**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-K**







**[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**


**For
                  the fiscal year ended June 30, 2006**
              **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
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer
                Identification
                  No.)**Pleasantville,
                  New York**
              
              **10570-7000**(Address
                  of principal executive offices)
              
              (Zip
                  Code)


**Registrant’s
      telephone number, including area code: (914) 238-1000**





**Securities
      registered pursuant to Section 12(b) of the Act:**


Title
                  of each class
              
              Name
                  of each exchange
                on
                  which registered**Common
                  Stock**
                **par
                  value $.01 per share**
              
              **New
                  York Stock Exchange**


**Securities
      registered pursuant to Section 12(g) of the Act: None**


**______________**







Indicate
      by check mark if the registrant is a well-known seasoned issuer as defined
      in
      Rule 405 of the Securities Act. Yes [X]  No [ ]




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes [
      ] No [X]




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 [ ]





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. [ ]





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes [X] No [ ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). Yes [ ] No [X]





The
      aggregate market value of registrant’s voting and non-voting equity held by
      non-affiliates of registrant, as
      of
      December 30, 2005, the last business day of the registrant’s most recently
      completed second fiscal quarter ,
      was
      approximately $1,451,000,000 based on the closing price of registrant’s Common
      Stock on the New York Stock Exchange--Composite Transactions on such
      date.





At
      July
      31, 2006, 94,914,698 shares
      of the registrant’s Common Stock were outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Annual
      Report to Stockholders of The Reader’s Digest Association, Inc. for the fiscal
      year ended June 30, 2006. Certain information therein is incorporated by
      reference into Part I and Part II hereof.





Proxy
      Statement for the Annual Meeting of Stockholders of The Reader’s Digest
      Association, Inc. to be held on November 17, 2006. Certain information therein
      is incorporated by reference into Part III hereof.











**TABLE
      OF CONTENTS**








**Page****PART
                I**ITEM
                1.BUSINESS
            1General
            1Reportable
                Segments
            1Reader’s
                Digest North America
            1Reader’s
                Digest International
            2Consumer
                Business Services
            2Product
                Lines
            3Books
                and Home Entertainment Products
            3Reader’s
                Digest Select Editions
            3Reader’s
                Digest Young Families
            3Series
                Books
            3General
                Books
            3Reiman
                Books
            4Music
            4Video
            4Production
                and Fulfillment
            5Magazines
            5*Reader’s
                Digest*Magazine
            5Reiman
                Magazines
            6Special
                Interest Magazines
            6Reader’s
                Digest Trade Publishing
            7Circulation
                and Advertising
            7Production
                and Fulfillment
            8*Allrecipes.com*
            9Taste
                of Home Entertaining
            9Consumer
                Business Services
            9Books
                Are Fun
            9QSP
            10Marketing
            10Information
                Technology and Customer Database Enhancement
            12Competition
                and Trademarks
            12Employees
            13Executive
                Officers
            13Available
                Information
            14ITEM
                1A.RISK
                FACTORS
            15ITEM
                1B.UNRESOLVED
                STAFF COMMENTS
            22ITEM
                2.PROPERTIES
            23ITEM
                3.LEGAL
                PROCEEDINGS
            23ITEM
                4.SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            23**PART
                II**ITEM
                5.MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS
                AND ISSUER PURCHASES OF EQUITY SECURITIES
            24Issuer
                Purchases of Equity Securities
            24Recent
                Sales of Unregistered Securities
            24ITEM
                6.SELECTED
                FINANCIAL DATA
            25





**TABLE
      OF CONTENTS**


*(Continued)*






**Page**ITEM
                7.MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
                AND RESULTS OF OPERATION
            25ITEM
                7A.QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUTMARKET
                RISK
            26ITEM
                8.FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            26ITEM
                9.CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTSON
                ACCOUNTING AND FINANCIAL DISCLOSURE
            26ITEM
                9A.CONTROLS
                AND PROCEDURES
            27Disclosure
                Controls and Procedures
            27Internal
                Control Over Financial Reporting
            27ITEM
                9B.OTHER
                INFORMATION
            27**PART
                III**ITEM
                10.DIRECTORS
                AND EXECUTIVE OFFICERS OF THE REGISTRANT
            28Code
                of Ethics
            28ITEM
                11.EXECUTIVE
                COMPENSATION
            28ITEM
                12.SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERS
            29Equity
                Compensation Plan Information
            29Security
                Ownership Information
            29ITEM
                13.CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            29ITEM
                14.PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            30**PART
                IV**ITEM
                15.EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES
            31SIGNATURES
            37INDEXTO
                CONSOLIDATED FINANCIAL STATEMENTS
            38







Unless
      the context otherwise requires, references in this Annual Report on Form 10-K
      to
“Reader’s Digest,” “we,” “us” and “our” are to


The
      Reader’s Digest Association, Inc. and its subsidiaries.











**PART
      I**


**ITEM
                1.**
            **BUSINESS**




**General**





The
      Reader’s Digest Association, Inc. is a global leader in publishing and direct
      marketing. We create and deliver products and content that inform, enrich,
      entertain and inspire, including magazines, books, recorded music collections,
      home videos and online websites.




Although
      our company is best known for *Reader’s
      Digest* magazine,
      which is published in 50 editions and 21 languages with a monthly worldwide
      circulation of approximately 18 million and a global readership of approximately
      80 million, our flagship magazine is just one of twenty eight magazines we
      publish. Of the other titles we publish, seven other titles have circulations
      in
      excess of 1 million. These magazines contribute to our expansive content of
      food, home and garden, language, learning, travel and health.




Books
      are
      our largest-selling products. Our book topics are diverse, ranging from
      gardening to computers to natural wonders. Our Consumer Business Services
      segment is a leader in the display marketing and school and youth fundraising
      industries.




We
      are a
      Delaware corporation, originally incorporated in New York in 1926, then
      reincorporated in Delaware in 1951. We became a public company in 1990.




**Reportable
      Segments**




Our
      internal management organization reflects three reportable segments: Reader’s
      Digest North America, Reader’s Digest International and Consumer Business
      Services. For financial and further information about each of our reportable
      segments, refer to Note 14 of our Notes to Consolidated Financial Statements
      set
      forth in Part II, “Item 8. Financial Statements and Supplemental Data” of this
      report, which is incorporated by reference herein.




***Reader’s
      Digest North America***




This
      segment comprises our operations in the United States and Canada that primarily
      publish and market magazines and books and home entertainment products. In
      particular, Reader’s Digest North America publishes and primarily direct
      markets:


·
                *Reader’s
                    Digest*magazine
 ·
              Reiman
                  Media Group, Inc. (Reiman) magazines and
                  books
 ·
              special
                  interest magazines
 ·
              books
                  and home entertainment products related to the reading, home and
                  health, and entertainment affinities, including:
 -
              Reader’s
                  Digest Select Editions books
 -
              Reader’s
                  Digest Young Families products
 -
              series
                  and general books
 -
              music
                  and video products






-1-


In
      addition to our direct marketing products, our Trade Publishing unit, including
      Children’s Publishing, sells books and home entertainment products primarily
      through retail marketing.




Complementing the Reader’s Digest North America businesses, on April 20, 2006 we
      acquired *Allrecipes.com* ,
      a U.S
      website for home cooks, and on May 1, 2006 we launched Taste of Home
      Entertaining, a home party plan business.




In
      fiscal
      2006, Reader’s Digest North America contributed $939 million and $115 million to
      our revenues and operating (loss) profit, respectively.




***Reader’s
      Digest International***




This
      segment comprises our operations outside of the United States and Canada that
      primarily publish and market magazines and books and home entertainment
      products. In particular, Reader’s Digest International publishes and primarily
      direct markets:




·
              *Reader’s
                  Digest*magazine in numerous editions and
                  languages
 ·
              books
                  and home entertainment products (described
                  above)
 ·
              special
                  interest magazines
  Part
        of
        the mission of Reader’s Digest International is to establish and develop new
        business initiatives, including entering new geographic markets, developing
        new
        products, acquiring customers through new channels and expanding U.S. business
        models into markets outside North America, including display marketing. During
        2006, we launched new book businesses in Bulgaria, Kazakhstan, United Arab
        Emirates, Serbia, Bosnia and Lithuania, and we launched new editions of *Reader’s
        Digest* in
        Romania, Slovenia and Croatia.




In
      fiscal
      2006, Reader’s Digest International contributed $1,031 million and $78 million
      to our revenues and operating (loss) profit, respectively.




***Consumer
      Business Services***




This
      segment comprises Books Are Fun, Ltd. (Books Are Fun), QSP, Inc. (QSP), and
      Quality Service Programs, Inc. (QSP Canada).




Books
      Are
      Fun operates in the United States and Canada and works with independent sales
      representatives who sell books and gift items by display marketing products
      on-site at schools and businesses.




QSP
      and
      QSP Canada help schools and other youth groups launch, promote and organize
      fundraising campaigns that sell our magazines, other publishers’ magazines and
      food and gift products, such as World’s Finest Chocolate products.




In
        fiscal
        2006, Consumer Business Services contributed $446 million and $(3) million
        to
        our revenues and operating (loss) profit, respectively.
   -2-


**Product
      Lines**




**Books
      and Home Entertainment Products**




Our
      books
      and home entertainment products consist of Reader’s Digest Select Editions,
      Reader’s Digest Young Families, series books, general books, Reiman books,
      recorded music collections and series, and home video products and series.
      We
      market these products principally by direct mail through our Reader’s Digest
      North America and Reader’s Digest International reportable segments. Consumer
      Business Services also sells Reader’s Digest books and home entertainment
      products by display marketing those products on-site at schools and businesses
      through Books Are Fun and through the youth fundraising campaigns of QSP. For
      more information about how we market our books and home entertainment products,
      please refer to the section of this report captioned “Marketing.”




***Reader’s
      Digest Select Editions***




Reader’s
      Digest Select Editions, which were formerly called “Condensed Books” in many
      markets, are continuing series of condensed versions of current popular fiction.
      A condensed work reduces the length of an existing text while retaining the
      author’s style, integrity and purpose. We publish Select Editions in 14
      languages and sell them in the United States, Canada and 26 other countries.
      We
      generally publish six volumes of Select Editions each year. Some of our
      international subsidiaries publish four or five volumes a year.




International
      editions of Select Editions generally include some material from the U.S.
      edition or from other international editions, translated and edited as
      appropriate. International editions also include some condensed versions of
      locally published works. Each local editorial staff determines the
      appropriateness of existing Select Editions works for its own local
      market.




***Reader’s
      Digest Young Families***




Reader’s
      Digest Young Families sells products for children up to age eight, primarily
      through direct mail and telemarketing. The division’s products include
      interactive books, such as Sesame Street ABCs, and videos, such as The Country
      Mouse and the City Mouse. Young Families sells its products principally in
      the
      United States.




***Series
      Books***




We
      market
      two types of series books—reading series and illustrated series. These book
      series may be either open-ended and continuing or closed-ended, consisting
      of a
      limited number of volumes. We publish reading series books in four languages
      and
      sell them in the United States, Canada and 10 other countries. One of our series
      is *The
      World’s Best Reading* ,
      which
      consists of full-length editions of classic literature. We publish six volumes
      of *The
      World’s Best Reading* each
      year
      in the United States, Canada and two other countries and in two languages.
      We
      also publish illustrated series, which are generally closed-ended, in six
      languages and sell them in 11 countries.




***General
      Books***




Our
      general books consist primarily of reference books, cookbooks, health books,
      “how-to” and “do-it-yourself” books, and children’s books, some of which we
      publish in series. We also publish books on subjects such as history, travel,
      religion, nature, home, computers and puzzles. We publish general books in
      23
      languages and sell them in the United States, Canada and 42 other
      countries.




New
      general books are usually original Reader’s Digest books, but may also be books
      acquired from other publishers. During the development period for an original
      Reader’s Digest book, we conduct extensive research and prepare an appropriate
      marketing strategy for the book.




-3-


***Reiman
      Books***




Reiman
      books are books published by Reiman Media Group and whose editorial content
      derives principally from material contributed to Reiman magazines by its
      readers. Reiman books are created to complement the Reiman magazines and
      leverage the magazines’ brand equity, reader loyalty and editorial capability.
      Reiman principally markets annual editions of books that are mostly created
      from
      prior year magazine content; it also markets single sales products. Reiman
      has
      12 annual book programs and two calendar programs (including one book program
      that was launched in fiscal 2006) that are marketed on a continuity basis,
      with
      customers agreeing to receive future editions of the books unless they respond
      to an annual prepublication notice.




***Music***




We
      release our music collections on compact discs and cassettes in the United
      States and 38 other countries. These releases span a broad range of musical
      styles, ranging from classical to pop and from local folk to “relaxation” music.
      We offer both international and local repertoires that reflect our customers’
tastes and expectations. In most markets, we also sell series products in
      various musical genres.




We
      license existing recordings from major record companies and sponsor our own
      recordings with the world’s most renowned orchestras and with international and
      local artists. We also continue to acquire rights to master recordings. Our
      music vault consists of approximately 10,000 selections, which we use in our
      music collections around the world. We have digitized a major part of these
      selections and are now offering an increasing number of tracks through various
      online providers. We also license our selections to third parties for retail
      sales or for movie synchronization.




We
      are a
      member of the Recording Industry Association of America in the United States,
      and we have been recognized with 51 gold, platinum and multi-platinum
      certificates. We are also a member of the International Federation of the
      Phonographic Industry in several other countries.




***Video***




We
      market
      our range of video products in 27 countries. Our home video products reflect
      the
      interests of our global customers—travel, natural history, history, and
      children’s animated programs. Our high editorial and production standards make
      our programs stand out in a competitive marketplace.




Our
      original special interest documentaries are produced with award-winning
      production companies in Europe, Australia and the United States. To ensure
      we
      are able to create programs cost effectively, we are developing partnerships
      with international broadcasters and prestigious moving image
      archives.




When
      we
      film for our original programs we archive the valuable footage for potential
      use
      in future productions. We are responding to technological innovation by filming
      in high definition. We are keeping pace with DVD penetration in all markets
      worldwide.




-4-


***Production
      and Fulfillment*** ******




We
      hire
      independent contractors to print and bind the various editions of Select
      Editions. We have an agreement through 2007 with a printing company for printing
      the English-language Select Editions distributed in the United States and
      Canada. For all other North American direct mail books, we have an agreement
      through 2009 with a printing company. We have a U.S. based manufacturing
      contract for entertainment products that will expire at the end of calendar
      year
      2006, and we are currently negotiating a global contract for this business.
      Our
      European operations use several manufacturing companies for the production
      of
      books. The majority of our home entertainment products are produced throughout
      Europe by three major manufacturers. On a global basis, we have contracts
      through 2008 with three printers for conventional books printed in China.





Paper
      is
      the principal raw material necessary for production of our Select Editions,
      series books and general books. Our exclusive agreement with a major supplier
      to
      globally supply paper for Select Editions expires in December 2006. We purchase
      paper for series books and general books for each printing. We believe that
      our
      existing contractual arrangements and other available sources of paper provide
      us with an adequate supply of paper at competitive prices. We use independent
      contractors who arrange for us to acquire some of the necessary raw materials
      to
      manufacture music and video products.





We
      hire
      independent contractors to handle our fulfillment, warehousing, customer service
      and payment processing. We have an agreement with a single independent
      contractor to handle order and payment processing for most of our U.S. books
      and
      home entertainment business. That agreement expires in December 2012. In
      addition, in July 2006, we entered a four-year contract with a single
      fulfillment company to handle warehousing and fulfillment for our United States
      direct mail business units. The printers or suppliers of our products generally
      package and deliver those products directly to the postal service. For
      information about postal rates and postal services, please refer to the section
      of this report captioned “Marketing.”




We
      believe that, generally, there is an adequate supply of alternative production
      and fulfillment services available to us at competitive prices should the need
      arise. Nevertheless, significant short-term disruption could occur. We have
      contingency plans to minimize recovery time should our current contractors
      be
      unable to meet our production and fulfillment requirements.




**Magazines**




**Reader’s
      Digest** ***Magazine***




*Reader’s
      Digest* magazine ** is
      a
      monthly, general interest magazine that features original articles, previously
      published articles in condensed form, and a condensed version of a previously
      published or soon-to-be published full-length book. The United States
      English-language edition of *Reader’s
      Digest* also
      contains monthly humor columns, such as “Laughter, The Best Medicine ® ,”
“Life
      in These United States ® ”
and
      “All In A Day’s Work ® ,”
and
      other regular features, including “Quotable Quotes ® ,”
“Word
      Power ® ,”
“Only
      in America,” “Everyday Heroes,” “That’s Outrageous! ® ”
and
“RD
      Living.” We publish *Reader’s
      Digest* in
      several editions in the United States, including an English-language edition,
      a
      Spanish-language edition entitled *Selecciones* and *Reader’s
      Digest Large Print for Easier Reading* .
      We
      license independent contractors to publish a braille edition and a recorded
      edition in the United States.




*Reader’s
      Digest* is
      a
      reader-driven, family magazine. Its editorial content is, therefore, crucial
      to
      the loyal subscriber base that constitutes the cornerstone of our operations.
      The editorial mission of *Reader’s
      Digest* is
      to
      inform, enrich, entertain and inspire. The articles, book section and features
      included in *Reader’s
      Digest* cover
      a
      broad range of contemporary issues and reflect an awareness of traditional
      values.




-5-





A
      substantial portion of the selections in *Reader’s
      Digest* are
      original articles written by freelance writers or staff writers. The balance
      is
      selected from existing published sources and is condensed or excerpted by *Reader’s
      Digest* editors.
      We employ a professional staff to research and fact-check all published
      pieces.




The
      content of and editorial procedures for the international editions of *Reader’s
      Digest* are
      similar to those of the U.S. editions. Each international edition has a local
      editorial staff responsible for the editorial content of the edition. The mix
      of
      locally generated editorial material, material taken from the U.S. edition
      and
      material taken from other international editions varies greatly among editions.
      In general, our larger international editions, for example, those in France,
      Germany, Mexico and the United Kingdom, carry more original or locally adapted
      material than do smaller editions.




The *rd.com* website
      extends the experience of reading *Reader’s
      Digest* through
      audio, graphic, text and video enhancements, interactive discussions and reader
      involvement, and additional content relating to *Reader’s
      Digest* .
      We also
      utilize *rd.com* to
      market our products through e-mail and the Internet, as well as to communicate
      with and provide service to our customers online. For more information about *rd.com* ,
      please
      refer to the section of this report captioned “Marketing.”




Globally, *Reader’s
      Digest* is
      published in 50 editions and 21 languages. We license independent contractors
      to
      publish *Reader’s
      Digest* in
      India, Italy, Korea, Denmark, Norway, South Africa, Slovenia, Croatia and
      Indonesia. These magazines are sold primarily through direct marketing.




***Reiman*** ***Magazines***




Reiman
      publishes 12 bi-monthly magazines and one quarterly magazine in the United
      States and Canada, including *Cooking
      for 2* ,
      which
      we launched in the third quarter of fiscal 2005, and *Birds
      & Blooms Extra* ,
      which
      we launched in the fourth quarter of fiscal 2005.




Reiman
      editorial philosophy includes the following core principles: (1) concentration
      on positive aspects of people and their lifestyles; (2) encouragement of reader
      involvement; (3) maintenance of low editorial costs; and (4) emphasis on product
      quality. As a result, about 80% of the editorial content of Reiman magazines
      is
      contributed by readers and there is nominal advertising.




***Special
      Interest Magazines*** ******




We
      publish several special interest magazines that we believe are consistent with
      our image, editorial philosophy and market expertise.




In
      fiscal
      2006, we launched or tested a variety of new special interest magazines. These
      magazines include *Every
      Day with Rachael Ray,* our
      new
      food and lifestyle magazine in the United States; *Daheim
      in Deutschland* in
      Germany and **Meidän*
      Suomi* in
      Finland, both general interest magazines with a strong local flavor; *JOY* ,
      a
      women’s magazine in Mexico; and *Young
      Family* magazine
      in Russia. Also in Mexico, we began publishing two special interest magazines *-
      Crecer Feliz* and *Car
      and Driver Mexico -* under
      a
      license from another publisher *.*




These
      launches are in addition to our existing special interest magazines. In the
      United States, we publish *The
      Family Handyman* and *American
      Woodworker* . *The
      Family Handyman* provides
      instructions and guidance for “do-it-yourself” home improvement projects. *American
      Woodworker*  provides
      information, instruction and guidance for professional and serious amateur
      woodworkers. Internationally, we publish *Receptar* ,
      a
      leading Czech do-it-yourself and gardening monthly magazine, *Handyman* in
      Australia and *Our
      Canada* ,
      a
      bi-monthly general interest magazine with principally reader-contributed
      content.




-6-


We
      promote most of our special interest magazines to our *Reader’s
      Digest* customer
      list. We also promote other products to each magazine’s customer list, as
      appropriate. This strategy helps us to expand the customer base for all of
      our
      products.




We
      also
      publish other limited-edition special interest publications in the United States
      and internationally. These include a special homeowners’ edition of *The
      Family Handyman* that
      is
      used by real estate brokers in the United States. In addition, we publish a
      series of monthly check-out counter magazines branded as *RD
      Specials* and *Taste
      of Home Specials* that
      consist primarily of repurposed content from our books and magazines relating
      to
      the topics of home, health and food.




***Reader’s
      Digest Trade Publishing***




Trade
      Publishing sells books and products for both children and adults and comprises
      two divisions: Reader’s Digest Children’s Publishing and Adult Trade Publishing.
      Reader’s Digest Children’s Publishing produces books, games and other products
      for children up to age 12 under the Reader’s Digest Children’s Publishing
      imprint. Its products are sold through retail channels as well as through our
      other businesses (including display marketing and catalogs) and other channels,
      including the Internet. The products represent such popular brands as Barbie,
      Disney (classic Disney and Pixar characters), Nickelodeon, Sesame Street,
      Fisher-Price, Marvel and NASCAR. The book products have been translated into
      39
      localized editions and are marketed in the United States, Canada and 40 other
      countries.




Our
      Adult
      Trade Publishing group originates books in many illustrated reference
      categories, including gardening, crafts, travel, do-it-yourself, history, and
      family reference. These books are sold through retail channels, catalogs, book
      clubs, Books Are Fun, QSP, television, and through our domestic and
      international divisions.




***Circulation
      and Advertising***




The
      following table shows fiscal 2006 circulation and advertising information for
      our portfolio of magazines:




**Magazines**
              
              **Circulation**
              
              **Advertising**
                **Pages****Carried***Reader’s
                  Digest*magazine(1)
              
              
              18,324,000
              
              
              10,520Reiman
                  magazines(2)
              
              
              14,168,000
              
              
              8Special
                  interest magazines
              
              
              3,725,000
              
              
              2,535




(1)
              In
                  Canada and international markets,*Reader’s
                  Digest*magazine is published in multiple editions and languages. Circulation
                  for
                  these editions
                constitutes
                  a rate base.
  (2)
              Reiman
                  magazines do not have a guaranteed circulation rate base and are
                  not
                  audited by the Audit Bureau of Circulations, a not-for-profit organization
                  that audits circulation in the United States and Canada. The amount
                  indicatedin
                  the table above represents their average circulation for the year
                  for all
                  of their publications.


Circulation
      generated approximately 70% of total U.S. fiscal 2006 revenues for *Reader’s
      Digest* and
      advertising generated approximately 30% of total revenues. Circulation levels
      for all Reiman titles fluctuate throughout the year.  The overall
      circulation level for Reiman titles is managed in total to maximize the
      profitability of the entire portfolio, which may cause year-over-year increases
      or decreases in the average circulation for individual titles. Substantially
      all
      of the Reiman magazines ** do
      not
      accept on-page advertising and rely on subscriptions for approximately 90%
      of
      their revenue, with newsstand sales supplying the balance. “Bonus Books” of
      coupons are poly-bagged with the food magazines.




-7-


We
      have
      determined that the U.S. edition of *Reader’s
      Digest* has
      the
      largest paid circulation of any U.S. magazine, other than those automatically
      distributed to all members of the American Association of Retired Persons.
      Our
      determination is based on the most recent audit report issued by the Audit
      Bureau of Circulations. Subscriptions account for approximately 95% of the
      U.S.
      paid circulation of *Reader’s
      Digest* ,
      while
      single copy sales—via newsstands, supermarkets and similar retail
      establishments—account for the remainder. We also sell our special interest
      magazines by subscription and at newsstands.




We
      maintain the circulation rate base for *Reader’s
      Digest* through
      annual subscription renewals and new subscriptions. We sell subscriptions in
      the
      United States through a variety of direct response marketing techniques and
      by
      direct mail in international markets. We typically sell the largest percentage
      of subscriptions between July and December of each fiscal year. Subscribers
      to *Reader’s
      Digest* may
      cancel their subscriptions at any time and we will refund any unused balance
      of
      the subscription price. For additional information regarding direct marketing
      of
      subscriptions, please refer to the section of this report captioned
“Marketing.”




We
      believe that many international editions of *Reader’s
      Digest* have the
      largest paid circulation for monthly magazines both in the individual countries
      and in the regions in which they are published. For most international editions
      of *Reader’s
      Digest* ,
      subscriptions comprise more than 90% of circulation. The balance is attributable
      to newsstand and other retail sales. Approximately 80% of total international
      fiscal 2006 revenues for *Reader’s
      Digest* were
      generated by circulation revenues and 20% by advertising revenues.




The
      U.S.
      editions and the larger international editions of *Reader’s
      Digest* offer
      advertisers different regional editions, major market editions and demographic
      editions. These editions, which usually contain the same editorial material,
      permit advertisers to concentrate their advertising in specific markets or
      to
      target specific audiences. *Reader’s
      Digest* sells
      advertising principally through an internal advertising sales force. We sell
      advertisements in multiple *Reader’s
      Digest* editions
      worldwide and offer discounts for placing advertisements in more than one
      edition.




***Production
      and Fulfillment***




We
      hire
      independent contractors to print all editions of *Reader’s
      Digest* and our
      special interest magazines. We have an exclusive contract with a U.S. printer
      to
      print the U.S. editions of *Reader’s
      Digest* .
      The
      contract is scheduled to expire in October 2011. We have two printers to print
      our Reiman magazines under contracts expiring in 2008.




Lightweight
      coated and uncoated papers are the principal raw materials used in the
      production of *Reader’s
      Digest,* Reiman
      and special interest magazines. Our global paper supply contract for *Reader’s
      Digest* and
      Reiman magazines expires in June 2008. We believe that our supply contracts
      will
      continue to provide an adequate supply of paper for our needs and that, in
      any
      event, alternative sources are available at competitive prices. A variety of
      factors affect paper prices, including demand, capacity, pulp supply and general
      economic conditions.




We
      have
      an agreement with a single independent contractor to handle order and payment
      processing for *Reader’s
      Digest* ,
      the
      U.S. special interest magazines and the Reiman magazines. This agreement expires
      in December 2012. The same contractor also handles these matters for most of
      our
      U.S. books and home entertainment operations.




We
      deliver subscription copies of the U.S. edition of *Reader’s
      Digest* ,
      the
      special interest magazines and the Reiman magazines through the United States
      Postal Service as “periodicals” class mail. Subscription copies of international
      editions of *Reader’s
      Digest* are
      delivered through the postal service in each country of publication. For
      additional information about postal rates and service, please refer to the
      section of this report captioned “Marketing.”




-8-


In
      the
      United States, a distribution network handles newsstand and other retail
      distribution. We have also contracted in each country with a newsstand magazine
      distributor for the distribution of *Reader’s
      Digest* .




In
      Europe, we have several multi-country agreements with independent contractors
      as
      well as in-country independent contractors to handle fulfillment, warehousing,
      customer service, and payment and order processing. We have two primary printing
      companies for printing *Reader’s
      Digest* magazine
      in Europe.




We
      believe that, generally, there is an adequate supply of alternative production
      and fulfillment services available to us at competitive prices should the need
      arise. Nevertheless, significant short-term disruption could occur. We have
      contingency plans to minimize recovery time should our current contractors
      be
      unable to meet our production and fulfillment requirements.




******  ***Allrecipes.com***




On
      April
      20, 2006, we acquired *Allrecipes.com* for
      approximately $66 million. *Allrecipes.com* is
      an
      online community food and cooking website that leverages an active and growing
      network of home cooks and generates revenue from advertising sponsorships and
      retail licensing. *Allrecipes.com* was
      launched in 1997 as a place for home cooks to “meet” and share their favorite
      recipes. Since its launch, *Allrecipes.com* has
      become the world’s largest online community of home cooks, with more than 1.8
      million registered members. Each month, the website attracts an average of
      6
      million unique visitors who collectively view more than 70 million pages; during
      peak holiday months, traffic spikes to more than 9 million visitors and 111
      million page views. *Allrecipes.com* also
      includes 30,000 recipes, which are created, tested and reviewed by participating
      home cooks.




**Taste
      of Home Entertaining**




On
      May 1,
      2006, we launched a new direct selling business as an extension of our *Taste
      of Home* magazine
      brand in the United States. Revenues are generated from independent sales
      consultants selling food and décor products to their party guests. As of June
      30, 2006, more than 4,000 consultants have joined and the number of shipped
      parties exceeds 7,000.




**Consumer
      Business Services**




This
      reportable segment consists of Books Are Fun and QSP, which do not create their
      own products, but rather have specific ways to market the products of our other
      business units, as well as products that they acquire from other
      businesses.




***Books
      Are Fun***




Our
      Books
      Are Fun subsidiary sells premium quality books and gift items, including
      Reader’s Digest books and home entertainment products, at discount prices. It
      display markets those products on-site at schools and businesses in all 50
      states of the United States and across Canada through book fairs and other
      displays. Book categories sold by Books Are Fun include best-selling novels,
      cookbooks, children’s books and education, sports, hobby, nature, travel and
      self-help titles. Non-book categories include bath and beauty products, music,
      videos and gift items. Books Are Fun’s products are sold by more than 800
      independent sales representatives, who service approximately 70,000 schools,
      15,000 large corporations and institutions, 14,000 daycare centers and 50,000
      small businesses. Since many individuals purchase these products for gift
      giving, Books Are Fun’s sales cycle is largely seasonal and typically
      experiences substantial volume in the second quarter of our fiscal
      year.




-9-


Books
      Are
      Fun purchases book titles, gifts and other products from more than 500
      publishers and vendors worldwide. Most products are test marketed by the
      purchase of a modest number of units in advance of purchasing larger quantities.
      Books Are Fun uses an extensive network of independent public warehousing
      facilities and carriers to store and transport products.




***QSP***




QSP,
      Inc.
      operates in the United States and markets and sells subscriptions to *Reader’s
      Digest,* the
      Reiman magazines, the special interest magazines and other publishers’
magazines, as well as food, gift, music and book products. QSP works directly
      with schools and youth groups on fundraising campaigns in which participants
      sell those products. QSP derives its revenues through services rendered in
      connection with fundraising events. A substantial majority of QSP’s sales occurs
      during the first half of our fiscal year, which coincides with the fall school
      semester. QSP currently has approximately 420 sales
      representatives.




QSP
      is
      party to a licensing agreement with World’s Finest Chocolate, Inc. that requires
      QSP to purchase annual minimum amounts of World’s Finest Chocolate products and
      gives QSP the exclusive right to sell those products for fundraising purposes
      and through other channels, under specified circumstances, through 2020.




Quality
      Service Programs, Inc., our Canadian subsidiary, conducts operations in Canada
      substantially similar to those conducted by QSP in the United States.




In
      the
      United States, operations at QSP are supplemented by *eFundraising.com* ,
      which
      uses the Internet to enhance fundraising activities. *eFundraising.com* uses
      proprietary software that enables e-mail messages to be sent on behalf of
      students about their school or youth group’s fundraising activities to family
      and friends. The e-mail directs the recipients to the school or youth group’s
      website, where they may purchase magazine subscriptions and a variety of gift
      and food products. *eFundraising.com* also
      provides fundraising products, mainly scratch cards and chocolate, to
      organizations conducting fundraisers.




Several
      hundred other publishers make magazine subscriptions available to QSP at
      competitive discounted prices. QSP also obtains music products from a large
      music publisher. A substantial portion of QSP’s chocolate food products are
      obtained from World’s Finest Chocolate. QSP engages independent contractors to
      process and fulfill gift, food, magazine, music and book orders.




**Marketing**




We
      sell
      magazine subscriptions, Select Editions, series books, general books, music
      and
      video products, and certain other products principally through direct mail
      solicitations to households on our customer lists, as well as to customer lists
      rented or purchased from third parties. Our books and home entertainment
      products and product offers and many international magazine subscription offers
      are often accompanied by sweepstakes entries and, in some cases, premium
      merchandise offers. It is our direct marketing policy that a customer may return
      any book or home entertainment product to us, either before or after payment,
      and receive a refund of the amount paid. We believe that our returned goods
      policy is essential to our reputation and that it elicits a greater number
      of
      orders. Most of our customers are satisfied with our books and keep them. Sales
      of our books and home entertainment products are seasonal. In the direct
      marketing industry as a whole, more consumers respond in the fall and winter
      months (especially before Christmas) than during the rest of the
      year.




-10-


While
      we
      sell most copies of general books through initial promotional single offer
      mailings, we also sell substantial additional copies through other channels
      including catalog, package inserts and the Internet. We also distribute our
      general books for retail sale in stores via independent distributors and via
      Books Are Fun and QSP.




Reiman
      markets most of its books through direct mail and cross-promotion on its
      magazines. Reiman sells its books by offering a free preview period during
      which
      the customer agrees to examine the book before purchasing it. If they do not
      wish to purchase the book, they can return it without further obligation. In
      addition, Reiman markets magazines principally via direct mail, package inserts,
      the Internet and cross-promotion of titles within its magazine group. It markets
      products to its customer database of approximately 47 million current and former
      customers, combined with selective rental of outside customer lists. Reiman
      test
      markets new magazine ideas and titles, which rely on reader-submitted editorial
      content, with current subscribers of their own magazines and with selected
      readers from outside lists.





As
      part
      of our growth strategy and to better manage distribution and customer
      acquisition costs, we are increasing sales of our products through direct
      channels other than direct mail. These other distribution channels include
      our
      Consumer Business Services segment, direct-response television, package inserts,
      free-standing inserts, telemarketing, the Internet, display marketing and other
      direct sales. *Reader’s
      Digest* magazine
      and our other magazine publications, including Reiman, obtain and renew the
      vast
      majority of its subscribers in the United States through non-sweepstakes
      promotions.




We
      are
      adapting the editorial content and marketing methods of our magazines and books
      and home entertainment products to new technologies. Our *rd.com* website links
      to
      our many international and domestic websites and to our multiple online stores
      for shopping and information about our products. We also market subscriptions
      on *rd.com* .
      In
      fiscal 2006, *rd.com* (including *changeone.com* and
      other
      sub-sites) had over 17 million visitors from around the world. We are also
      utilizing electronic direct marketing to offer magazine subscriptions and books
      through one-click e-mail.




To
      promote the sale of our books and home entertainment products in the United
      States, we usually offer a sweepstakes in our promotional mailings. Prizes
      totaled about $2.6 million for the 2006 edition of the sweepstakes. Generally,
      each of our international subsidiaries sponsors its own sweepstakes. The
      mechanics of the sweepstakes vary from jurisdiction to jurisdiction, depending
      upon local law.




From
      time
      to time we are involved in legal, regulatory and investigative proceedings
      concerning our sweepstakes and other direct marketing practices. Also, from
      time
      to time jurisdictions in which we do business consider more restrictive laws
      or
      regulations governing sweepstakes or direct marketing. Although some of these
      proceedings may have negatively affected our direct marketing business, we
      do
      not believe that any current proceedings or currently proposed laws and
      regulations will have a material adverse effect on our direct marketing
      business.




In
      2001,
      we entered into a voluntary comprehensive agreement with attorneys general
      for
      32 states (and subsequently with four additional states) and the District of
      Columbia regarding standards for direct mail sweepstakes promotions. Pursuant
      to
      the agreement, we are promoting consumer education and have adopted standards
      for promotions in the United States similar to those agreed to by other direct
      marketing and publishing companies.




We
      are
      subject to postal rate increases, which affect our product deliveries,
      promotional mailings and billings. Postage is one of the largest expenses in
      our
      promotional and billing activities. Increases in the postal rate are factored
      into our pricing strategies and operating plans. Higher postal rates or other
      delivery charges usually increase the total cost to the customer, which may
      have
      a negative effect on sales. As a result, we may strategically determine the
      extent, if any, to which we will pass these cost increases on to our customers.




-11-


We
      rely
      on postal delivery service for timely delivery of most of our products and
      promotional mailings. In the United States and most international markets,
      delivery service is generally satisfactory. Some international jurisdictions,
      however, experience periodic work stoppages in postal delivery service or less
      than adequate postal efficiency.




In
      some
      states in the United States and in some international jurisdictions, some or
      all
      of our products are subject to sales tax or value added tax. Taxes, like
      delivery costs, are generally stated separately on bills, where permitted by
      applicable law. Higher taxes increase the total cost to the customer, which
      may
      have a negative effect on sales. In jurisdictions where applicable tax must
      be
      included in the purchase price, we may be unable to fully recover from customers
      the amount of any tax increase or new tax.




**Information
      Technology and Customer Database Enhancement**




The
      size
      and quality of our databases of current and prospective customers in the
      countries where we operate contribute significantly to our business. We are
      constantly striving to improve our customer databases. We believe that our
      U.S.
      databases of more than 70 million households—over half the total number of
      households in the country—are one of the largest direct response databases in
      the United States. Our international databases include a total of almost 55
      million households.




We
      continue to make significant investments in our database management and related
      information technology to improve our operating efficiencies, to increase the
      level of service we provide for our customer base and to facilitate
      globalization of our operations.




The
      United States and some international jurisdictions, particularly in Europe,
      have
      data protection laws or regulations that prohibit or limit exchanging the type
      of information that we maintain. Some jurisdictions also prohibit the retention
      of information, other than certain basic facts, about noncurrent customers.
      Although these regulations may hinder our ability to collect, retain and use
      customer information, we believe that current laws and regulations do not
      prevent us from engaging in activities necessary to operate our current
      businesses.




**Competition
      and Trademarks**




Although *Reader’s
      Digest* is a
      unique and well-established institution in the publishing industry, it competes
      with other magazines for subscribers and with magazines and all other media,
      including television, radio and the Internet, for advertising.




We
      own
      numerous trademarks that we use in our businesses worldwide. Two of our most
      important trademarks are “Reader’s Digest” and the “Pegasus” logo. In addition,
      our significant trademarks include “QSP”, “Books Are Fun”, “Taste of Home”,
“ *Allrecipes.com* ”,
      “Select Editions” and the names of many of our magazines, features and other
      products. We believe that the name recognition, reputation and image that we
      have developed in each of our markets significantly enhance customer response
      to
      our direct marketing sales promotions. For these reasons, trademarks are
      important to our business, and we aggressively defend our
      trademarks.




-12-


We
      believe that our company names, image and reputation, as well as the quality
      of
      our customer databases, provide a significant competitive advantage over many
      other direct marketers. However, our books and home entertainment businesses,
      QSP and Books Are Fun compete with companies selling similar products at retail
      as well as by direct marketing through various channels, including display
      marketing and the Internet. Because tests show that consumer responses to direct
      marketing promotions can be adversely affected by the overall volume of direct
      marketing promotions, we also compete with all other direct marketers,
      regardless of whether their products are similar to our products. Our books
      and
      home entertainment businesses compete principally on the basis of direct
      marketing customer service, product popularity and price.




*Reader’s
      Digest* magazine
      and our special interest magazines compete with other magazines of similar
      respective genres for readers and advertising and our Reiman magazines compete
      for readers in their respective genres. QSP competes with other sellers of
      products similar to those sold by QSP, whether through fundraising services,
      direct marketing or retail. Nearly all of our products are in competition with
      other products and services that compete for a potential purchaser’s leisure
      activity time and disposable income.




**Employees**




As
      of
      June 30, 2006, we employed about 4,300 people worldwide. We employed about
      2,400
      in the United States and about 1,900 in our international subsidiaries. Our
      relationship with our employees is generally satisfactory.




**Executive
      Officers** ****




The
      following is information about our executive officers.





**Name
                and Age**
            **Positions
                With Reader’s Digest and Recent Business
                Experience**Thomas
                O. Ryder (62)
            In
                April 1998, Mr. Ryder joined Reader’s Digest and was named Chairman of the
                Board and Chief Executive Officer. He retired as Chief Executive
                Officer
                on January 1, 2006 but continues as Chairman of the Board.Eric
                W. Schrier (54)
            Mr.
                Schrierbecame
                President and Chief Executive Officer of Reader’s Digest in January 2006.
                Prior to that he hadbeen
                President, Reader’s Digest North America, since February 2003. Also, he
                was Senior Vice President and Global Editor-in-Chief from January
                2000,
                when he joined Reader’s Digest, until February 2003.Bonnie
                K. Bachar (44)
            Ms.
                Bachar has been President, U.S. Publishing since August 2005. She
                was
                General Manager of the Reader’s Digest North American Publishing Group
                from March 2004 to August 2005 and Vice President and General Manager
                of
                *The**Family Handyman* Group prior to March 2004. She joined
                Reader’s Digest in 1998.Michael
                A. Brizel (49)
            Mr.
                Brizel has been Senior Vice President and General Counsel of Reader’s
                Digest since July 2002. Before July 2002, he was Vice President and
                General Counsel of Reader’s Digest. Mr. Brizel joined Reader’s Digest in
                July 1989.Richard
                E. Clark (42)
            Mr.
                Clark has been Senior Vice President, Investor Relations and Global
                Communications, since November 2004. He joined Reader’s Digest as Vice
                President, Investor Relations, in March
                2000.





-13-


**Name
                and Age**
            **Positions
                With Reader’s Digest and Recent Business
                Experience**Thomas
                D. Gardner (48)
            Mr.
                Gardner has been Executive Vice President of Reader’s Digest since January
                2006 and has been President, Reader’s Digest International, since February
                2003. Mr. Gardner has also had responsibility for the oversight of
                Books
                Are Fun since January 2006.  He was President, North America Books
                and Home Entertainment, from January 2001 to February 2003 and was
                Senior
                Vice President, U.S. New Business Development, of Reader’s Digest prior to
                January 2001. Mr. Gardner joined Reader’s Digest in February
                1992.Michael
                S. Geltzeiler (47)
            Mr.
                Geltzeiler joined Reader’s Digest as Senior Vice President and Chief
                Financial Officer in September 2001. In August 2004, Mr. Geltzeiler’s
                responsibilities were expanded to include oversight of Global Operations
                and Information Technology.Gary
                S. Rich (45)
            Mr.
                Rich has been President, QSP, and a Senior Vice President of Reader’s
                Digest since February 2002. He was Senior Vice President, Human Resources
                of Reader’s Digest from August 1998, when he joined Reader’s Digest, to
                February 2002.Dawn
                M. Zier (41)
            Ms.
                Zier has been President, North American Consumer Marketing and U.S.
                Books
                and Home Entertainment since August 2005. She was Vice President,
                Consumer Marketing, U.S. Magazines prior to August 2005. She joined
                Reader’s Digest in February 1992.





Our
      By-Laws state that officers serve at the pleasure of our board of directors.
      We
      elect our officers annually and they serve until their successors are elected
      and qualified.




**Available
      Information**




We
      file
      annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
      on
      Form 8-K, proxy statements and other documents with the U.S. Securities and
      Exchange Commission (the “SEC”). The public may read and copy any materials we
      file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,
      Washington, DC 20549. The public may obtain information on the operation of
      the
      Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
      an
      Internet site at http://www.sec.gov that
      contains reports, proxy and information statements, and other information
      regarding issuers that file electronically with the SEC.




We
      make
      available free of charge on or through our Internet
      website—http://www.rd.com—our annual report on Form 10-K, quarterly reports on
      Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
      or
      furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
      of
      1934 as soon as reasonably practicable after we electronically file such
      material with, or furnish it to, the SEC.




Copies
      of
      the following Reader’s Digest documents are also available on our website.




Corporate
      Governance Guidelines


Audit
      Committee Charter


Compensation
      and Nominating Committee Charter


Corporate
      Governance Committee Charter


Finance
      Committee Charter


Ethical,
      Legal and Business Conduct Policies




-14-








Information
      contained on our website and the SEC’s website is not a part of this
      report.




Copies
      of
      any of the information referred to above are also available in print to any
      stockholder who requests. Requests for printed or electronic copies should
      be
      addressed to The Reader’s Digest Association, Inc., Attention: Investor
      Relations, Reader’s Digest Road, Pleasantville, NY 10570-7000 or via e-mail to:
      carlos_jimenez@rd.com.






**ITEM
      1A. RISK FACTORS**




*You
      should carefully consider the following risks associated with our businesses.
      Any of the following risks could have a material adverse effect on our
      businesses, financial condition or results of operations. The risks described
      below are not the only ones we face. Our businesses may also be materially
      adversely affected by risks that are not presently known to us or that we
      currently believe to be immaterial. For additional information regarding risk
      factors, see Item 7 of this report.*




**We
      cannot assure you that we will attain the goals of our fiscal 2006-2008
      three-year strategic plan by fiscal 2008.**




During
      fiscal 2006, we launched a three-year strategic plan, shifting our focus from
      stabilization of our businesses to sustainable top- and bottom-line growth
      by
      (1) diversifying the core business, (2) deepening customer relationships and
      (3)
      leveraging our global scale. The failure to achieve the overall goal or the
      components of the three-year strategic plan could have a material adverse effect
      on our results of operations and financial condition.




**We
      may not be able to achieve the proper balance between circulation rate base
      and
      advertising revenues.**




Like most companies that publish magazines, we must balance our circulation
      rate
      base goals, in particular those for the U.S. *Reader’s
      Digest* magazine,
      with our advertising revenue objectives. This effort requires both effective
      management of the circulation rate base and the acquisition of new subscribers
      through cost-effective marketing methods. To maintain our circulation rate
      base,
      we may incur significant additional costs. We cannot assure you that we will
      be
      able to retain and acquire a sufficient number of magazine subscribers in an
      economically efficient manner. Failure to do so could require further reductions
      of our circulation rate base, which could negatively affect our advertising
      revenues and materially and adversely affect our results of operations and
      financial condition.




**Failure
      to efficiently manage our direct marketing initiatives or to protect the
      integrity of our customer databases could negatively affect our
      business.**




One
      of
      our most valuable assets is our customer list, which is a database containing
      information about our current and prospective customers. We rely on this
      database to develop and implement our direct marketing initiatives. Managing
      the
      frequency of our direct marketing initiatives and delivering appropriately
      tailored products in such initiatives is crucial to maintaining and increasing
      our customer base and achieving adequate results from our direct marketing
      efforts. Enhancing the database, maintaining the ability to utilize the
      information available from the database and properly utilizing the available
      information are vital to the success of our business, and our failure to do
      so
      could materially and adversely affect our results of operations and financial
      condition.




-15-




**Changes
        in privacy law could adversely affect our ability to effectively market our
        products.**


We
      collect information from our customers in the various markets in which we
      operate and we utilize that information principally for marketing and promotion
      purposes. Our collection, transfer and use of this information is limited by
      privacy and data protection laws and regulations in those jurisdictions,
      including the National Do Not Call Registry operated by the U.S. Federal Trade
      Commission, the U.S. Federal CAN-SPAM Act of 2003 and the European Data
      Protection Directive. Our compliance with additional regulations in these areas
      may increase our operating costs and adversely affect our ability to effectively
      market our products. Our failure to comply with these regulations could result
      in fines, sanctions and other penalties and additional restrictions on our
      collection, transfer or use of personal data. These developments could
      materially and adversely affect our results of operations and financial
      condition.




**Changes
      in the legal and regulatory environment could increase our costs, restrict
      our
      operations and limit our marketing and other business
      activities.**




The
      marketing and sale of our products is subject to various laws, regulations
      and
      policies administered by U.S. federal, state and local and foreign governments
      in markets in which we operate our businesses. Changes in these laws,
      regulations and policies, or in their interpretation, could increase our costs
      and liabilities and limit the manner in which market our products and conduct
      our other business operations.




We
      currently rely on the use of sweepstakes as an important component of most
      of
      our direct marketing techniques in attracting and retaining customers in
      non-U.S. markets. If significant legislative or regulatory restrictions on
      these
      techniques occur in these markets, we will be forced to revise our marketing
      practices in those markets. We cannot assure you that revised practices would
      yield equally favorable results, and the failure to do so could materially
      and
      adversely affect our results of operations and financial condition.




We
      also rely on the use of sweepstakes as an important component of our direct
      marketing efforts in our U.S. Books and Home Entertainment business. Legislative
      and regulatory developments and agreements with state attorneys general in
      the
      United States have reduced the effectiveness of sweepstakes as a marketing
      method. As a result, we have increasingly tested other direct marketing
      techniques in an effort to diversify our overall marketing strategy in our
      Books
      and Home Entertainment business and to attract and retain new customers of
      this
      business. We cannot assure you that non-sweepstakes marketing techniques will
      be
      as effective as sweepstakes were. If we fail to effectively utilize alternative
      marketing techniques in our Books and Home Entertainment business, our business
      may be materially and adversely affected, which would materially and adversely
      affect our results of operations and financial condition.




**We
      may not be able to successfully achieve the expected benefits of acquisitions
      and other ventures.**




In
      the
      recent past, we have acquired companies and we may in the future make
      acquisitions intended to support and strengthen our businesses. Future
      acquisitions may divert our management’s attention for our other business
      operations. Future acquisitions also may require us to incur additional debt
      and
      contingent liabilities, which could materially and adversely affect our results
      of operations and financial condition. Also, our failure to effectively
      integrate newly acquired operations—including, among other things, (1) the
      failure to maintain important business relationships, (2) the failure to retain
      key employees and (3) the occurrence of unforeseen costs and complexities,
      could
      prevent us from realizing our expected rate of return on an acquired business
      and could have a material and adverse affect on our results of operations and
      financial condition.






-16-




**Our
        earnings and net worth could be materially and adversely affected by impairment
        in the carrying value of goodwill or other intangible
        assets.**


The
      carrying value of goodwill represents the fair value of an acquired business
      in
      excess of identifiable assets and liabilities as of the acquisition date. The
      carrying value of other intangibles represents the fair value of trademarks,
      trade names, and other acquired intangibles as of the acquisition date. Goodwill
      and other acquired intangibles expected to contribute indefinitely to the cash
      flows of the Company are not amortized, but must be evaluated by management
      at
      least annually for impairment. We assess our goodwill and other intangibles
      for
      impairment during the third fiscal quarter of each year, and on an interim
      basis
      should indicators of impairment become apparent. If carrying value exceeds
      current fair value, the intangible is considered impaired and is reduced to
      fair
      value via a charge to earnings. During fiscal 2006 and 2005, we incurred
      impairment charges totaling $316.8 million related to Books Are Fun goodwill.
      Should management’s assessment of the fair value of any of our acquired
      intangible assets decline, our earnings and net worth may be materially and
      adversely affected. For additional information, see Note 6 to our Consolidated
      Financial Statements referred to in Item 8 of this report.




**We
      operate in highly competitive industries and must launch new products to attract
      new and younger customers to augment and replenish our maturing customer base
      while maintaining the quality of existing products.**




We
      operate in highly competitive industries both in the United States and in our
      foreign markets. We compete on the basis of the following, among other things:
      (1) the variety, quality and attractiveness of our products and services; (2)
      the pricing of our products and services; (3) the manner in which we market
      and
      promote our products and services; and (4) the effectiveness of the distribution
      of our products and services and our customer service. Numerous well-established
      and smaller entrepreneurial companies produce, market and sell products that
      compete with the products that our businesses offer. Our magazines compete
      with
      other magazines for subscribers and with all media, including television, radio,
      newspapers and the Internet, for advertising. Our Books and Home Entertainment
      and Books Are Fun businesses compete with companies selling similar products
      at
      retail outlets, through direct and display marketing and on the Internet. QSP
      competes with companies selling similar products through fundraising services,
      direct marketing, the Internet and retail outlets.




Our success in attracting and retaining new and younger consumers to augment
      and
      replenish our maturing customer base depends in large part on our ability to
      identify customer trends and preferences and to develop new products across
      our
      business lines and to acquire and effectively manage the inventory of new
      products in our display marketing businesses in response to those trends and
      preferences. If we fail to launch a broadly appealing mix of new products,
      we
      may not be able to attract new customers and it is possible that our existing
      customers will seek product offerings from our competitors, which could
      materially and aversely affect our results of operations and financial
      condition.




**We
      face additional risks associated with significant non-U.S. operations and we
      continue to expand into foreign markets.**




We
      are
      committed to expanding our business internationally. As we enter new markets,
      we
      may, among other things: (1) utilize some portion of the attention of existing
      regional personnel; (2) identify, recruit, hire, train, develop and retain
      qualified and effective local personnel; (3) establish local internal business
      systems; (4) establish external business relationships, including
      outsourcing, joint venturing and licensing core business functions and (5)
      compete with established local competitors that may be more familiar with the
      particular tastes of the consumers in such markets. We cannot guarantee that
      we
      will be successful. If we fail to accomplish these matters effectively, our
      expansion opportunities could be limited and our results of operations and
      financial condition could be materially and adversely affected.






-17-




**Economic
        weakness in the United States and abroad could negatively affect our
        business.**




Most
      of
      our products are recreational in nature and, therefore, involve discretionary
      spending on the part of consumers. This makes our products particularly
      sensitive to general economic conditions and economic cycles and trends in
      advertising placements. Also, we derive a portion of our revenues from the
      sale
      of advertising in our publications. Our advertising revenues are susceptible
      to
      fluctuations in economic cycles. Sustained economic weakness in the United
      States or in Europe and in other markets where we generate a significant amount
      of our revenues, would likely further reduce consumer spending in our markets
      and negatively affect our business, which could materially and adversely affect
      our results of operations and financial condition.




**Currency
      exchange rate fluctuations could reduce our revenue and net
      income.**




We
      operate globally, through operations in various locations around the world.
      In
      fiscal 2006, we generated 50% of our revenue in markets outside of the United
      States. We purchase a significant portion of our inventory and raw materials
      primarily in U.S. dollars. The functional currency for most of our foreign
      operations is the applicable local currency. In preparing our financial
      statements, we translate revenues and expenses in foreign countries from their
      local currencies into U.S. dollars using weighted average exchange rates.
      If the U.S. dollar strengthens relative to local currencies, our reported
      revenues, gross profits and net income will likely be reduced. Given our
      inability to predict the degree of exchange rate fluctuations, we cannot
      estimate the effect these fluctuations may have upon future reported results,
      product pricing or our overall financial condition, but they could materially
      and adversely affect our results of operations and financial
      condition.




**Increases
      in postage costs or paper prices could negatively affect our
      results.**




Because
      the price of postage and paper are two of our largest operating expenses, our
      income may be reduced by increases in either postage or paper
      prices.




We
      expect to incur postage and delivery service costs of approximately $400 million
      in fiscal 2007. We largely use the United States Postal Service in the United
      States and a variety of carriers outside of the United States. Postage costs
      increase periodically and can be expected to increase in the future. Higher
      postal rates or other delivery charges increase the total cost of our products
      to the customers, which may have a negative effect on sales.




Paper is the principal raw material used in our business. We expect to incur
      costs of approximately $200 million in fiscal 2007 for paper for printed
      products and promotional material. The price of paper may fluctuate
      significantly in the future. Although we have attempted to ensure adequate,
      competitively priced, long-term supplies of paper, changes in the market supply
      of or demand for paper could affect delivery times and prices. We cannot be
      sure
      that we will not need to find alternative sources for paper from time to time
      and that we will continue to have access to paper in the necessary amounts
      or at
      reasonable prices or that any increases in the cost of paper will not have
      a
      material adverse effect on our business.




Our inability to absorb the impact of increases in postage and paper costs
      or
      our strategic determination not to pass on all or a portion of these increases
      to the customers could materially and adversely affect our results of operations
      and financial condition.




**We
      may not be able to obtain at favorable prices the third-party products that
      we
      sell.**




Our
      profit margins in our Books Are Fun and QSP businesses are highly dependent
      on
      the costs to obtain the books, gifts and magazines that they sell. Although
      these products have been available to us on negotiated, competitive terms in
      the
      past, there can be no assurance that we will have access to these products
      at
      comparable prices in the future.






-18-




**A
        failure by QSP to meet minimum purchase requirements in one of its agreements
        could materially and adversely affect our results of operations and financial
        condition.**




QSP
      entered into a long-term licensing agreement with World’s Finest Chocolate, Inc.
      in May 2000 pursuant to which QSP is licensed to sell World’s Finest Chocolate
      products as part of QSP’s fundraising support business. The agreement was
      amended in 2002 to reduce the minimum purchase requirements and extend the
      term
      of the agreement. Under a long-term licensing agreement with World’s Finest
      Chocolate, Inc. originally entered into in May 2000, QSP must satisfy estimated
      minimum annual purchase requirements of chocolate products ranging from
      approximately $56 million in fiscal 2007 to approximately $75 million
      in each year from fiscal 2008 to fiscal 2021. For additional information about
      this agreement, see
      Note
      6 to our Consolidated Financial Statements referred to in Item 8 of this
      report. QSP is
      required to meet these minimum annual purchase requirements regardless of
      whether QSP would otherwise use that amount of World’s Finest Chocolate products
      in the operation of its business. During the fourth quarter of fiscal 2006,
      we
      determined that it was probable that we will not meet the calendar 2006 minimum
      tonnage purchase commitment under this agreement and accordingly, recorded
      a
      charge of $6 million. We cannot assure you that QSP will be able to satisfy
      these minimum requirements throughout the remainder of the term of the
      agreement. A significant failure of QSP to meet the minimum annual purchase
      requirements under the agreement could materially and adversely affect our
      results of operations and financial condition.




**We
      may not be able to retain or attract the key management, creative, editorial,
      marketing and sales personnel that we need to remain competitive and
      grow.**




We
      operate in a number of highly visible industry segments where there is intense
      competition for experienced and highly effective key employees. Our successful
      operations in these segments may increase the market visibility of members
      of
      our key management and creative and editorial teams and result in their
      recruitment by other businesses.




We
      depend on our ability to identify, recruit, hire, train, develop and retain
      qualified and effective personnel. A loss of a significant number of skilled
      creative and editorial personnel could have a negative effect on the quality
      of
      our products. Similarly, a loss of a significant number of experienced and
      effective sales personnel would likely result in fewer sales of our products
      and
      could materially and adversely affect our results of operations and financial
      condition. We expend significant resources and management time in identifying
      and training our creative, editorial, marketing and sales personnel. Our ability
      to identify, recruit, hire, train, develop and retain qualified and effective
      personnel in these areas depends, however, on numerous factors, including
      factors that we cannot control, such as competition and conditions in the local
      employment markets in which we operate.




Furthermore, we depend on the continued services of our senior management team.
      This team is familiar with our industries and our business strategies and the
      departure of key management personnel could adversely affect our business,
      which
      could materially and adversely affect our results of operations and financial
      condition.




**Increases
      in sales or other taxes could reduce our revenues.**




In
      some
      markets, our products are subject to local and national sales taxes and other
      taxes such as value added taxes. Higher taxes will either increase the cost
      of
      our products to consumers, which could have a negative effect on the sales
      of
      our products, or reduce profit margins on these products if we do not pass
      on
      the increase to customers. This could materially and adversely affect our
      results of operations and financial condition.




-19-




**Events
        that are beyond our control may disrupt the marketing and promotion and delivery
        of our products and services.**




The
      success of our businesses is largely contingent on the availability of direct
      access to consumers. A significant portion of our business relies on postal
      services for delivery of products and for promotional marketing activity. For
      example, our Consumer Business Services segment requires direct personal access
      to consumers through offices and schools for display marketing and access to
      schools and youth groups for fund-raising activities. As a result, any event
      that disrupts or limits our direct access to consumers could materially and
      adversely affect our business, which could materially and adversely affect
      our
      results of operations and financial condition. Some of these events may be
      beyond our control, such as: adverse weather conditions; war; political
      instability or civil unrest; terrorism and related heightened security measures;
      natural and other disasters and catastrophic events; pandemics; increased energy
      costs; strikes and other labor-related supply chain disruptions;




**Our
      businesses are largely seasonal and could be significantly unfavorably affected
      by adverse events during the principal selling season.**




Our
      businesses are largely seasonal, with more marketing activity occurring during
      the Northern Hemisphere’s fall and early winter. Shifts in the timing of
      important holding selling seasons relative to our fiscal quarters also may
      affect our results. Higher seasonal and holiday demand for our products and
      services increases, among other things, our inventory requirements and our
      borrowing and liquidity requirements. The occurrence of unfavorable
      events—whether within or outside of our control—during the periods of seasonally
      high demand or our failure to effectively manage our seasonal inventory could
      have a disproportionately unfavorable effect on our business, which could
      materially and adversely affect our results of operations and financial
      condition.




**We
      may not be able to adequately protect our intellectual property, our brand
      and
      our reputation.**




Our
      copyrights, trademarks, service marks patents, trade secrets and all of our
      other intellectual property rights are important assets. We rely on copyright,
      patent, trademark and other laws in the United States and other jurisdictions
      to
      protect our proprietary rights. It may be more difficult to protect our
      intellectual property rights in some foreign jurisdictions. Our significant
      proprietary rights could be infringed or invalidated. In addition, our business
      activities could be alleged or determined to infringe upon the proprietary
      rights of others. We could incur significant costs to protect our rights or
      to
      defend against infringement claims by others. If we are unsuccessful, our
      results of operations and financial condition could be materially and adversely
      affected.




Our brand and our reputation are also important assets as our ability to attract
      and retain customers is in part dependent upon the external perceptions of
      our
      Company, the quality of its products and services, and its integrity. Damage
      to
      our reputation or negative publicity or perceptions about us, including by
      association with adverse developments in the industries in which we conduct
      our
      businesses, could cause a loss of consumer confidence in our Company, as well
      as
      unfavorable regulatory scrutiny.




**Our
      substantial indebtedness, and the potential for increased indebtedness, could
      adversely affect our financial condition, which could adversely affect our
      liquidity and results of operations.**




As
      of
      June 30, 2006, we had significant leverage consisting of approximately $395.0
      million of indebtedness outstanding under our $500 million Five-Year Revolving
      Credit Agreement (the “Revolving Credit Facility”) and $300 million
      in 6
      1⁄2% senior unsecured notes due 2011 (the “Senior Unsecured Notes”). This
      level of indebtedness could have important consequences to stockholders,
      including the following:




·
            it
                may limit our ability to borrow money for capital expenditures,
                acquisitions, debt service requirements and general corporate or
                other
                purposes;






·
            it
                may limit our flexibility in planning for, or reacting to, changes
                in our
                business and future business opportunities and changing market
                conditions;




-20-






·
            we
                may be more highly leveraged than some of our competitors, which
                may place
                us at a competitive disadvantage;






·
            it
                may make us more vulnerable than a less leveraged company to a downturn
                in
                our business or in the economy;






·
            there
                would be a material adverse effect on our business, results of operations
                and financial condition if we were unable to service our
                indebtedness.






The interest rate under our Revolving Credit Facility is based in part on our
      leverage ratio and LIBOR, the prime rate or the federal funds rate then in
      effect. Increases in our leverage ration or increases in LIBOR, the prime rate
      or the federal funds rate could result in an increase in our interest rates,
      which would increase our interest payment obligations and would have an adverse
      effect on us.




We
      maintain liquidity to fund the ongoing cash needs of our businesses, including
      the repayment of outstanding indebtedness, the payment of dividends and the
      repurchase of our stock, principally through our operating cash flow and our
      borrowings. Our ability to make payments on and to refinance our indebtedness
      will depend on our ability to generate cash from our operations in the future
      and manage our working capital. To the extent that our operating cash flow
      is
      insufficient and we are unable to access the capital markets on terms acceptable
      to us, we may decrease our business expenditures or we may increase our
      indebtedness under our existing Revolving Credit Facility or through additional
      financings, or we may do both. In order to obtain additional financing, we
      may
      be required to refinance our existing credit facilities. Our failure to obtain
      any necessary refinancing or additional financing on terms and conditions that
      are comparably favorable to us could materially and adversely affect our results
      of operations and financial condition.




Based on our current level of operations, we believe our cash flow from
      operations, available cash and available borrowings under our Revolving Credit
      Facility and other borrowing facilities will be adequate to meet our future
      liquidity needs for the foreseeable future.




We
      cannot assure you, however, that our business will generate sufficient cash
      flow
      from operations or that future borrowings will be available to us in an amount
      sufficient to enable us to pay our indebtedness or to fund our other liquidity
      needs. If we cannot service our indebtedness, we may have to take actions such
      as selling assets, seeking additional equity or forgoing, reducing or delaying
      capital expenditures, strategic acquisitions, investments and alliances. We
      cannot assure you that any such actions, if necessary, could be effected on
      commercially reasonable terms, or at all.




**Restrictive
      covenants in our credit facilities and the indenture governing our Senior
      Unsecured Notes may restrict our ability to pursue our business
      strategies.**




Our
      Revolving Credit Facility and, in some cases, the indenture governing our Senior
      Unsecured Notes will limit our ability, among other things, to:




·
            incur
                additional indebtedness;




·
            issue
                preferred stock;




·
            incur
                liens;




·
            consolidate,
                merge, sell or otherwise dispose of all or substantially all of our
                assets;




·
            sell
                assets, including capital stock of
                subsidiaries;




-21-




·
            pay
                dividends or make distributions in respect of our capital stock or
                make
                certain other restricted payments or investments, subject to certain
                exceptions;




·
            make
                certain types of investments, loans, guarantees or
                acquisitions;




·
            enter
                into transactions with our
                affiliates




·
            agree
                to payment restrictions affecting our subsidiaries;
                and




·
            make
                capital expenditures.




In
      addition, our Revolving Credit Facility requires us to achieve specified
      financial and operating results and maintain compliance with specified financial
      ratios. If we fail to comply with the covenants containing these requirements,
      we would be in default and, under certain circumstances, our the lenders under
      the Revolving Credit Facility could declare all amounts owed to them to be
      due
      and payable, which could have a material and adverse effect on our results
      of
      operations and financial condition.




**Significant
      changes in pension fund investment performance or assumptions relating to
      pension costs may have a material effect on the valuation of pension
      obligations, the funded status of pension plans and our pension cost.**




Our
      funding policy for pension plans is to accumulate plan assets that, over the
      long run, will approximate the present value of projected benefit obligations.
      Although our U.S. qualified pension plan is overfunded, some of our foreign
      pension plans are under-funded. Our pension cost is materially affected by
      the
      discount rate used to measure pension obligations, the level of plan assets
      available to fund those obligations at the measurement date and the expected
      long-term rate of return on plan assets. Significant changes in investment
      performance or a change in the portfolio mix of invested assets can result
      in
      corresponding increases and decreases in the valuation of plan assets,
      particularly equity securities, or in a change of the expected rate of return
      on
      plan assets. A change in the discount rate would result in a significant
      increase or decrease in the valuation of pension obligations, affecting the
      reported funded status of our pension plans as well as the net periodic pension
      cost in the following fiscal years. Similarly, changes in the expected return
      on
      plan assets can result in significant changes in the net periodic pension cost
      of the following fiscal years. Significant variations in pension performance
      could produce volatility in our reported results and significant under-funding
      in our foreign pension plans could necessitate higher company contributions
      to
      those plans.








**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





Not
      applicable.




-22-





**ITEM
      2.**  **PROPERTIES**





The
      table
      below shows our headquarters and other properties that we own or lease. These
      locations house our executive, administrative, editorial, advertising sales
      and
      operational offices and warehouse and other facilities.




**Location**
            **Area
                (sq. ft.)**Westchester
                County, NY
            278,536
                leasedGreendale,
                WI
            164,800
                ownedFairfield,
                IA
            105,393
                ownedNew
                York, NY
            99,200
                leasedVarious
                U.S. cities
            72,788
                leasedInternational
            363,981
                owned; 364,452 leased





In
      December 2004, we completed the sale and partial leaseback of our headquarters
      in Westchester County, New York. During fiscal 2005 we sold our local
      headquarters buildings in Australia and Portugal, and during fiscal 2006 we
      sold
      our local headquarters building in Mexico.





We
      believe that our current facilities, together with expansions and upgrades
      of
      facilities presently underway or planned, are adequate to meet our present
      and
      reasonably foreseeable needs. We also believe that adequate space will be
      available to replace any leases that expire in the near future.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




We
      and
      our subsidiaries are defendants in various lawsuits and claims arising in the
      regular course of business. Based on the opinions of management and counsel
      for
      these matters, we believe that recoveries, if any, by plaintiffs and claimants
      would not materially affect our financial position or results of
      operations.


**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




Not
      applicable.


-23-


**PART
      II**




**ITEM
                5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**




The
      information contained under the captions “Selected Quarterly Financial Data and
      Dividend and Market Information” and “Corporate and Shareholder Information” in
      Exhibit 13 to this report is incorporated into this Item by
      reference.





**Issuer
      Purchases of Equity Securities**





Period
            
            (a)
                Total Number of Shares (or Units) Purchased(1)
            
            (b)
                Average Price Paid per Share (or Unit)
            
            (c)
                Total Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans or Programs(2)
            
            (d)
                Approximate Dollar Value of Shares that May Yet Be Purchased Under
                the
                Plans or Programs(2)April
                1-30, 2006
            
            
            79,433
            
            $
            13.76
            
            
            75,000
            
            
            48,601,320May
                1-31, 2006
            
            
            1,350,000
            
            $
            13.73
            
            
            1,350,000
            
            
            30,066,759June
                1-30, 2006
            
            
            835
            
            $
            14.00
            
            
            ---
            
            
            30,066,759Total
            
            
            1,430,268
            
            $
            13.73
            
            
            1,425,000





(1)
            The
                shares purchased in April and June 2006 include 4,433 and 835 shares,
                respectively, of the Company’s Common Stock surrendered to the Company by
                employees in order to fulfill tax withholding obligations of employees
                upon vesting of restricted stock.


(2)
            On
                April 28, 2005,we
                announced our repurchase of up to $100.0 million of our Common Stock
                over
                the succeeding two years.





**Recent
      Sales of Unregistered Securities**





Shown
      in
      the table below are securities of the registrant that were not registered under
      the Securities Act of 1933 and were sold by the registrant during the fiscal
      year ended June 30, 2006. The securities were sold to employees of subsidiaries
      of the Company located outside of the United States pursuant to international
      employee stock purchase plans that permitted the participants to purchase shares
      of the Company’s Common Stock, generally at a purchase price of 95% of the fair
      market value of the stock on the last day of a six-month period. These sales
      were made outside of the United States in reliance on the safe harbor under
      Regulation S under the Securities Act of 1933.





Class
                of security
            
            Date
                of sale
            
            Number
                of shares sold
            
            Aggregate
                purchase priceCommon
                Stock
            
            
            December
                31, 2005
            
            
            4,120
            
            $
            53,539Common
                Stock
            
            
            June
                30, 2006
            
            
            3,591
            
            $
            47,503




-24-


**ITEM
      6.**  **SELECTED
      FINANCIAL DATA**




The
      information contained under the caption “Selected Quarterly Financial Data and
      Dividend and Market Information” and “Selected Financial Data” in Exhibit 13 to
      this report is incorporated into this Item by reference.








**ITEM
      7.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION**




The
      information contained under the caption “Management’s Discussion and Analysis”
in Exhibit 13 to this report is incorporated into this Item by
      reference.





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 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
                  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 successfully integrate newly acquired and newly formed
                  businesses;
 ·
              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 achieve financial savings related to restructuring
                  programs;
 ·
              our
                  ability to contain and reduce costs, especially through global
                  efficiencies;
 ·
              the
                  cost and effectiveness of our reengineering of business processes
                  and
                  operations;
 ·
              the
                  accuracy of our 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 and direct sales industries, including the
                  Internet;
 ·
              our
                  ability to recruit, train and retain effective sales personnel;
 ·
              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 our management’s assessment of the future effective tax rate
                  and the effects of initiatives to reduce the
                  rate;
  -25-
  ·
              the
                  adequacy of our financial
                  resources;
 ·
              the
                  effects of the terms of, and increased leverage resulting from
                  additional
                  borrowings under, our credit
                  facilities;
 ·
              the
                  effects of interest rate
                  fluctuations;
 ·
              the
                  effects of downgrades of our credit
                  ratings;
 ·
              the
                  effects of economic and political changes in the markets where
                  we
                  compete;
 ·
              the
                  effects of weather in limiting our access to consumers;
                  and
 ·
              the
                  economic effects of terrorist activity and related events, especially
                  those limiting our access to consumers and otherwise affecting
                  the direct
                  marketing and direct sales
                  industries.




For
      additional information regarding risk factors, see Item 1A of this
      report.




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





**ITEM
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      information contained under the caption “Management’s Discussion and Analysis”
in the section entitled “Quantitative and Qualitative Disclosures About Market
      Risk” in Exhibit 13 to this report is incorporated into this Item by
      reference.





**ITEM
      8.**  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





Our
      Consolidated Financial Statements, together with the reports of Ernst &
Young LLP as of and for the year ended June 30, 2006 and KPMG LLP as of and
      for
      the years ended June 30, 2005 and 2004 in Exhibit 13 to this report, are
      incorporated into this Item by reference.





**ITEM
      9.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




Not
      applicable.





-26-





**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES**




**Disclosure
      Controls and Procedures**





Our
      management evaluated, with the participation of our principal executive officer
      and principal financial officer, the effectiveness of our disclosure controls
      and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934) as of the end of the period covered by this report. Based
      on that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures were effective as of
      the
      end of the period covered by this report.





**Internal
      Control Over Financial Reporting**





The
      information contained under the captions “Report of Management” and “Report of
      Independent Registered Public Accounting Firm” in Exhibit 13 to this report are
      incorporated into this Item by reference. There has been no change in the
      Company’s internal control over financial reporting during the fiscal quarter
      ended June 30, 2006, that has materially affected, or is reasonably likely
      to
      materially affect, the Company’s internal control over financial
      reporting.





**ITEM
      9B.**  **OTHER
      INFORMATION**




Not
      applicable.


-27-


**PART
      III**





**ITEM
      10.**  **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**




Information
      required by this Item with respect to our directors under the captions “Proposal
      1: Election of Directors” and “Governance Information” in the Proxy Statement
      for our Annual Meeting of Stockholders to be held on November 17, 2006, is
      incorporated into this Item by reference.




Information
      required by this Item with respect to our executive officers appears under
      the
      caption “Executive Officers” in Item 1 of Part I of this report and is
      incorporated into this Item by reference.


Information required
        by this Item with respect to compliance with Section 16 of the Securities
        Exchange Act of 1934 appears under the caption “Section 16(a) Beneficial
        Ownership Reporting Compliance” in the Proxy Statement for our Annual Meeting of
        Stockholders to be held on November 17, 2006, and is incorporated into this
        Item
        by reference.


**Code
      of Ethics**





Our
      Ethical, Legal and Business Conduct Policies, which are a “code of ethics”
within the meaning of Item 406 of the Securities and Exchange Commission’s
      Regulation S-K, apply to all of our Directors and employees, including our
      principal executive officer, principal financial officer and principal
      accounting officer, or persons performing similar functions. These Policies
      are
      available on our Internet website at www.rd.com .
      We
      intend to post on our website (or disclose by any other means permitted under
      SEC rules) any amendment to, or waiver from, any provision of the Policies
      that
      applies to our principal executive officer, principal financial officer or
      principal accounting officer, or persons performing similar
      functions.




**ITEM
      11.**  **EXECUTIVE
      COMPENSATION**




Information
      required by this Item with respect to executive compensation under the captions
      “Executive Compensation,” “Report of the Compensation and Nominating Committee”
and “Performance Graph” in the Proxy Statement for our Annual Meeting of
      Stockholders to be held on November 17, 2006, is incorporated into this Item
      by
      reference.




-28-





**ITEM
      12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**







**Equity
      Compensation Plan Information** ****





The
      following table sets forth information as of June 30, 2006, with respect to
      compensation plans under which equity securities of Reader’s Digest may be
      issued. The equity securities to be issued under the plans are Reader’s Digest
      Common Stock.





Plan
                category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights(1)
              (a)
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
              (b)
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in
                column (a))
              (c)Equity
                compensation plans approved by security holders
            
            
            14,439,021
            
            $
            19.81
            
            
            4,110,484Equity
                compensation plans not approved by security holders
            
            
            ---
            
            
            ---
            
            
            ---Total
            
            
            14,439,021
            
            $
            19.81
            
            
            4,110,484





(1)
            Includes
                3,597,890 shares available for future grants under the Company’s 2005 Key
                Employee Long Term Incentive Plan. This plan provides for the grant
                of
                stock options, stock appreciation rights, restricted stock, performance
                shares, performance units and other stock-based awards. Includes
                73,750
                shares available for future grant under the Company’s Director
                Compensation Program. Includes 241,934 shares available for issuance
                under
                the Company’s Employee Stock Purchase Plan, which permits U.S. employees
                to purchase shares from Reader’s Digest at a discount. Includes 196,910
                shares available for issuance under the Company’s International Employee
                Stock Ownership Plan, which comprises our international employee
                stock
                purchase plans for non-U.S. employees and our U.K. Share Incentive
                Plan,
                which provides for compensatory share awards to U.K.
                employees.





**Security
      Ownership Information**





Information
      required by this Item with respect to security ownership of certain beneficial
      owners and management under the caption “Equity Security Ownership” in the Proxy
      Statement for our Annual Meeting of Stockholders to be held on November 17,
      2006, is incorporated into this Item by reference.




**ITEM
      13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




Not
      applicable.




-29-


**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




Information
      required by this Item with respect to principal accountant fees and services
      under the captions “Audit Committee Report” and “Ratification of Independent
      Registered Public Accounting Firm” in the Proxy Statement for our Annual Meeting
      of Stockholders to be held on November 17, 2006, is incorporated into this
      Item
      by reference.




-30-




**PART
        IV**
 
 **ITEM
        15.**  **EXHIBITS
        AND FINANCIAL STATEMENT SCHEDULES**
  (a)  1  **Financial
        Statements**
 An
        index
        of our Consolidated Financial Statements appears on page 38 of this
        report.
 
 2  **Financial
        Statement Schedules**
 All
        schedules have been omitted since the information required to be submitted
        has
        been included in the Consolidated Financial Statements or Notes thereto or
        has
        been omitted as not applicable or not required.
 
 3  **Exhibits**
 
 3.1
              Restated
                  Certificate of Incorporation of The Reader’s Digest Association, Inc.
                  filed with the State of Delaware on July 8, 2003, filed as Exhibit
                  4.1 to
                  our Registration Statement on Form S-3 (Registration No. 333-107278)
                  filed
                  on July 23, 2003, is incorporated herein by reference.
 
 3.2
              Amended
                  and Restated By-Laws of The Reader’s Digest Association, Inc., effective
                  December 13, 2002, filed as Exhibit 3.2 to Amendment No. 1 to our
                  Registration Statement on Form 8-A/A (Registration No. 001-10434)
                  filed on
                  December 13, 2002, is incorporated herein by
                  reference.*
  4.1
                Indenture,
                    dated as of March 3, 2004, between The Reader’s Digest Association, Inc.,
                    as issuer, and JPMorgan Chase Bank, as trustee, filed as Exhibit
                    4.1 to
                    our Registration Statement on Form S-4 (Registration No. 333-113961)
                    filed
                    on March 26, 2004, is incorporated herein by
                    reference.
 
 4.2
                Registration
                    Rights Agreement, dated as of March 3, 2004, by and among The
                    Reader’s
                    Digest Association, Inc., J.P.Morgan Securities Inc., ABN AMRO
                    Incorporated, Commerzbank Aktiengesellschaft, The Royal Bank
                    of Scotland,
                    plc and Wachovia Securities Inc., filed as Exhibit 4.2 to our
                    Registration
                    Statement on Form S-4 (Registration No. 333-113961) filed on
                    March 26,
                    2004, is incorporated herein by
                    reference.
 10.1
              The
                  Reader’s Digest Association, Inc. Management Incentive Compensation Plan
                  (Amendment and Restatement as of July 1, 1994), filed as Exhibit
                  10.1 to
                  our Annual Report on Form 10-K for the year ended June 30, 1994,
                  is
                  incorporated herein by reference.*
 
 10.2
              The
                  Reader’s Digest Association, Inc. 1989 Key Employee Long Term Incentive
                  Plan, as amended effective April 13, 2001, filed as Exhibit 10.29
                  to our
                  Quarterly Report on Form 10-Q for the quarter ended March 31, 2001,
                  is
                  incorporated herein by reference.*
 
 10.3
              The
                  Reader’s Digest Association, Inc. Deferred Compensation Plan (Amendment
                  and Restatement as of July 8, 1994) filed as Exhibit 10.4 to our
                  Annual
                  Report on Form 10-K for the year ended June 30, 1994, is incorporated
                  herein by reference.*
 
 10.4
              Excess
                  Benefit Retirement Plan of The Reader’s Digest Association, Inc.
                  (Amendment and Restatement as of July 1, 1994), filed as Exhibit
                  10.7 to
                  our Annual Report on Form 10-K for the year ended June 30, 1994,
                  is
                  incorporated herein by reference.*
 
 10.5
              The
                  Reader’s Digest 1992 Executive Retirement Plan (Amendment and Restatement
                  as of October 10, 1996), filed as Exhibit 10.12 to our Annual Report
                  on
                  Form 10-K for the year ended June 30, 1997, is incorporated herein
                  by
                  reference.*
 
 10.6
              Amendment
                  No. 1 to The Reader’s Digest Association, Inc. Management Incentive
                  Compensation Plan (effective as of April 11, 1996) filed as Exhibit
                  10.1.1
                  to our Quarterly Report on Form 10-Q for the quarter ended March
                  31, 1996,
                  is incorporated herein by
                  reference.*
  *Management
        contract or compensatory contract, plan or arrangement.
  -31-
  10.7
              The
                  Reader’s Digest Association, Inc. Deferred Compensation Plan for
                  Directors, amended and restated as of January 1, 2003 filed as
                  Exhibit
                  10.10 to our Annual Report on Form 10-K for the year ended June
                  30, 2003,
                  is incorporated herein by
                  reference.*
 
 10.8
              Employment
                  Agreement dated as of April 28, 1998, between The Reader’s Digest
                  Association, Inc. and Thomas O. Ryder, filed as Exhibit 10.33 to
                  our
                  Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
                  is
                  incorporated herein by reference.*
 
 10.9
              The
                  Reader’s Digest Association, Inc. 2001 Income Continuation Plan for Senior
                  Management, filed as Exhibit 10.21 to our Quarterly Report on Form
                  10-Q
                  for the quarter ended March 31, 2001, is incorporated herein by
                  reference.*
 
 10.10
              Termination
                  Agreement dated as of April 23, 2001, between The Reader’s Digest
                  Association, Inc. and Eric W. Schrier, filed as Exhibit 10.18 to
                  our
                  Annual Report on Form 10-K for the year ended June 30, 2001, is
                  incorporated by reference.*
 
 10.11
              Termination
                  Agreement dated as of December 18, 2001, between The Reader’s Digest
                  Association, Inc. and Michael S. Geltzeiler filed as Exhibit 10.14
                  to our
                  Annual Report on Form 10-K for the year ended June 30, 2003, is
                  incorporated herein by reference.*
 
 10.12
              Termination
                  Agreement dated as of April 23, 2001, between The Reader’s Digest
                  Association, Inc. and Thomas D. Gardner, filed as Exhibit 10.17
                  to our
                  Annual Report on Form 10-K for the year ended June 30, 2002, is
                  incorporated herein by reference.*
 
 10.13
              Termination
                  Agreement dated as of April 23, 2001, between The Reader’s Digest
                  Association, Inc. and Gary S. Rich filed as Exhibit 10.16 to our
                  Annual
                  Report on Form 10-K for the year ended June 30, 2003, is incorporated
                  herein by reference.*
 
 10.14
              The
                  Reader’s Digest Association, Inc. Senior Management Incentive Plan, filed
                  as Exhibit 10.27to
                  our Annual Report on Form 10-K for the year ended June 30,
                  1999,is
                  incorporated herein by reference.*
 
 10.15
              Assurance
                  of Voluntary Compliance or Discontinuance dated February 26, 2001,
                  by and
                  among the State Attorneys General and the registrant, filed as
                  Exhibit
                  99.2 to our Current Report on Form 8-K dated March 9, 2001, is
                  incorporated herein by reference.
 
 10.16
              The
                  Reader’s Digest Association, Inc. 1994 Key Employee Long Term Incentive
                  Plan, amended and restated as of September 18, 2002, filed as Exhibit
                  10.24 to our Annual Report on Form 10-K for the year ended June
                  30, 2002,
                  is incorporated herein by
                  reference.*
 
 10.17
              The
                  Reader’s Digest Association, Inc. 2002 Key Employee Long Term Incentive
                  Plan, filed as Exhibit 10.25 to our Annual Report on Form 10-K
                  for the
                  year ended June 30, 2002, is incorporated herein by reference.*
  *Management
        contract or compensatory contract, plan or arrangement.
  -32-
 10.18
                The
                    Reader’s Digest Association, Inc. Director Compensation Program, amended
                    and restated as of January 1, 2003 filed as Exhibit 10.23 to
                    our Annual
                    Report on Form 10-K for the year ended June 30, 2003, is incorporated
                    herein by reference.*
 
 10.19
                Form
                    of Indemnification Agreement between The Reader’s Digest Association, Inc.
                    and individual directors and Named Executive Officers of The
                    Reader’s
                    Digest Association, Inc., filed as Exhibit 10.27 to our Quarterly
                    Report
                    on Form 10-Q for the quarter ended March 31, 2003, is incorporated
                    herein
                    by reference.*
 
 10.20
                FlexNet
                    Program summary descriptionfiled as Exhibit 10.28 to our Annual Report on Form 10-K for
                    the year
                    ended June 30, 2003, is incorporated herein by reference.*
  10.21
                  Financial
                      counseling plan summary descriptionfiled as Exhibit 10.29 to our Annual Report on Form 10-K for
                      the year
                      ended June 30, 2003, is incorporated herein by reference.*
 
 10.22
                  Amendment
                      to Employment Agreement dated as of November 21, 2003, between
                      The
                      Reader’s Digest Association, Inc. and Thomas O. Ryder, filed as Exhibit
                      10.31 to our Quarterly Report on Form 10-Q for the quarter
                      ended December
                      31, 2003, is incorporated herein by
                      reference.*
 
 10.23
                  Form
                      of stock option award terms and conditions to Named Executive
                      Officers
                      under The Reader’s Digest Association, Inc. 1994 and 2002 Key Employee
                      Long Term Incentive Plans,filed as Exhibit 10.34 to our Quarterly Report on Form 10-Q
                      for the
                      quarter ended September 30, 2004, is incorporated herein by
                      reference.*
 
 10.24
                  Form
                      of restricted stock award terms and conditions to Named Executive
                      Officers
                      under The Reader’s Digest Association, Inc. 1994 and 2002 Key Employee
                      Long Term Incentive Plans,filed as Exhibit 10.35 to our Quarterly Report on Form 10-Q
                      for the
                      quarter ended September 30, 2004, is incorporated herein by
                      reference.*
 10.25
              Addendum
                  effective January 1, 2005 to The Reader’s Digest Association, Inc.
                  Director Compensation Program, filed as Exhibit 10.34 to our Current
                  Report on Form 8-K dated November 18, 2004, is incorporated herein
                  by
                  reference.*
 
 10.26
              Amended
                  and Restated Sale Purchase Agreement between The Reader’s Digest
                  Association, Inc. and GAP III Properties LLC and Summit Development,
                  LLC
                  dated as of November 18, 2004, but effective as of September 10,
                  2004,
                  filed as Exhibit 10.35 to our Current Report on Form 8-K dated
                  November
                  18, 2004, is incorporated herein by
                  reference.
 
 10.27
              Description
                  of operation of the executive incentive program of The Reader’s Digest
                  Association, Inc., including the Senior Management Incentive Plan
                  (fiscal
                  2006 awards), the Management Incentive Compensation Plan (fiscal
                  2006
                  awards) and the 2002 Key Employee Long Term Incentive Plan (fiscal
                  2005
                  and 2006 awards), included in Item 1.01 of our Current Report on
                  Form 8-K
                  dated March 11, 2005, is incorporated herein by
                  reference.*
 
  *Management
                  contract or compensatory contract, plan or arrangement.
  -33-
 
 10.28
              Five-Year
                  Revolving Credit Agreement, dated as of April 14, 2005, among The
                  Reader’s
                  Digest Association, Inc., as Borrower and Guarantor, Books Are
                  Fun, Ltd.,
                  QSP, Inc. and Reiman Media Group, Inc., as Borrowing Subsidiaries
                  and
                  Subsidiary Guarantors, the Lenders party thereto, filed as Exhibit
                  10.1 to
                  our Current Report on Form 8-K dated April 14, 2005, is incorporated
                  herein by reference.
 
 10.29
              The
                  Reader’s Digest Association, Inc. 2005 Key Employee Long Term Incentive
                  Plan, filed as Exhibit 10.6 to our Current Report on Form 8-K dated
                  August
                  12, 2005, is incorporated herein by
                  reference.*
 
 10.30
              Director
                  Phantom Stock Option Plan,
                  filed as Exhibit 10.45 to our Annual Report on Form 10-K for the
                  year
                  ended June 30, 2006, is incorporated herein by reference.*
 
 10.31
              Form
                  of award letter and terms and conditions of fiscal 2006 stock option
                  grants to Named Executive Officers under The Reader’s Digest Association,
                  Inc. 2002 and 2005 Key Employee Long Term Incentive Plans (including
                  amendments to previous awards under The Reader’s Digest Association, Inc.
                  1989 and 1994 Key Employee Long Term Incentive Plans), filed as
                  Exhibit
                  10.1 to our Current Report on Form 8-K dated August 12, 2005, is
                  incorporated herein by reference.*
 
 10.32
              Form
                  of award letter and terms and conditions of fiscal 2006 restricted
                  stock
                  grants to Named Executive Officers under The Reader’s Digest Association,
                  Inc. 2002 and 2005 Key Employee Long Term Incentive Plans (including
                  amendments to previous awards under The Reader’s Digest Association, Inc.
                  1989 and 1994 Key Employee Long Term Incentive Plans), filed as
                  Exhibit
                  10.2 to our Current Report on Form 8-K dated August 12, 2005, is
                  incorporated herein by reference.*
 
 10.33
              Form
                  of award letter and terms and conditions of fiscal 2005-2007 restricted
                  stock unit grants to Named Executive Officers under The Reader’s Digest
                  Association, Inc. 2002 Key Employee Long Term Incentive Plan, filed
                  as
                  Exhibit 10.4 to our Current Report on Form 8-K dated August 12,
                  2005, is
                  incorporated herein by reference.*
 
 10.34
              Form
                  of award letter and terms and conditions of fiscal 2006-2008 restricted
                  stock unit grants to Named Executive Officers under The Reader’s Digest
                  Association, Inc. 2002 Key Employee Long Term Incentive Plan, filed
                  as
                  Exhibit 10.5 to our Current Report on Form 8-K dated August 12,
                  2005, is
                  incorporated herein by reference.*
 
 10.35
              Description
                  of performance criteria for fiscal 2005-2007 and 2006-2008 restricted
                  stock units awarded to Named Executive Officers of The Reader’s Digest
                  Association, Inc.,included in Item 1.01 of our Current Report on Form 8-K dated August
                  12,
                  2005, is incorporated herein by
                  reference.*
 
 10.36
              Letter
                  agreement dated as of October 31, 2005 between The Reader’s Digest
                  Association, Inc. and Thomas O. Ryder, filed as Exhibit 10.53 to
                  our
                  Current Report on Form 8-K dated October 31, 2005, is incorporated
                  herein
                  by reference.*
 
 10.37
              Noncompetition,
                  Nonsolicitation and Confidentiality Agreement dated October 28,
                  2005
                  between The Reader’s Digest Association, Inc. and Eric W. Schrier, filed
                  as Exhibit 10.54 to our Current Report on Form 8-K dated October
                  31, 2005,
                  is incorporated herein by
                  reference.*
 
  *Management
                  contract or compensatory contract, plan or arrangement.
  -34-
 
 10.38
              Merger
                  Agreement dated March 31, 2006 by and among The Reader’s Digest
                  Association, Inc., RD Merger Sub, Inc. and Allrecipes.com, Inc.
                  filed as
                  Exhibit 2.1 to our Current Report on Form 8-K dated March 31, 2006,
                  in
                  incorporated herein by reference.
 
 10.39
              Form
                  of Support Agreement dated March 31, 2006 by and among The Reader’s Digest
                  Association, Inc., RD Merger Sub, Inc. and the signatories thereto,
                  filed
                  as Exhibit 10.1 to our Current Report on Form 8-K dated March 31,
                  2006, in
                  incorporated herein by reference.
 
 10.40
              First
                  Amendment, dated as of April 19, 2006, to the $400,000,000 Five-Year
                  Revolving Credit Agreement, dated as of April 14, 2005, among The
                  Reader’s
                  Digest Association, Inc., the Borrowing Subsidiaries party thereto,
                  the
                  Lenders party thereto, JPMorgan Chase Bank, as administrative agent
                  and
                  collateral agent, and the co-documentation agents party thereto,
                  filed as
                  Exhibit 10.58 to our Current Report on Form 8-K dated April 19,
                  2006, is
                  incorporated herein by reference.
 
 10.41
              The
                  Reader’s Digest Association, Inc. 2006 Income Continuation Plan for Senior
                  Management.*
 
 10.42
              The
                  Reader’s Digest Association, Inc. Executive Cash Balance Plan (Amended
                  & Restated June 30, 2006).*
 
 10.43
              Compensation
                  information regarding a Named Executive Officer, included in Item
                  1.01 of
                  our Current Report on Form 8-K dated November 18, 2005, is incorporated
                  herein by reference.*
 
 10.44
              Form
                  of award letter and terms and conditions of fiscal 2007 stock option
                  grants to Named Executive Officers under The Reader’s Digest Association,
                  Inc. 2005 Key Employee Long Term Incentive Plan, filed as Exhibit
                  10.1 to
                  our Current Report on Form 8-K dated August 17, 2006, is incorporated
                  herein by reference.*
 
 10.45
              Form
                  of award letter and terms and conditions of fiscal 2007-2009 restricted
                  stock unit grants to Named Executive Officers under The Reader’s Digest
                  Association, Inc. 2005 Key Employee Long Term Incentive Plan, filed
                  as
                  Exhibit 10.2 to our Current Report on Form 8-K dated August 17,
                  2006, is
                  incorporated herein by reference.*
 
 10.46
              Form
                  of retention restricted stock unit grants to Named Executive Officers
                  under The Reader’s Digest Association, Inc. 2005 Key Employee Long Term
                  Incentive Plan, filed as Exhibit 10.3 to our Current Report on
                  Form 8-K
                  dated August 17, 2006, is incorporated herein by
                  reference.*
 
 10.47
              Description
                  of operation of the Senior Management Incentive Plan (Fiscal 2007)
                  and the
                  Management Incentive Compensation Plan (Fiscal 2007) of The Reader’s
                  Digest Association, Inc, included in Item 1.01 of our Current
                  Report on Form 8-K dated August 17, 2006, is incorporated herein
                  by
                  reference.*
 
 10.48
              Compensation
                  information regarding Named Executive Officers, included in Item 1.01
                  of our Current Report on Form 8-K dated August 17, 2006, is
                  incorporated herein by reference.*
  *Management
        contract or compensatory contract, plan or arrangement.
  -35-
 
 13
              Financial
                  information to be included in our 2006 Annual Report to Stockholders
                  (furnished for the information of the Securities and Exchange Commission
                  only and not to be deemed filed as part of this Annual Report on
                  Form
                  10-K, except for the portions thereof that are specifically incorporated
                  herein by reference).
 
 14
              Ethical,
                  Legal and Business Conduct Policies, effective September 30,
                  2004,filed as Exhibit 14 to our Quarterly Report on Form 10-Q for the
                  quarter
                  ended September 30, 2004, is incorporated herein by reference.
 
 16.1
              Letter
                  of KPMG LLP to the Securities and Exchange Commission dated August
                  29,
                  2005, filed as Exhibit 16.1 to our Current Report on Form 8-K dated
                  August
                  23, 2005, is incorporated herein by
                  reference.
 
 16.2
              Letter
                  of KPMG LLP to the Securities and Exchange Commission dated August
                  31,
                  2005, filed as Exhibit 16.2 to our Current Report on Form 8-K dated
                  August
                  30, 2005, is incorporated herein by
                  reference.
 
 21
              Subsidiaries
                  of The Reader’s Digest Association,
                  Inc.
 
 23.1
              Consent
                  of independent registered public accounting firm (Ernst & Young
                  LLP).
 
 23.2
              Consent
                  of independent registered public accounting firm (KPMG
                  LLP).
 
 24
              Power
                  of attorney.
 
 31.1
              Certification
                  of Chief Executive Officer of registrant pursuant to rule
                  13a-14(a)/15d-14(a) of the Securities Exchange Act of
                  1934.
 
 31.2
              Certification
                  of Chief Financial Officer of registrant pursuant to rule
                  13a-14(a)/15d-14(a) of the Securities Exchange Act of
                  1934.
 
 32
              Certifications
                  of Chief Executive Officer and Chief Financial Officer of registrant
                  pursuant to rule 13a-14(b)/15d-14(b) of the Securities Exchange
                  Act of
                  1934.


-36-


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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.**By:
              /s/
                  Eric W. SchrierEric
                  W. Schrier
                President
                  and Chief Executive OfficerDate:
                  August 17, 2006




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.


**Signature**
              
              **Title**
              
              **Date**/s/Eric
                  W. Schrier
              
              President
                  and Chief Executive Officer
              
              August
                  17, 2006Eric
                  W. Schrier/s/Michael
                  S. Geltzeiler
              
              Senior
                  Vice President and Chief Financial Officer
              
              August
                  17, 2006Michael
                  S. Geltzeiler/s/Thomas
                  D. Barry
              
              Vice
                  President and Corporate Controller (chief accounting
                  officer)
              
              August
                  17, 2006Thomas
                  D. Barry/s/Thomas
                  O. Ryder
              
              Director,
                  Chairman of the Board
              
              August
                  17, 2006Thomas
                  O. Ryder/s/Jonathan
                  B. Bulkeley*
              
              Director
              
              August
                  17, 2006Jonathan
                  B. BulkeleyDirector
              
              August
                  17, 2006Herman
                  Cain/s/Lee
                  Caudill*
              
              Director
              
              August
                  17, 2006Lee
                  Caudill/s/Walter
                  Isaacson*
              
              Director
              
              August
                  17, 2006Walter
                  Isaacson/s/William
                  E. Mayer*
              
              Director
              
              August
                  17, 2006William
                  E. Mayer/s/John
                  T. Reid*
              
              Director
              
              August
                  17, 2006John
                  T. Reid/s/Lawrence
                  R. Ricciardi*
              
              Director
              
              August
                  17, 2006Lawrence
                  R. Ricciardi/s/William
                  J. White*
              
              Director
              
              August
                  17, 2006William
                  J. White/s/Ed
                  Zschau*
              
              Director
              
              August
                  17, 2006Ed
                  Zschau
  *By:/s/
                    C.H.R. Dupree(C.H.R.
                    DuPree)Attorney
                    in Fact


-37-




**THE
      READER’S DIGEST ASSOCIATION, INC.**





**INDEXTO
      CONSOLIDATED FINANCIAL
      STATEMENTS**










**Page**Management’s
                Discussion and Analysis
            *Financial
                Statements:Consolidated
                Statements of Operations--For the Years Ended June 30, 2006, 2005
                and
                2004
            *Consolidated
                Balance Sheets--June 30, 2006 and 2005
            *Consolidated
                Statements of Cash Flows--For the Years Ended June 30, 2006, 2005
                and
                2004
            *Consolidated
                Statements of Changes in Stockholders’ Equity--For the Years Ended June
                30, 2006, 2005 and 2004
            *Notes
                to Consolidated Financial Statements
            *Reports
                of Independent Registered Public Accounting Firms
            *Report
                of Management
            *Selected
                Financial Data
            *Selected
                Quarterly Financial Data and Dividend and Market Information
                (Unaudited)
            *Corporate
              and Shareholder
              Information
            *





____________


*This
        financial information is incorporated by reference to our 2006 Annual Report
        to
        Stockholders. For additional information, please refer to Item 8 of this
        report.








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