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 December 31, 2000

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

Class A Nonvoting Common Stock, $0.01 par value:90,530,553 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
                                   (unaudited)

                                December 31, 2000


                                                                        Page No.

Part I - Financial Information:

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

  Consolidated Condensed Statements of Income
   for the three-month and six-month periods ended December 31, 2000
   and 1999                                                                   3

  Consolidated Condensed Balance Sheets
   as of December 31, 2000 and June 30, 2000                                  4

  Consolidated Condensed Statements of Cash Flows
   for the six-month periods ended December 31, 2000 and 1999                 5

  Notes to Consolidated Condensed Financial Statements                        6

Management's Discussion and Analysis of
  Financial Condition and Results of Operations                              12


Part II - Other Information                                                  20



             The Reader's Digest Association, Inc. and Subsidiaries
                   Consolidated Condensed Statements of Income
       Three-month and six-month periods ended December 31, 2000 and 1999
                      (In millions, except per share data)
                                   (unaudited)



                               Three-month period ended  Six-month period ended
                                       December 31,          December 31,
                                     2000      1999       2000         1999
                                     ----      ----       ----         ----
                                             Restated                Restated
                                             (Note 7)                (Note 7)

Revenues                         $   852.8  $   844.0  $   1,412.5  $   1,363.2

Product, distribution and
 editorial expenses                  327.5      318.2        538.0        510.6
Promotion, marketing and
 administrative expenses             369.1      379.6        674.0        667.6

Other operating items                 (8.2)        --         (8.2)          --
                                 ---------  ---------  -----------  -----------

  Operating profit                   164.4      146.2        208.7        185.0

Other expense, net                     3.5        8.0          7.2          1.0
                                 ---------  ---------  -----------  -----------

  Income before provision for
   income taxes                      160.9      138.2        201.5        184.0

Provision for income taxes            57.1       51.9         75.5         69.1
                                 ---------  ---------  -----------  -----------

  Net income                     $   103.8  $    86.3  $     126.0  $     114.9
                                 =========  =========  ===========  ===========

Basic earnings per share:
  Weighted average common
   shares outstanding                102.8      106.5        102.9        107.0
                                 =========  =========  ===========  ===========


  Basic earnings per share       $    1.01  $    0.81  $      1.22  $      1.07
                                 =========  =========  ===========  ===========

Diluted earnings per share:
  Adjusted weighted average
   common shares outstanding         104.1      107.3        104.2        108.0
                                 =========  =========  ===========  ===========

  Diluted earnings per share     $    0.99  $    0.80  $      1.20  $      1.06
                                 =========  =========  ===========  ===========

Dividends per common share       $    0.05  $    0.05  $      0.10  $      0.10
                                 =========  =========  ===========  ===========




See accompanying Notes to Consolidated Condensed Financial Statements.


<PAGE>


             The Reader's Digest Association, Inc. and Subsidiaries
                      Consolidated Condensed Balance Sheets
                    As of December 31, 2000 and June 30, 2000
                                  (In millions)
                                   (unaudited)





                                                   December 31,    June 30,
                                                       2000          2000
                                                       ----          ----
                                                                   Restated
Assets                                                             (Note 7)

  Cash and cash equivalents                        $     54.5    $     49.7
  Receivables, net                                      481.2         285.3
  Inventories, net                                      130.2         120.3
  Prepaid and deferred promotion costs                  127.3         115.5
  Prepaid expenses and other current assets             217.0         201.7
                                                   ----------    ----------

Total current assets                                  1,010.2         772.5

  Marketable securities                                  23.6         173.5
  Property, plant and equipment, net                    159.5         152.4
  Intangible assets, net                                424.4         438.8
  Other noncurrent assets                               300.9         192.5
                                                   ----------    ----------

Total assets                                       $  1,918.6    $  1,729.7
                                                   ==========    ==========

Liabilities and stockholders' equity
  Loans and notes payable                          $    155.3    $     89.4
  Accounts payable                                      125.3         146.4
  Accrued expenses                                      276.5         309.6
  Income taxes payable                                  125.1          38.7
  Unearned revenue                                      359.3         289.4
  Other current liabilities                              18.3          30.9
                                                   ----------    ----------

Total current liabilities                             1,059.8         904.4

  Other noncurrent liabilities                          370.1         350.1
                                                   ----------    ----------

Total liabilities                                     1,429.9       1,254.5

  Capital stock                                          29.4          28.9
  Paid-in capital                                       224.8         223.1
  Retained earnings                                   1,192.4       1,077.5
  Accumulated other comprehensive (loss) income         (68.8)         31.0
  Treasury stock, at cost                              (889.1)       (885.3)
                                                   ----------    ----------

Total stockholders' equity                              488.7         475.2
                                                   ----------    ----------

Total liabilities and stockholders' equity         $  1,918.6    $  1,729.7
                                                   ==========    ==========



See accompanying Notes to Consolidated Condensed Financial Statements.


<PAGE>





             The Reader's Digest Association, Inc. and Subsidiaries
                 Consolidated Condensed Statements of Cash Flows
               Six-month periods ended December 31, 2000 and 1999
                                  (In millions)
                                   (unaudited)



                                                        Six-month period ended
                                                              December 31,
                                                           2000        1999
                                                           ----        ----
                                                                     Restated
Cash flows from operating activities                                 (Note 7)

  Net income                                            $  126.0    $  114.9
  Depreciation, amortization and asset impairments          26.2        21.8
  Minority interest                                           --        (2.5)
  Gains on the sales of businesses, certain
   assets and certain investments                           (7.3)       (7.5)
  Equity in losses of an affiliate                          12.2        10.5
  Other, net of the effects of acquisitions
   and dispositions                                       (169.7)      (13.9)
                                                        --------    --------

Net change in cash due to operating activities             (12.6)      123.3
                                                        --------    --------

Cash flows from investing activities
  Proceeds from maturities and sales of
   short-term investments and marketable
   securities                                               10.4        22.2
  Purchases of investments and marketable
   securities                                               (1.4)      (12.6)
  Proceeds from other long-term investments,
   net and sales of a business                               1.3        10.8
  Proceeds from sales of property, plant and
   equipment                                                 0.7         2.4
  Investment in and advances to an affiliate               (23.0)      (25.0)
  Payments for business acquisitions                          --      (393.9)
  Capital expenditures                                     (19.9)       (7.9)
                                                        --------    --------

Net change in cash due to investing activities             (31.9)     (404.0)
                                                        --------    --------

Cash flows from financing activities
  Short-term borrowings, net                                65.3         9.1
  Dividends paid                                           (10.9)      (11.3)
  Common stock repurchased                                 (11.6)         --
  Proceeds from employee stock purchase plan
   and exercise of stock options                             9.6         5.4
  Other, net                                                 0.6         4.8
                                                        --------    --------

Net change in cash due to financing activities              53.0         8.0
                                                        --------    --------

Effect of exchange rate changes on cash                     (3.7)       (0.1)
                                                        --------    --------

Net change in cash and cash equivalents                      4.8      (272.8)

Cash and cash equivalents at beginning of period            49.7       413.4
                                                        --------    --------

Cash and cash equivalents at end of period              $   54.5    $  140.6
                                                        ========    ========


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  Subsidiaries.  All  references to 2001 and 2000,  unless
specifically identified, are to fiscal 2001 and fiscal 2000, respectively.

(1)   Basis of Presentation and Use of Estimates

The  accompanying   consolidated  condensed  financial  statements  include  the
accounts of The Reader's Digest Association, Inc. and its U.S. and international
subsidiaries.  All significant  intercompany accounts and transactions have been
eliminated in  consolidation.  These statements and accompanying  notes have not
been audited but, in the opinion of management, have been prepared in conformity
with generally accepted  accounting  principles applying certain assumptions and
estimates,  including  all  adjustments  considered  necessary  to present  such
information fairly. Although these estimates are based on management's knowledge
of current  events and  actions  that we may  undertake  in the  future,  actual
results may ultimately differ from those estimates.

We report on a fiscal  year  beginning  July 1. The  three-month  periods  ended
December  31,  2000 and 1999 are the second  fiscal  quarters  of 2001 and 2000,
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.

Other  expense,  net and net  income  have been  restated  for prior  periods to
reflect  equity in losses of an affiliate  (including  amortization  of goodwill
associated with our investment in the affiliate) (Note 7). In addition,  certain
prior  period  amounts  have been  restated  to  conform to the  current  period
presentation.   Specifically,   customer   service   costs  in  2000  have  been
reclassified to reflect these costs as a component of product,  distribution and
editorial expenses rather than promotion, marketing and administrative expenses.

(2)   Basic and Diluted Earnings Per Share

Basic earnings per share is computed by dividing net income less preferred stock
dividend   requirements  by  the  weighted   average  number  of  common  shares
outstanding  during the period.  The preferred stock dividend  requirements were
$0.3 for each of the  three-month  periods ended  December 31, 2000 and 1999 and
$0.7 for each of the six-month periods ended December 31, 2000 and 1999.

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 stock options.  For the three-month  period ended December
31, 2000 the assumed exercise and conversion totaled 1.3 million shares; for the
comparable  period ended  December  31, 1999 there were 0.8 million  shares (1.3
million shares for the six-month  period ended December 31, 2000 and 1.0 million
shares for the six-month period ended December 31, 1999).

(3)       Revenues and Operating Profit by Operating Segments

Reportable  segments  are  based  on  our  method  of  internal  reporting.  The
accounting policies of our segments are the same as those described in Note 1 of
our  consolidated  financial  statements  included in our 2000 Annual  Report to
Stockholders.  In addition,  we allocate all corporate  administrative  costs to
operating segments.

                               Three-month period ended  Six-month period ended
                                       December 31,          December 31,
                                     2000      1999        2000        1999
                                     ----      ----        ----        ----
Revenues
  Global Books and Home
   Entertainment                  $  460.7   $  481.6   $   819.0   $   801.3
  U.S. Magazines                     305.4      267.0       432.7       384.9
  International Magazines             73.6       78.4       141.3       151.0
  Other Businesses                    13.1       17.0        19.5        26.0
                                  --------   --------   ---------   ---------
Total revenues                    $  852.8   $  844.0   $ 1,412.5   $ 1,363.2
                                  ========   ========   =========   =========


                               Three-month period ended  Six-month period ended
                                       December 31,           December 31,
                                     2000       1999       2000         1999
                                     ----       ----       ----         ----
Operating Profit (Loss)
  Global Books and Home
   Entertainment                  $   78.7   $   86.3    $  132.8    $  127.2
  U.S. Magazines                      78.8       73.9        76.7        77.3
  International Magazines              2.4        3.4         1.6         4.2
  Other Businesses                    (3.7)     (17.4)      (10.6)      (23.7)
                                  --------   --------    --------    --------

Segment operating profit             156.2      146.2       200.5       185.0
  Other operating items                8.2         --         8.2          --
                                  --------   --------    --------    --------

Total operating profit            $  164.4   $  146.2    $  208.7    $  185.0
                                  ========   ========    ========    ========


(4)   Comprehensive (Loss) Income

Accumulated  other  comprehensive  (loss) income as reported in the Consolidated
Condensed  Balance  Sheets as of December 31, 2000 and June 30, 2000,  primarily
represents  unrealized  gains/losses on certain investments and foreign currency
translation adjustments.  The components of comprehensive income, net of related
tax, for the three- and six-month  periods ended December 31, 2000 and 1999 were
as follows:

<TABLE>
                                   Three-month period ended   Six-month period ended
                                          December 31,              December 31,
                                        2000       1999           2000       1999
                                        ----       ----           ----       ----
                                                  Restated                 Restated
                                                  (Note 7)                 (Note 7)

<S>                                   <C>         <C>          <C>        <C>
Net income                            $  103.8    $  86.3      $  126.0   $  114.9
Change in:
  Foreign currency translation
   adjustments                             8.7       (7.3)         (2.6)      (1.6)
  Net unrealized (losses) gains on
   certain investments. (1)              (53.3)      20.1         (97.4)     154.0
  Net unrealized (losses) gains on
   certain derivative transactions,
   net of deferred tax assets of
   $0.5 and liabilities of $0.1,
   respectively                           (0.8)        --           0.2         --
                                      --------    -------      --------   --------

Total comprehensive income            $   58.4    $  99.1      $   26.2   $  267.3
                                      ========    =======      ========   ========
</TABLE>

(1)Net  unrealized  (losses) gains on certain  investments,  net of related tax,
   principally  represents  our  investment  in  the  voting  common  shares  of
   LookSmart, Ltd. For the three- and six-month periods ended December 31, 2000,
   these   amounts  are  net  of  deferred   tax  assets  of  $28.7  and  $52.5,
   respectively.  For the three- and six-month  periods ended December 31, 1999,
   these  amounts  are net of  deferred  tax  liabilities  of $12.1  and  $92.4,
   respectively.


(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.  The  components of other  operating  items are described in further
detail below:

-  Employee  Retirement and Severance  Benefits - For each reporting  period, we
   have identified employees who would be separated as a result of actions taken
   to streamline the organizational structure through a combination of voluntary
   and involuntary severance programs.

-  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  incurred
   charges related to the carrying value of certain long-lived assets, leasehold
   improvements,  computer  hardware  and  software  and,  to a  lesser  extent,
   property, plant and equipment no longer used in our operations.

Note 3 of our  consolidated  financial  statements  included  in our 2000 Annual
Report to  Stockholders  describes  the nature and magnitude of the charges that
were recorded in  conjunction  with these  components  for the past three fiscal
years.  At June 30, 2000,  we had accruals  for other  operating  items of $19.7
primarily for employee  retirement and severance  benefits.  For the three-month
period  ended  December  31,  2000,  we recorded  adjustments  totaling  $0.9 to
remaining accrual balances from charges  originally  recorded in fiscal 2000 and
fiscal 1996; and recorded  additional charges of $1.1 primarily related to costs
associated with the discontinuation of certain unproductive  businesses.  During
the six-month period ended December 31, 2000, we made payments totaling $6.5, of
which $5.6 related to employee  retirement and severance  benefits.  At December
31, 2000, the remaining balance of accruals for other operating items,  composed
primarily of employee retirement and severance benefits, was $13.4.

In addition,  we: (i) recorded an  impairment  loss of $2.0 relating to goodwill
associated with one of our special interest magazines; (ii) adjusted accruals as
a result of a favorable tax settlement of $14.5, which resulted in a reversal of
charges  of  $10.1  originally  recorded  in  other  operating  items  and  $4.4
originally  recorded in administrative  expenses;  and (iii) adjusted  remaining
accrual balances for litigation charges  originally  recorded as other operating
items of $0.3.


(6)   Inventories

                                             December 31,     June 30,
                                                 2000           2000

  Raw materials                                $   8.6        $  13.4
  Work-in-progress                                17.7           21.1
  Finished goods                                 103.9           85.8
                                               -------        -------
Total inventories                              $ 130.2        $ 120.3
                                               =======        =======


(7)   Investments

Available for Sale Marketable Securities

Marketable  securities 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 December 31, 2000, the market value of the
remaining shares totaled $19.6 for LookSmart and $3.4 for WebMD.

Net unrealized gains on these investments, net of deferred taxes, is included in
accumulated  other  comprehensive  (loss) income in stockholders'  equity on the
balance  sheet and amounted to $6.5 as of December  31, 2000.  During the three-
and six-month periods ended December 31, 2000, respectively, we sold 750,000 and
950,000  shares of  LookSmart,  and  recorded a pre-tax gain of $2.7 and $5.3 in
other expense, net on the income statement.

Investments, Equity Method

Investments in entities that are not  majority-owned and that we do not control,
but  over  which we have the  ability  to  exercise  significant  influence  are
accounted  for using the equity  method.  Generally,  under the  equity  method,
original   investments  in  these  affiliates  are  recorded  at  cost  and  are
subsequently  adjusted by our share of equity in  earnings  or losses  after the
date of acquisition (including amortization of goodwill).  Equity in earnings or
losses of each affiliate is recorded  according to our level of ownership  until
the  affiliate's  contributed  capital has been fully depleted.  Thereafter,  we
recognize the full amount of the losses  generated by the affiliate  when we are
the primary funding source.



<PAGE>


During the second  quarter of fiscal 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 Accounting  Principles  Board Opinion No.18
(APB No. 18), The Equity Method of Accounting  for  Investments in Common Stock.
All prior  periods were restated to reflect  reported  results as if we had been
accounting for this  investment on the equity method since initial  ownership in
BrandDirect  Marketing,  Inc. in  accordance  with APB No. 18. The  reported and
restated  results  reflect  equity losses in the affiliate  based upon the above
(including amortization of goodwill associated with our investment).

The  following  summarizes  the  effect  on our  results  of the  equity  method
accounting treatment for our investment in BrandDirect Marketing, Inc.


<TABLE>

                    Investment    Equity in        Net     Effect on Basic  Effect on Diluted
     Period        and Advances   Losses (1)   Investment       EPS (2)         EPS (2)
     ------        ------------   ----------   ----------       -------         -------

<S>                   <C>         <C>           <C>           <C>              <C>
Fiscal 2000:
  Second Quarter     $  25.0     $   10.5      $   14.5      $  (0.10)        $  (0.10)
  Third Quarter           --         12.3      $    2.2         (0.12)           (0.11)
  Fourth Quarter         5.0          6.3      $    0.9         (0.06)           (0.06)
                     -------     --------                    --------         --------
                     $  30.0     $   29.1                    $  (0.28)        $  (0.27)
                     =======     ========                    ========         ========
Fiscal 2001:
  First Quarter      $  20.0     $    7.7      $   13.2      $  (0.07)        $  (0.07)
  Second Quarter         3.0          4.5      $   11.7         (0.05)           (0.05)
                     -------     --------                    --------         --------
                    $  23.0     $   12.2                    $  (0.12)        $  (0.12)
                     =======     ========                    ========         ========
</TABLE>

(1)Equity  in  losses  includes  goodwill   amortization   associated  with  our
   investment  totaling  $5.5 for 2001 and $3.8 for 2000.
(2)EPS is  earnings  per share.

Investments, Cost Method

We hold several other  investments,  at cost,  totaling $13.4. These investments
are included in other noncurrent assets on the balance sheet.

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.
(our wholly owned  subsidiary)  has a long-term  commitment to purchase  World's
Finest  Chocolate,  Inc. products and the exclusive right to sell those products
for  fundraising  purposes.  Our purchase  commitment is based on annual minimum
tonnage amounts.


(8)   Derivative Instruments

On July 1, 2000, we adopted Statement of Financial  Accounting  Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS
No. 138,  "Accounting  for Certain  Derivative  Instruments  and Certain Hedging
Activities,  an  amendment of SFAS No. 133." These  statements  standardize  the
accounting for derivative instruments,  including certain derivative instruments
embedded  in  other  contracts.   We  are  required  to  record  all  derivative
instruments  on our  balance  sheet  at fair  value.  Derivatives  that  are not
classified  as hedges are adjusted to fair value  through  earnings.  Changes in
fair  value of the  derivatives  that we have  designated  and that  qualify  as
effective hedges are recorded in either other comprehensive  income or earnings.
The  ineffective  portion of our  derivatives  that are  classified as hedges is
immediately   recognized  in  earnings.  The  cumulative  effect  of  change  in
accounting  principles  recorded on July 1, 2000 was not material to our results
of operations, financial position or cash flows.



<PAGE>


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  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
   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 December 31, 2000,  changes
in the spot value of the foreign  currencies  associated  with option  contracts
designated  and  qualifying as cash flow hedges of forecasted  royalty  payments
amounted to a loss of $0.8 (gain of $0.2 for the six-month period ended December
31, 2000). These changes are reported in accumulated other comprehensive  (loss)
income  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 $0.2 was recognized as a loss in other
expense,  net on the income statement for the three-month  period ended December
31, 2000 (loss of $0.6 for the six-month  period ended  December 31, 2000).  The
fair value of the option  contracts  at December 31, 2000 of $0.7 is included in
prepaid expenses and other current assets on the balance sheet.

We  anticipate  that the net gains in  accumulated  other  comprehensive  (loss)
income relating to foreign  currency option  contracts  existing at December 31,
2000  will  be  recognized  as  gain  (loss)  on  foreign  exchange  during  the
twelve-month  period  ended  December 31,  2001.  As of December  31, 2000,  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 six-month
period ended December 31, 2000.

Other Derivatives - For the three-month  period ended December 31, 2000, changes
in the spot value of the foreign currencies and contract settlements  associated
with option and forward  contracts  amounted to a loss of $4.6 (gain of $5.1 for
the six-month  period ended  December 31,  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 December 31, 2000 of $8.3 is included
in prepaid expenses and other current assets on the balance sheet.



<PAGE>


(9)   Debt

As described in Note 10 of our consolidated financial statements included in our
2000 Annual Report to Stockholders,  we are a party to a Competitive Advance and
Revolving  Credit  Facility  Agreement (the Credit  Agreement) that provides for
borrowings of up to $300.0 and expires on October 31, 2001. The Credit Agreement
contains  covenants to maintain  minimum levels of  consolidated  assets and net
worth and a maximum level of leverage.  At December 31, 2000, we had  borrowings
of $155.1  outstanding under the Credit Agreement and we were in compliance with
all covenants. This amount is included in loans and notes payable on the balance
sheet.

(10) Share Repurchase Authorization

In January 2000, we announced authorization to repurchase up to 5 million shares
or about 5 percent of our  outstanding  Class A nonvoting  common  stock.  As of
December 31, 2000, we had purchased  approximately  4.4 million shares  totaling
$145.1 (0.1 million  shares  totaling $4.9 during the  three-month  period ended
December 31, 2000 and 0.3 million  shares  totaling  $11.6 during the  six-month
period ended December 31, 2000). In October 2000, we announced  authorization to
repurchase  up to an  additional  5 million  shares of our  outstanding  Class A
nonvoting common stock.




<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)
                                   (unaudited)

Unless indicated otherwise,  references in Management's  Discussion and Analysis
to "we,"  "our,"  and "us" are to The  Reader's  Digest  Association,  Inc.  and
Subsidiaries.  All references to 2001 and 2000, unless specifically  identified,
are to fiscal 2001 and fiscal 2000, respectively.

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
foreign currency translation. This discussion should be read in conjunction with
the Consolidated Condensed Financial Statements and related notes.

Other  expense,  net and net  income  have been  restated  for prior  periods to
reflect  equity in losses of an affiliate  (including  amortization  of goodwill
associated with our investment in the affiliate),  as described in Note 7 to our
consolidated condensed financial statements.  To analyze results on a comparable
basis, Management's Discussion and Analysis of operating profit has been written
excluding the net effect of other operating items of $8.2 (income) in the second
quarter 2001. Other operating items consisted of the following:

-  Adjustments to remaining accrual balances from charges originally recorded in
   fiscal years 2000, 1996 and 1994, that resulted in a benefit of $11.3.

-  Additional  charges of $1.1 primarily  related to costs  associated  with the
   discontinuation of certain unproductive businesses.

-  An impairment  loss of $2.0 relating to goodwill  associated  with one of our
   special interest magazines.


Three-Month Period Ended December 31, 2000, Compared With Three-Month
Period Ended December 31, 1999

Results of Operations:  Company-Wide

Revenues and Operating Profit

Revenues for the second quarter of 2001 increased 1% to $853, compared with $844
in the second quarter of 2000.  Excluding the adverse effect of foreign currency
translation,  revenues  increased  6%. The  increase in revenues  was  primarily
attributable to increased  sales at QSP, Inc.  resulting from the integration of
the products and sales force of World's Finest  Chocolate,  Inc. After adjusting
for  foreign   currency   translation,   revenues  for  Global  Books  and  Home
Entertainment and  International  Magazines were higher as well. The increase in
revenues for Global Books and Home Entertainment was primarily from higher sales
of music products and general books, and increased promotional activity of Young
Families products in the United States.  This revenue growth was slightly offset
by reduced catalog activity to improve  profitability at gifts.com,  Inc.'s Good
Catalog Company division.

Operating  profit for the second quarter of 2001 increased 7% to $156,  compared
with $146 in the second quarter of 2000. Excluding the adverse effect of foreign
currency  translation,  operating profit increased 13%.  Operating profit growth
was driven by reduced marketing and development costs associated with the launch
of gifts.com and higher sales of QSP, Inc.  products.  Certain  product lines of
Global  Books and Home  Entertainment  experienced  higher  profits from revenue
growth,  including  music  products  sold  globally,  general  books in  certain
international markets, and Young Families products in the United States. Profits
were reduced by weaker  response  rates to certain video  products in the United
States and illustrated series products sold globally.



<PAGE>


Other Expense, Net

Other expense, net decreased 56% to $(4) in the second quarter of 2001, compared
with $(8) in the  second  quarter of 2000.  During  the  second  quarter of 2001
additional income totaling $4 was realized from the sale of certain  investments
and proceeds of $4 from the termination of an agreement.  Incremental expense of
$8 was recognized  from higher interest  expense and losses on foreign  currency
hedge contracts. Equity in losses of an affiliate were $6 less during the second
quarter of 2001, compared with the prior year period.

Income Taxes

The effective tax rate for the second quarter of 2001 was 35.5%, compared with a
rate of 37.5% for the second quarter of 2000.  Excluding the effect of equity in
losses of an affiliate,  the  effective tax rate for the second  quarter of 2001
was 34.5%, compared with a rate of 34.9% for the prior year period.

Net Income and Earnings Per Share

For the  second  quarter of 2001,  net income was $104,  or $0.99 per share on a
diluted-earnings  basis ($1.01 per share for basic  earnings per share).  In the
prior year period,  net income was $86, or $0.80 per share on a diluted-earnings
basis ($0.81 per share for basic earnings per share).


Results of Operations:  Operating Segments

Global Books and Home Entertainment

Revenues  for Global  Books and Home  Entertainment  decreased  4% in the second
quarter  of 2001 to $461,  compared  with $482 in the  second  quarter  of 2000.
However, excluding the adverse effect of foreign currency translation,  revenues
increased 3%. Revenue growth was primarily in international  markets,  with some
growth in the United  States  for music and Young  Families  products.  Revenues
increased for music products from higher response rates to more popular products
and for Young Families products as a result of increased  promotional  activity.
Revenues for Books Are Fun, Ltd. (BAF) were slightly higher as well. Conversely,
certain video and  illustrated  series  products had lower  response  rates from
weaker products resulting in lower revenues.

The  increase in revenue in  international  markets was  primarily  from general
books,  reading series,  and music products.  Revenue  increases were especially
high in Eastern Europe,  particularly  in Russia and the Czech Republic,  and in
certain Latin American  markets.  Revenue for general books increased because of
improved response rates resulting from more effective  promotion  techniques and
stronger  products in Russia,  the Czech  Republic and Mexico.  Sales of reading
series  products  were  higher as a result of  increased  promotion  efforts and
improved  membership  retention,  especially in Germany,  and improved  response
rates in  Australia.  Revenues  for music  products  were higher from  increased
promotional activity and higher response rates, primarily in Germany and Asia.

Operating  profit for Global  Books and Home  Entertainment  decreased 9% in the
second quarter of 2001 to $79,  compared with $86 in the second quarter of 2000.
Excluding the adverse effect of foreign currency  translation,  operating profit
was flat.  Although  profit  improvements  were  realized in Eastern  Europe and
certain Latin American  markets,  some  countries,  including the United States,
Germany and France experienced lower profits.

In the United States  profits from  increased  sales of music and Young Families
products were offset by losses from reduced  revenues for video and  illustrated
series products  described above. BAF had higher overall sales, but profits were
lower  because of severe  weather  that  adversely  affected  some winter  sales
events,  and the late arrival of a significant  seasonal  product.  Profits were
higher in  international  markets  primarily  from higher sales of general books
sold in Eastern  Europe and  Mexico.  Profits  were lower in Germany for general
books,  and in France  for music  products  because of lower  response  rates to
weaker products in those markets.



<PAGE>


U.S. Magazines

Revenues for U.S. Magazines  increased 14% in the second quarter of 2001 to $305
compared with $267 in the second  quarter of 2000.  The increase in revenues was
attributable  to a greater variety of food and gift items sold by QSP, Inc. as a
result of the  integration  of the  products  and sales force of World's  Finest
Chocolate,  Inc. In addition,  advertising revenues for Reader's Digest magazine
increased from more  advertising  pages sold and a higher average rate per page.
These  increases  were partially  offset by lower  advertising  and  circulation
revenues of certain special interest  magazines from  industry-wide  softness in
the do-it-yourself and health categories.

Operating profit for U.S.  Magazines  increased 7% in the second quarter of 2001
to $79, compared with $74 in the second quarter of 2000. The profit increase was
driven by higher sales of QSP, Inc. products and higher advertising  revenue for
Reader's Digest magazine  described  above.  Circulation  margins were lower for
Reader's  Digest magazine mostly from increased  subscription  costs  associated
with  acquiring  new  subscribers.  Profits were lower for the special  interest
magazines reflecting lower revenues described above.

International Magazines

Revenues for International  Magazines decreased 6% in the second quarter of 2001
to $74, compared with $78 in the second quarter of 2000. However,  excluding the
adverse effect of foreign currency translation,  revenues increased 4%. Revenues
in Germany  increased from the  introduction  of a vitamin catalog product line.
Overall circulation and advertising revenues were flat with increases in Mexico,
Asia, France, and Canada,  primarily from higher  subscription  renewals.  These
increases  were  slightly  offset by the sale of our Italian  operations  in the
fourth quarter of 2000.

Operating  profit declined in the second quarter of 2001 to $2, compared with $3
in the second quarter of 2000,  primarily as a result of incremental spending in
initiatives to acquire new  customers.  In the United Kingdom and France profits
were  higher  from  reduced  promotion  and  overhead  costs  from more  optimal
circulation levels and cost-reduction initiatives.

Other Businesses

Revenues from Other  Businesses  decreased 23% in the second  quarter of 2001 to
$13,  compared with $17 in the second  quarter of 2000.  Revenues were lower for
gifts.com,  Inc. as a result of the Good Catalog Company division's reduction in
merchandise catalog promotions, partially offset by increased sales generated by
our gifts.com Web site.

Operating losses from Other  Businesses  decreased in the second quarter of 2001
to $(4),  compared  with $(17) in the second  quarter  of 2000,  primarily  from
planned reductions in marketing and development costs of gifts.com, Inc.


Six-Month Period Ended December 31, 2000, Compared With Six-Month
Period Ended December 31, 1999

Results of Operations:  Company-Wide

Revenues and Operating Profit

Revenues  for the six months  ended  December  31, 2000  increased 4% to $1,413,
compared with $1,363 in the prior year period.  Excluding the adverse  effect of
foreign currency  translation,  revenues  increased 9%. The increase in revenues
was primarily  attributable to: (i) the acquisition of BAF in the second quarter
of 2000; (ii) increased sales at QSP, Inc. resulting from the integration of the
products and sales force of World's  Finest  Chocolate,  Inc.; and (iii) revenue
growth in the international markets of Global Books and Home Entertainment.  The
increase in revenues for Global Books and Home  Entertainment was primarily from
higher sales of music, general books, and reading series products sold globally,
and  increased  promotional  activity of Young  Families  products in the United
States.  Revenues grew in Eastern Europe and other developing markets because of
higher response rates to increased and more effective promotion  techniques.  In
addition,  advertising revenues were higher for Reader's Digest magazine. In the
United  States,  the average rate per page and the number of  advertising  pages
sold was higher; and in international  markets,  the number of advertising pages
sold was higher.

This revenue  growth was  slightly  offset by: (i) reduced  catalog  activity at
gifts.com,  Inc.'s Good Catalog Company division to improve profitability;  (ii)
lower  revenues  for video and  illustrated  series  products  because of weaker
product  performance;  and  (iii)  the  loss of  revenue  from  the  sale of the
subscription list for American Health magazine, which ended publication with the
October 1999 issue.

Operating  profit for the six months  ended  December  31, 2000  increased 8% to
$201, compared with $185 in the prior year period.  Excluding the adverse effect
of foreign  currency  translation,  operating  profit  increased 16%.  Operating
profit  growth  was  driven  by  higher  sales  of most  Global  Books  and Home
Entertainment  products,  as well as reduced  marketing  and  development  costs
associated  with the launch of  gifts.com.  Global Books and Home  Entertainment
experienced  higher  profits from revenue  growth,  including  music and reading
series  products sold globally,  general books sold  internationally,  and Young
Families products promoted in the United States.  Profits were reduced by weaker
response  rates to certain video  products in the United States and  illustrated
series products sold globally.

Other Expense, Net

Other expense,  net increased to $(7) in the six months ended December 31, 2000,
compared  with  $(1) in the prior  year  period.  During  the six  months  ended
December 31, 2000, interest expense was higher from additional borrowings.  This
incremental  expense of $11 was partially  offset by income totaling $6 that was
realized  from the  sale of  certain  investments  and  proceeds  of $4 from the
termination  of an  agreement.  Equity in losses  of an  affiliate  were $2 less
during the six months  ended  December 31,  2000,  compared  with the prior year
period.  Also, in the prior year period,  a gain of $7 was  recognized  from the
sale of the subscription list for American Health magazine.

Income Taxes

The  effective  tax rate for the six months  ended  December 31, 2000 was 37.4%,
compared with a rate of 37.5% for the prior year period. Excluding the effect of
equity in losses of an  affiliate,  the  effective  tax rate for the six  months
ended  December 31, 2000 was 35.3%,  compared with a rate of 35.5% for the prior
year period.

Net Income and Earnings Per Share

For the six months ended  December 31, 2000,  net income was $126,  or $1.20 per
share on a  diluted-earnings  basis  ($1.22  per share for  basic  earnings  per
share).  In the prior year period,  net income was $115, or $1.06 per share on a
diluted-earnings basis ($1.07 per share for basic earnings per share).

Results of Operations:  Operating Segments

Global Books and Home Entertainment

Revenues for Global Books and Home Entertainment  increased 2% in the six months
ended  December 31, 2000 to $819,  compared  with $801 in the prior year period.
Excluding the adverse effect of foreign currency translation, revenues increased
9%. The  acquisition of BAF in the second quarter of 2000 and revenue growth for
most  products  sold  globally  were the  primary  reasons  for the  increase in
revenues.  The  acquisition  of BAF was a  significant  portion  of the  revenue
increase  in the United  States;  however,  revenues  also  increased  for other
products as well. Specific revenue increases  included:  (i) music products from
higher response rates to more popular products and a shift in promotion  efforts
from video  products;  (ii) Young  Families  products  as a result of  increased
promotional  activity;  and (iii)  reading  series  products  because  of higher
payment rates and increased pricing.  Some video and illustrated series products
had lower response rates from weaker products, resulting in lower revenues.

Revenues increased for all products sold in international  markets.  Most of the
revenue  growth  was in  general  books  and  reading  series  products  and was
especially  high in the developing  markets of Latin America and Eastern Europe.
Revenues for general books increased,  especially in Russia,  Mexico,  the Czech
Republic,  and Asia,  because of improved  response rates  resulting from better
promotion  techniques and stronger  products.  Sales of reading series  products
were higher as a result of increased  promotion efforts and improved  membership
retention, especially in Germany and Switzerland, and improved response rates in
Australia.  Revenues  for music and video  products  were higher from  increased
promotions and higher response rates, primarily in Mexico, Asia, Australia,  and
Switzerland.  In the United  Kingdom,  revenues were lower from reduced  mailing
activity of music and series products.

Operating profit for Global Books and Home Entertainment increased 4% in the six
months  ended  December 31, 2000 to $133,  compared  with $127 in the prior year
period. Excluding the adverse effect of foreign currency translation,  operating
profit  increased 15%. Profits were higher in nearly all of our markets and were
especially higher in Eastern Europe, the United States, Mexico,  Australia,  and
Switzerland.  In the United States, profits from increased sales of music, Young
Families,  and  reading  series  products  were  offset by losses  from  reduced
revenues for video and illustrated  series  products  described  above.  BAF had
higher  overall  sales,  but profits were lower  because of severe  weather that
adversely  affected  some  winter  sales  events,  and late  delivery to us of a
significant  seasonal  product.  Profits were higher in Eastern Europe,  Mexico,
Australia and Switzerland, primarily from higher sales of general books, reading
series, music, and video products described above.

U.S. Magazines

Revenues for U.S.  Magazines  increased 12% in the six months ended December 31,
2000 to $433,  compared  with $385 in the prior year  period.  The  increase  in
revenues was  attributable  to a greater  variety of food and gift items sold by
QSP,  Inc. as a result of the  integration  of the  products  and sales force of
World's Finest Chocolate,  Inc. In addition,  advertising  revenues for Reader's
Digest magazine  increased from more advertising pages sold and a higher average
rate per page. These increases in revenues were slightly offset by: (i) the loss
of revenue from the sale of the subscription  list for American Health magazine,
which ended  publication with the October 1999 issue; and (ii) lower advertising
and   circulation   revenues  of  certain   special   interest   magazines  from
industry-wide softness in the do-it-yourself and health categories.

Operating  profit for U.S.  Magazines  of $77 was flat in the six  months  ended
December 31, 2000,  compared  with the prior year  period.  Higher  profits from
additional  sales of QSP,  Inc.  products  and higher  advertising  revenue  for
Reader's Digest magazine were offset by certain profit declines.  These declines
included:  (i) lower  profits  for  special  interest  magazines  attributed  to
softness in the industry  described above;  (ii) lower  circulation  margins for
Reader's  Digest magazine mostly from increased  subscription  costs  associated
with acquiring more new subscribers;  (iii) higher costs in the first quarter of
2001,  associated  with the World's Finest  Chocolate,  Inc.  transaction;  (iv)
investment in the development of new marketing channels; and (v) conversion to a
new outsourced fulfillment vendor.

International Magazines

Revenues  for  International  Magazines  decreased  6% in the six  months  ended
December 31, 2000 to $141, compared with $151 in the prior year period. However,
excluding  the adverse  effect of changes in foreign  currency  exchange  rates,
revenues  increased 2%. Revenues increased in Germany from the introduction of a
vitamin catalog product line, and in Mexico, Asia, France, and Canada, primarily
from higher  subscription  renewals of Reader's  Digest  magazine.  Offsetting a
portion of the revenue growth were declines in circulation  revenues of Reader's
Digest magazine from certain strategic  reductions in local  circulation  rates,
specifically  in the United  Kingdom  and  Germany,  and the sale of our Italian
operations in the fourth quarter of 2000.

Operating  profit  declined  in the six months  ended  December  31, 2000 to $2,
compared with $4 in the prior year period,  primarily as a result of incremental
spending on initiatives to acquire new customers.  In the United Kingdom profits
were  higher  from  reduced  promotion  and  overhead  costs  from more  optimal
circulation  levels and  cost-reduction  initiatives.  In certain other markets,
cost were lower as a result of savings in paper and printing  costs from the use
of global contracts to facilitate magazine fulfillment.

Other Businesses

Revenues from Other  Businesses  decreased 25% in the six months ended  December
31, 2000 to $20, compared with $26 in the prior year period. Revenues were lower
for gifts.com, Inc. as a result of the Good Catalog Company division's reduction
in merchandise catalog promotions, partially offset by increased sales generated
by our gifts.com Web site.

Operating  losses  from  Other  Businesses  decreased  in the six  months  ended
December  31,  2000 to $(11),  compared  with  $(24) in the prior  year  period,
primarily  from  planned  reductions  in  marketing  and  development  costs  of
gifts.com, Inc.




<PAGE>


Forward-Looking Information

Fiscal 2001 Results

We expect  continued  revenue and profit growth for 2001. The second half of the
year  should be in line with the range of analyst  estimates  as of January  25,
2001. However, as we have planned our business,  results may be on the lower end
of the estimate range for the third quarter and on the higher end for the fourth
quarter.  We expect that our tax rate for 2001 will be about 35%  (excluding the
effect of equity losses of an affiliate).


Liquidity and Capital Resources

                                                            Six-month
                                                          period ended
                                                        December 31, 2000

Cash and cash equivalents at June 30, 2000                     $ 50

Net change in cash due to:
  Operating activities                                          (12)
  Investing activities                                          (32)
  Financing activities                                           53
  Effect of exchange rate changes on cash and cash
   equivalents                                                   (4)
                                                               ----
Net change in cash and cash equivalents                           5

Cash and cash equivalents at December 31, 2000                 $ 55
                                                               ====

Cash and cash  equivalents  increased 10% to $55 at December 31, 2000,  compared
with $50 at June 30, 2000.  Short-term borrowings increased by $65 to $155 as of
December 31, 2000 to finance  additional  receivables from higher sales, as well
as additional investment in an affiliate and ongoing capital expenditures.

As described in Note 10 of our consolidated financial statements included in our
2000 Annual Report to Stockholders,  we are a party to a Competitive Advance and
Revolving  Credit  Facility  Agreement  (the Credit  Agreement)  that expires on
October 31, 2001 and provides for borrowings of up to $300. The Credit Agreement
contains  covenants to maintain  minimum levels of  consolidated  assets and net
worth and a maximum  level of leverage.  At December  31,  2000,  we had largely
seasonal borrowings of $155 outstanding under the Credit Agreement.

In January 2000, we announced authorization to repurchase up to 5 million shares
or about 5 percent of our  outstanding  Class A nonvoting  common  stock.  As of
December 31, 2000, we had purchased  approximately  4.4 million shares  totaling
$145.  In October  2000,  we  announced  authorization  to  repurchase  up to an
additional 5 million shares of our outstanding Class A nonvoting common stock

We believe  that our  liquidity,  capital  resources,  cash flows 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.



<PAGE>


At December 31, 2000, 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.          of the U.S.
                                          Dollar               Dollar
                                          ------               ------

Option contracts                          $  (4.4)            $ 11.3
Forward contracts                         $ (10.3)            $  8.4

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  principally
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.


                                 *****

This report contains or incorporates by reference  "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.  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 and/or acquire 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;
-     the effects of foreign currency fluctuations;
-     the accuracy of management's assessment of the future effective
      tax rate and the effects of  initiatives to reduce the rate;
-     the effects of the  transition  to the euro;
-     the  effects  and pace of our stock  repurchase program; and
-     the effects of general economic conditions.

We do not undertake to update any forward-looking statements.

<PAGE>


PART II.  OTHER INFORMATION


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the 2000 Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. held on November 10, 2000, the following matters were
voted on by the stockholders:

  Proposal 1: Election of Directors to hold office until the next Annual Meeting
           or until  their  successors  are duly  elected  and  qualified.  Each
           nominee was elected by the votes cast as follows:

                                    For       Withheld
                                    ---       --------

       Thomas O. Ryder           11,937,728     47,654
       Lynne V. Cheney           11,910,112     75,270
       M. Christine DeVita       11,927,746     57,636
       James E. Preston          11,937,499     47,883
       Lawrence R.Ricciardi      11,940,495     44,887
       C.J. Silas                11,937,499     44,883
       William J. White          11,938,030     47,352
       Ed Zschau                 11,940,662     44,720

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

(a)   Exhibits

      10.28  Agreement dated December 18, 2000 between The Reader's
             Digest Association, Inc. and M. John Bohane.

(b)   Reports on Form 8-K

      During the three  months  ended  December  31,  2000,  we did not file any
      reports on Form 8-K.

<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:  February 7, 2001             By:   /s/GEORGE S. SCIMONE
                                          -------------------------
                                          George S. Scimone
                                          Senior Vice President and
                                          Chief Financial Officer
                                          (and authorized signatory)