understanding of our consolidated results of
   operations and financial condition and has been written excluding the effect
   of fluctuations in foreign currency exchange rates and other operating items.
   This discussion should be read in conjunction with the Consolidated Condensed
   Financial Statements and related notes. Certain amounts and percentages do
   not recalculate due to rounding.


   Three-Month Period Ended September 30, 2001, Compared With
   Three-Month Period Ended September 30, 2000

   Results of Operations:  Company-Wide

   Revenues

   Revenues for the first quarter of 2002 decreased 10% to $498, compared with
   $552 in the first quarter of 2001. Excluding the adverse effect of foreign
   currency translation, revenues decreased 8%. The decrease in revenues was
   primarily attributable to lower sales of our North America Books and Home
   Entertainment and International Businesses segments.

   Revenues were significantly lower in the U.S. market of North America Books
   and Home Entertainment, which represented $31 of the total $28 decline in
   revenues for this segment. Slightly offsetting the decline in the U.S. were
   higher revenues in Canada for Books and Home Entertainment and QSP products.
   Revenues in the U.S. were lower principally for single sales products,
   including general books, trade, music and video products. North America Books
   and Home Entertainment significantly reduced mail quantities in the United
   States, in response to promotional changes required by the 2001 attorneys
   general sweepstakes agreement and overall softening of the U.S. economy, and
   experienced lower response rates to certain products.

   Revenues were lower for International Businesses primarily for Books and Home
   Entertainment products. Revenue reductions were significant in the following
   countries: Germany, Australia, Brazil, the Nordic region, Argentina and
   Poland. Planned shifts in the timing of series shipments, lower mail
   quantities and poor economic conditions in Brazil and Argentina contributed
   to the declines. Partially offsetting these declines were higher revenues in
   certain Eastern European countries, the United Kingdom and France as a result
   of increased mail quantities and higher response rates.

   Operating Profit

   Operating profit for the first quarter of 2002 decreased significantly to $3,
   compared with $44 in the first quarter of 2001. The decline in operating
   profit resulted from the revenue declines described above for North America
   Books and Home Entertainment and International Businesses. Partially
   offsetting these declines were reduced losses for New Business Development
   and U.S. Magazines. Lower operating expenses for Gifts.com, Inc. and
   increased sales from our marketing alliances contributed to higher profits
   for New Business Development. U.S. Magazines realized higher profits
   primarily from lower promotion costs and re-engineering cost savings related
   to subscription fulfillment.

   We estimate that the aftermath of the September 11, 2001 terrorist attacks
   cost us in excess of $10 in revenues and $5 in profits in the first quarter
   of 2002. These events adversely affected U.S. magazine subscription and
   advertising sales as well as response rates for U.S. Books and Home
   Entertainment promotional mailings, and caused the cancellation or
   postponement of a modest number of seasonal school events at QSP and
   corporate events at Books Are Fun.


<PAGE>


   Other Expense, Net

   Other expense, net increased 26% to $5 in the first quarter of 2002, compared
   with $4 in the first quarter of 2001. The increase was primarily the result
   of:
   -  A net foreign exchange loss from our hedging program of $1, compared with
      a net gain in the prior period of $3.
   -  Equity in losses (including goodwill amortization) of BrandDirect
      Marketing, Inc. of $8 in the prior period. No such losses were recorded in
      the current period as a result of a write-down of the investment to zero
      as of June 30, 2001.
   -  Income in the prior period of $4 from the sale of certain
      investments.

   Income Taxes

   The effective tax rate for the first quarter of 2002 was 36.0%, compared with
   a rate of 45.1% for the first quarter of 2001. Excluding equity in losses
   (including goodwill amortization) of BrandDirect Marketing, Inc. and
   nondeductible goodwill amortization, the effective tax rate for the first
   quarter of 2001 was 34.4%.

   Net Income and Earnings Per Share

   For the first quarter of 2002, the net loss was $(1), or $(0.01) for both
   basic and diluted earnings per share, compared with net income of $22, or
   $0.21 per share in the prior year period.

   Effective July 1, 2001, we elected early adoption of Statement of Financial
   Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.
   Accordingly, no goodwill amortization was recognized during the first quarter
   of 2002. Net income in the first quarter of 2001 included goodwill
   amortization of $5, or $0.05 per share, primarily related to Books Are Fun,
   Ltd. included in our North America Books and Home Entertainment segment.


   Results of Operations:  Operating Segments


   North America Books and Home Entertainment

   Revenues for North America Books and Home Entertainment decreased 17% in the
   first quarter of 2002 to $134, compared with $162 in the first quarter of
   2001. Lower revenues in the U.S. contributed to $31 of the decline while
   revenues in Canada increased $3. The decrease in the U.S. was primarily
   driven by the effects of the 2001 attorneys general sweepstakes agreement and
   overall softening of the U.S. economy. These events resulted in a decision to
   reduce mail quantities and in a decline in response rates of primarily
   general books, Select Editions, video and music single-sales products. In the
   U.S., mailings were reduced, compared with the prior period, in anticipation
   of lower responses to promotions because of changes to promotional material
   to comply with the 2001 attorneys general sweepstakes agreement and because
   of weakness in the U.S. economy. In addition, revenues for trade products
   were lower as a result of promotion in the prior year period of a significant
   product that was not promoted in the current period.

   Operating profit for North America Books and Home Entertainment decreased
   significantly in the first quarter of 2002 to a loss of $(10), compared with
   a profit of $24 in the first quarter of 2001. Virtually all of the change in
   operating profit was in the U.S. market and was attributed to the revenue
   declines described above as well as investment in outside lists, primarily
   used for Select Editions promotions.

   U.S. Magazines

   Revenues for U.S. Magazines decreased 2% in the first quarter of 2002 to
   $115, compared with $117 in the first quarter of 2001. The reduction in
   revenues was driven by:
   -  Lower circulation revenues for Reader's Digest magazine primarily from
      lower renewals partially offset by new subscribers at lower introductory
      rates.
   -  Lower advertising revenues for Reader's Digest magazine from fewer
      advertising pages sold as a result of softness in the industry, partially
      offset by a higher average rate per page.

   Offsetting a portion of these declines were increases in revenues for food
   and gift items sold by QSP, Inc. as a result of continued sales growth from
   the sales force and products of the World's Finest Chocolate, Inc.

   Operating profit for U.S. Magazines increased in the first quarter of 2002 to
   a profit of $1, compared with a loss of $2 in the first quarter of 2001. The
   increase was primarily the result of lower promotion costs and cost-reduction
   initiatives of Reader's Digest and Special Interest magazines. These cost
   savings offset the declines in profits from lower circulation and advertising
   revenues described above. Profits for QSP were lower due to a change in
   product mix and an investment in the sales force (i.e., an increase in the
   number of sales representatives and area managers).

   International Businesses

   Revenues for International Businesses decreased 10% in the first quarter of
   2002 to $238, compared with $264 in the first quarter of 2001. Excluding the
   adverse effect of changes in foreign currency exchange rates, revenues
   decreased 7%. Revenues were lower for International Businesses primarily due
   to:
   -  Planned shifts in the timing of series shipments in several markets,
      including Germany, Poland and the Nordic region, which resulted in higher
      revenues in the first quarter of 2001.
   -  Reduced mailings for music, general books and, to a lesser extent, video
      products primarily in Germany, Poland, Australia and Brazil.
   -  Weak economic conditions in Argentina and Brazil, which resulted in lower
      response rates to products.

   Offsetting a portion of these declines in revenues were higher revenues in
   certain markets, including certain Eastern European countries, the United
   Kingdom and France. The following highlights the more prevalent drivers:
   -  In certain Eastern European countries (specifically Russia, the Czech
      Republic and Hungary), revenues were higher from increased mail
      quantities. In Russia, mail quantities were increased for Select Editions
      and video products. In the Czech Republic and Hungary, mail quantities
      were higher for general books and Select Editions, and music series
      products, which were introduced in these countries.
   -  In the United Kingdom, sales were higher as a result of increased
      telemarketing activity and affinity mailings (i.e., specific mailings
      targeted to a group of customers).
   -  Revenues were higher in France as a result of higher responses to music
      products and reading and illustrated series products.

   Operating profit for International Businesses decreased 53% in the first
   quarter of 2002 to $14, compared with a $29 in the first quarter of 2001. The
   net reduction in revenue described above contributed significantly to the
   reduction in profit. For the most part, profits were lower as a result of
   reduced activity for Books and Home Entertainment products. Profits for
   Reader's Digest magazine from both circulation and advertising revenues were
   relatively consistent with the prior year period.

   Overall, profits were, most notably, lower in the following countries:
   Australia, Germany, Nordic countries, Brazil and Argentina. Regions and
   countries reporting profit growth were led by Eastern Europe, the United
   Kingdom and France.

   New Business Development

   Revenues from New Business Development increased 27% to $11 in the first
   quarter of 2002, compared with $9 in the first quarter of 2001. Revenues
   increased from higher catalog and Internet revenues of Gifts.com, Inc., and
   the global expansion of marketing alliances for financial services and
   vitamin products.

   Operating losses from New Business Development decreased by 66% to $(2) in
   the first quarter of 2002, compared with operating losses of $(7) in the
   first quarter of 2001. This decrease resulted from reduced operating costs of
   Gifts.com, Inc. and higher profits from expansion of our marketing alliances
   in financial services.



<PAGE>


   Forward-Looking Information

   Fiscal 2002 Results

   We anticipate some residual impact from the September 11, 2001 terrorist
   attacks and the subsequent anthrax scare primarily in the second and third
   quarters of our fiscal year. We estimate that earnings per share in the
   second quarter will be in the range of $0.75 to $0.80, contingent upon the
   economy and world events. The full year visibility is still uncertain, but we
   are increasingly optimistic about the second half of 2002, and expect
   year-over-year improvement in both revenues and operating profit.

   Liquidity and Capital Resources

                                                                  Three-month
                                                                 period ended
                                                              September 30, 2001

  Cash and cash equivalents at June 30, 2001                        $  35
  Net change in cash due to:
    Operating activities                                              (90)
    Investing activities                                               (4)
    Financing activities                                              110
    Effect of exchange rate changes on cash and cash equivalents        1
                                                                    -----
  Net change in cash and cash equivalents                              17

  Cash and cash equivalents at September 30, 2001                   $  52
                                                                    =====

   Cash and cash equivalents increased 47% to $52 at September 30, 2001,
   compared with $35 at June 30, 2001. Short-term borrowings increased by $143
   to $303 as of September 30, 2001 to finance additional receivables, as well
   as additional inventory of Books Are Fun during the three-month period.

   As described in Note 10 to the consolidated financial statements included in
   our 2001 Annual Report to Stockholders, on July 27, 2001, we replaced a 1996
   credit agreement with a Five-Year Revolving Credit and Competitive Advance
   Facility Agreement that expires on July 27, 2006, and a 364-Day Revolving
   Credit and Competitive Advance Facility Agreement that expires on July 26,
   2002 (the Credit Agreements). Together, these Credit Agreements allow for up
   to $385 in principal amount of borrowings ($192.5 for each agreement). The
   Credit Agreements contains covenants to maintain minimum level of interest
   coverage and a maximum level of leverage. At September 30, 2001, we had
   borrowings of $303 outstanding under the Credit Agreements and were in
   compliance with all covenants. It is our intent to repay the outstanding
   amount by the end of 2002.

   In January 2000, we announced authorization to repurchase up to 5.0 million
   shares of our outstanding Class A nonvoting common stock. As of June 30,
   2001, we had completed all purchases (amounting to $168) against the January
   2000 Repurchase Authorization. In May 2001, we announced authorization to
   repurchase up to a total of $250 in shares of our outstanding Class A
   nonvoting common stock, which superseded a 5.0-million-share repurchase
   authorization announced in October 2000. As of September 30, 2001, we
   purchased approximately 2.1 million shares totaling $37 under the May 2001
   Repurchase Authorization ($29 of this amount settled in cash during the
   three-month period ended September 30, 2001).

   We believe that our liquidity, capital resources, cash flows, credit lines
   and borrowing capacity are sufficient to fund normal capital expenditures,
   working capital requirements, the payment of dividends, the execution of our
   share repurchase program and the implementation of our strategic initiatives.

   Currency Risk Management

   In the normal course of business, we are exposed to the effects of foreign
   exchange rate fluctuations on the U.S. dollar value of our foreign
   subsidiaries' results of operations and financial condition. We purchase
   foreign currency option and forward contracts to minimize the effect of
   fluctuating foreign currency exchange rates on our earnings and specifically
   identifiable anticipated transactions. In addition, we enter into forward
   contracts to minimize the effect of fluctuating foreign currency exchange
   rates on certain foreign currency denominated assets and liabilities.

   At September 30, 2001, our primary foreign currency market exposures included
   the euro and the British pound. We estimate that the results of a uniform 10%
   weakening and 10% strengthening in the value of the U.S. dollar relative to
   the currencies in which our option and forward contracts are denominated,
   with all other variables held constant, would have the following effect:

                                 Effect of a 10%        Effect of a 10%
                                   Weakening             Strengthening
                               of the U.S. Dollar     of the U.S. Dollar

  Option Contracts                   $ (2.9)                $ 9.1
  Forward Contracts                  $ (4.2)                $ 3.4

   These estimates represent changes to the fair value of our option and forward
   contracts on a stand-alone basis. Such changes would be substantially offset
   by the related impact on the assets, liabilities and operating profits being
   hedged. Also, this calculation assumes that each exchange rate would change
   in the same direction relative to the U.S. dollar. Changes in exchange rates
   not only affect the U.S. dollar value of the fair value of these derivatives,
   but also affect the underlying foreign subsidiaries' income. Our sensitivity
   analysis as described above does not consider potential changes in local
   sales levels, or currency prices, or the mitigating effects of option or
   forward contracts.

   Impact of the Euro Conversion

   On January 1, 1999, 11 of the 15 member countries of the European Union
   established fixed conversion rates between their existing sovereign
   currencies (legacy currencies) and a single currency called the euro. The
   legacy currencies are scheduled to remain legal tender as denominations of
   the euro during the transition period from January 1, 1999, to December 31,
   2001. Beginning January 1, 2002, euro-denominated bills and coins will be
   introduced and by July 1, 2002, legacy currencies will no longer be legal
   tender.

   We performed an internal analysis regarding the business and systems issues
   related to the euro conversion and developed a strategic plan to ensure that
   all necessary modifications would be made on a timely basis. Our operations
   in markets that have adopted the euro are able to accept payments and pay
   suppliers in euros and are able to indicate the euro equivalent of pricing on
   invoices. During the transition period, we are monitoring customer and
   competitor reaction to the euro and updating the strategic plan as needed.

   To date, the transition to the euro has not significantly affected our
   marketing strategy. In addition, we believe that the conversion to the euro
   will not have a significant impact on the marketing strategy of our European
   operations in the future. We do not anticipate the need to synchronize prices
   between markets in the future, primarily because the editorial content of our
   products varies. In addition, products are published in local languages and
   are sold primarily through direct mail rather than retail channels. These
   factors result in products that tend to be unique to each market and do not
   easily lend themselves to price comparisons across borders. The estimated
   costs to convert all affected systems to the euro are not expected to have a
   material adverse effect on our results of operations, financial position or
   cash flow.

   Recent Accounting Standards

   In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
   Accounting for the Impairment or Disposal of Long-Lived Assets. This
   statement supersedes both SFAS No. 121, Accounting for the Impairment of
   Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
   accounting and reporting provisions for the disposal of a segment of a
   business of Accounting Principles Board (APB) Opinion No. 30, Reporting the
   Results of Operations - Reporting the Effects of Disposal of a Segment of a
   Business, and Extraordinary, Unusual and Infrequently Occurring Events and
   Transactions. SFAS No. 144 retains the fundamental provisions in SFAS No. 121
   for recognizing and measuring impairment losses on long-lived assets held for
   use and long-lived assets to be disposed of by sale, while also resolving
   significant implementation issues associated with SFAS No. 121.

   SFAS No. 144 also retains the basic provisions of APB Opinion
   No. 30 on how to present discontinued operations in the income
   statement but broadens that presentation to include a component
   of an entity (rather than a segment of a business).  Unlike SFAS
   No. 121, an impairment assessment under SFAS No. 144 will never
   result in a write-down of goodwill.  Rather, goodwill is
   evaluated for impairment under SFAS No. 142.

   We are required to adopt SFAS No. 144 no later than July 1, 2002 (fiscal
   2003). We are currently evaluating the impact of adoption of this statement.

                                   *****

   This report includes "forward-looking statements" within the meaning of the
   U.S. federal securities laws. Forward-looking statements include any
   statements that address future results or occurrences. These forward-looking
   statements inherently involve risks and uncertainties that could cause actual
   future results and occurrences to differ materially from the forward-looking
   statements. Except as required by those laws, we have no obligation to update
   publicly any forward-looking statements and we have no intention to update
   them.

   Some of these risks and uncertainties include factors relating to:

   -  the effects of potentially more restrictive privacy and other
      governmental regulation relating to our marketing methods;
   -  the effects of modified and varied promotions;
   -  our ability to identify customer trends;
   -  our ability to continue to create a broadly appealing mix of new
      products;
   -  our ability to attract and retain new and younger magazine
      subscribers and product customers in view of the maturing of an
      important portion of our U.S. customer base;
   -  our ability to attract and retain subscribers and customers in an
      economically efficient manner;
   -  the effects of selective adjustments in pricing;
   -  our ability to expand and more effectively utilize our customer
      database;
   -  our ability to expand into new international markets and to
      introduce new product lines into new and existing markets;
   -  our ability to expand into new channels of distribution;
   -  our ability to negotiate and implement productive acquisitions,
      strategic alliances and joint ventures;
   -  our ability to integrate newly acquired and newly formed
      businesses successfully;
   -  the strength of relationships of newly acquired and newly formed
      businesses with their employees, suppliers and customers;
   -  the accuracy of the basis of forecasts relating to newly acquired
      and newly formed businesses;
   -  our ability to contain and reduce costs, especially through
      global efficiencies;
   -  the cost and effectiveness of re-engineering of business
      processes and operations;
   -  the accuracy of management's assessment of the current status of
      our business;
   -  the evolution of our organizational and structural capabilities;
   -  our ability to respond to competitive pressures within and
      outside the direct marketing industry, including the Internet;
   -  the effects of worldwide paper and postage costs;
   -  the effects of possible postal disruptions on deliveries of
      promotions, products and payments;
   -  the effects of foreign currency fluctuations;
   -  the accuracy of management's assessment of the future effective
      tax rate and the effect of initiatives to reduce the rate;
   -  the effects of the transition to the euro;
   -  the adequacy of our financial resources;
   -  the effects of unforeseen economic and political changes in the
      markets where we compete;
   -  the economic effects of the September 11, 2001 terrorist attacks, the
      anthrax scare and subsequent related events, especially those affecting
      the direct marketing industry;
   -  the effects and pace of our stock repurchase program; and
   -  the effects of general economic conditions.



<PAGE>


                        PART II. OTHER INFORMATION


   Item 6. EXHIBITS AND REPORTS ON FORM 8-K.


   (a) Exhibits

       18  Preferability Letter regarding Change in Accounting
           Principles for Inventory.



   (b) Reports on Form 8-K

       During the three-month period ended September 30, 2001, we filed the
       following Current Reports on Form 8-K.

       -  Current Report on Form 8-K dated August 14, 2001 including a press
          release and conference call transcript relating to the fourth quarter
          fiscal 2001 earnings release.

       -  Current Report on Form 8-K dated August 20, 2001 including a press
          release relating to Michael S. Geltzeiler's appointment as Senior Vice
          President and Chief Financial Officer.




<PAGE>










                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.






                                          The Reader's Digest
Association, Inc.
                                          (Registrant)



Date:  November 9, 2001           By:   /s/ THOMAS D. BARRY
                                        -------------------------
                                        Thomas D. Barry
                                        Vice President and Corporate Controller

                                        (chief accounting officer and
                                        authorized signatory)




<PAGE>





                                  EXHIBIT INDEX



 Exhibit                                                          Page


   18    Preferability Letter regarding Change in Accounting
         Principles for Inventory.