EXHIBIT 13


The Reader's Digest Association, Inc. and Subsidiaries

Management's Discussion and Analysis
Dollars in millions, except per share data



Unless indicated otherwise,  references in Management's  Discussion and Analysis
to "we",  "our" and "us" are to The Reader's  Digest  Association,  Inc. and its
subsidiaries.  All  references  to 2000,  1999  and  1998,  unless  specifically
identified, are to fiscal 2000, fiscal 1999 and fiscal 1998, respectively.

The following  discussion and analysis  provides  information that we believe is
relevant to an  assessment  and  understanding  of our  consolidated  results of
operations  and  financial   condition.   This  discussion  should  be  read  in
conjunction with the Consolidated Financial Statements and related notes.

Results of Operations:  Company-Wide

During  2000,  we  incorporated  a new  operating  segment  referred to as Other
Businesses.  Results  of  operations  have been  restated  for prior  periods to
conform to our new operating segments.

Global  Books and Home  Entertainment  publishes  and markets  Select  Editions,
series and general books,  as well as music and video  products,  which are sold
primarily through direct  marketing.  Global Books and Home  Entertainment  also
sells books and gift items by display marketing  products on-site at schools and
businesses  through  Books Are Fun,  Ltd.  (BAF),  which was acquired in October
1999.

U.S. Magazines publishes Reader's Digest magazine and several special interest
magazines in the United States.  These magazines are sold primarily through
direct marketing.  In addition, U.S. Magazines sells its magazines and other
magazines and products through youth fundraising campaigns of QSP, Inc. (QSP).

International  Magazines publishes Reader's Digest magazine in numerous editions
and  languages  outside the United  States as well as several  special  interest
magazines in certain international  markets.  These magazines are sold primarily
through direct marketing.

Other Businesses  consists of the activities of gifts.com,  Inc. (including Good
Catalog Company), financial services alliances and other developing businesses.

Management's  Discussion  and Analysis has been written  excluding the effect of
fluctuations in foreign currency exchange rates and other operating items. Other
operating items were $3 in 2000, $38 in 1999, and $70 in 1998.

Other  operating  items for 2000  include  costs  for  employee  retirement  and
severance benefits associated with cost-reduction and re-engineering  activities
and the  discontinuation of certain  unproductive  activities.  We also recorded
impairment losses relating  principally to property,  plant and equipment in the
United  Kingdom,   and  adjusted  the  remaining  accrual  balances  from  costs
originally recorded in prior years.


<PAGE>





Summary of Operating Segment Results

                                                     Years ended June 30,
                                                   2000       1999      1998

Revenues

   Global Books and Home Entertainment          $ 1,562     $ 1,518     $ 1,676
   U.S. Magazines                                   651         674         667
   International Magazines                          296         313         344
   Other Businesses                                  45          27           4
                                                -------     -------     -------
Total revenues                                  $ 2,554     $ 2,532     $ 2,691
                                                =======     =======     =======

Operating profit (loss)
   Global Books and Home Entertainment          $   210     $    84     $    58
   U.S. Magazines                                    92         106          67
   International Magazines                            1         (18)        (17)
   Other Businesses                                 (46)         (5)         (8)
                                                -------     -------     -------
Segment operating profit                            257         167         100
Other operating items                                (3)        (38)        (70)
                                                -------     -------     -------
Total operating profit                          $   254     $   129     $    30
                                                =======     =======     =======

Revenues and Operating Profit

2000 v. 1999

Revenues increased 1% in 2000 to $2,554, compared with $2,532 in 1999. Excluding
the  adverse  effect of changes in foreign  currency  exchange  rates,  revenues
increased 4%. The addition of BAF, which was acquired in October 1999,  provided
$197 in additional  revenues.  We also  experienced  revenue  growth from Select
Editions,  primarily  attributed  to the launch of this  product line in certain
international  markets.  In addition,  revenues  increased as a result of growth
from gifts.com,  Inc. (including the full-year effect of the 1999 acquisition of
Good Catalog Company) and revenues from insurance alliances launched in 2000.

Offsetting a portion of these  increases  were declines in music,  general books
and video product revenues resulting principally from the strategic reduction in
the number of mailings for Global Books and Home Entertainment  products.  Also,
revenues were lower because of planned  reductions in the circulation  rate base
of  Reader's   Digest  magazine  sold  in  the  United  States  and  in  certain
international  markets, and the sale of American Health magazine's  subscription
list in the first quarter of 2000.

Operating  profit  increased  54% in 2000 to $257,  compared  with $167 in 1999.
Significant   improvements   were  made  in  both  our  Global  Books  and  Home
Entertainment  and  International  Magazines  operating  segments.  As a result,
profit increases were realized in almost all countries, especially in the United
States, Poland, Germany,  France, Brazil, the United Kingdom and Australia.  The
increase in operating profit for Global Books and Home Entertainment, especially
in  the  United  States,  resulted  from  strategic  reductions  in  promotional
mailings, the acquisition of BAF and cost-reduction  initiatives.  International
Magazines  also   contributed  to  the  increase  in  operating  profit  through
subscription price increases in many markets  (especially in Brazil and Mexico),
re-engineering  activities to reduce paper,  printing,  and promotion costs, and
the closing or sale of unprofitable  operations.  Operating profit was lower for
U.S. Magazines  principally because of increased  investment spending to develop
new  circulation  channels  for  Reader's  Digest  magazine,   higher  corporate
allocations  and  lower  subscription  income  from  planned  reductions  in the
circulation  rate base. A portion of the overall  operating  profit increase was
also  offset  by  marketing  and  start-up  costs  for  new  business  ventures,
principally gifts.com, Inc.

1999 v. 1998

Revenues decreased 6% in 1999 to $2,532, compared with $2,691 in 1998. Excluding
the  adverse  effect of changes in foreign  currency  exchange  rates,  revenues
decreased 5%. The decline in revenues was largely  attributable to lower volumes
in Global Books and Home Entertainment.  The volume decrease in Global Books and
Home Entertainment  primarily resulted from strategic  reductions in promotional
mailings and marginally profitable activities. These reductions were principally
among  general  books and,  to a lesser  extent,  music  products  in the United
States.

Modest growth in U.S.  Magazines  principally  resulted from higher  advertising
revenues, revenue growth at QSP and the acquisition of American Woodworker. This
growth  was  partially  offset by a  decrease  in  circulation  revenues  from a
strategic  reduction in the circulation  rate base of Reader's Digest  magazine.
Revenues  from  International  Magazines  declined  principally  as a result  of
reduced  circulation,  particularly in the United Kingdom and Germany,  and from
scaled back operations in Russia in response to the Russian economic crisis. The
decline in International Magazines revenues was partially offset by subscription
price increases,  primarily in the United Kingdom, and revenue growth, primarily
in Brazil.

Operating  profit  increased  67% in 1999 to $167,  compared  with $100 in 1998.
Operating profit increased significantly for Global Books and Home Entertainment
and  U.S.  Magazines.  The  primary  reason  for the  increase  was a  strategic
reduction in the number of mailings  and mail  quantities  within each  mailing,
which reduced  product and promotion  costs.  Additionally,  overhead costs were
lower,  primarily as a result of  re-engineering  activities  and a reduction in
costs  for  employee   benefits.   Operating  profit  also  benefited  from  the
termination of certain strategic alliances.

Other Income, Net

2000 v. 1999

Other income,  net decreased in 2000 to $10, compared with $83 in 1999. In 1999,
we  realized  a gain  from  the  sale of  important  works  from  our  fine  art
collection.

1999 v. 1998

Other  income,  net  increased in 1999 to $83,  compared  with $11 in 1998.  The
increase consisted primarily of net gains from the sales of important works from
our fine art  collection  and certain  businesses.  These  gains were  partially
offset by losses from the sales of  publishing  operations  in South  Africa and
certain international real estate holdings.


<PAGE>


Income Taxes

2000 v. 1999

The  effective  tax rate for 2000 was 34.1%,  compared  with a rate of 40.2% for
1999.  The  lower  effective  rate for 2000 was a result of tax  initiatives  in
certain  international markets and the deductibility of goodwill associated with
the sale of  American  Health  magazine,  partially  offset by  amortization  of
nondeductible goodwill from the purchase of BAF.

1999 v. 1998

The  effective  tax rate for 1999 was 40.2%,  compared  with a rate of 56.9% for
1998.  The  higher  effective  tax rate for 1998 was a result  of net  operating
losses incurred in foreign operations, primarily from other operating items, for
which no tax benefit was recognized.

Change in Accounting Principles for Pension Assets

Effective July 1, 1998, we changed our method for calculating the market-related
value  of  pension  plan  assets.   This  method  is  used  in  determining  the
return-on-asset  component  of annual  pension  expense and the  cumulative  net
unrecognized gain (loss) subject to amortization. We believe that the new method
is more widely used in practice and is  preferred  because it results in pension
plan  asset  values  that more  closely  approximate  fair  value,  while  still
mitigating the effect of annual market value fluctuations.  In addition, the new
method  facilitates  the global  management of pension plans, as it results in a
consistent methodology for all plans.

This change resulted in a non-cash  benefit in 1999 of $40 ($25 after tax). This
benefit represents the cumulative effect of the change related to years prior to
1999. In addition,  we realized $19 ($12 after tax) in lower pension  expense in
1999, compared with the previous accounting method. Had this change been applied
retroactively, pension expense would have been reduced by $16 ($10 after tax) in
1998.

Net Income

2000 v. 1999

As a result of the items discussed above, net income was $174 or $1.61 per share
on a  diluted-earnings  basis ($1.63 per share for basic  earnings per share) in
2000.  In 1999,  net  income  was $152 or $1.39 per share on a  diluted-earnings
basis ($1.40 per share for basic earnings per share).

1999 v. 1998

As a result of the items discussed above, net income was $152 or $1.39 per share
on a  diluted-earnings  basis ($1.40 per share for basic  earnings per share) in
1999.  In 1998,  net income was $18 or $0.16 for basic and diluted  earnings per
share.


<PAGE>


Results of Operations:  Operating Segments

Global Books and Home Entertainment

2000 v. 1999

Revenues for Global Books and Home Entertainment increased 3% in 2000 to $1,562,
compared with $1,518 in 1999. Excluding the adverse effect of changes in foreign
currency  exchange rates,  revenues  increased 8%.  Revenues  increased for this
operating  segment  principally  because of the acquisition of BAF in the second
quarter  of 2000  ($197 in  additional  revenues),  revenue  growth  in  certain
international  markets from Select  Editions and growth in the United States for
Young Families products because of increased  promotions.  Revenues increased in
Eastern Europe,  France,  Brazil and Mexico  primarily as a result of the launch
and growth of Select Editions.  Additional  revenue increases in France,  Brazil
and Mexico were attributed to a higher-priced product mix and increased sales of
general books.

Offsetting  these  increases were  reductions in music,  general books and video
product revenues primarily  attributed to the strategic  reduction in the number
of  promotional  mailings.  These actions were  primarily  conducted  during the
second half of 1999 and the first half of 2000 and were primarily focused in the
United States and the United Kingdom. We also eliminated  marginally  profitable
activities in our Benelux and Nordic  regions,  which resulted in lower sales of
music products. The closing or sale of unprofitable operations (Chile, Colombia,
Peru, and South Africa in 1999, and Italy in 2000) also reduced revenues.

Operating profit for Global Books and Home Entertainment increased significantly
to $210 in 2000,  compared with $84 in 1999.  Profit  increases were realized in
almost all countries,  especially in the United States and to a lesser extent in
Poland, Germany, France,  Australia,  Brazil and the United Kingdom. As a result
of  re-engineering  efforts,  operating profit in most countries  improved as we
achieved  substantial  reductions  in overhead,  production  costs and promotion
expenses.  These improvements were partially offset by the effect of lower sales
volumes in certain countries.

In the United  States,  Germany,  Australia  and the United  Kingdom,  operating
profit increased primarily because of re-engineering  efforts and cost-reduction
initiatives.  In addition, our U.S. operations benefited from the acquisition of
BAF and lower corporate allocations of Information  Technology costs. France and
Brazil realized higher profits from Select Editions and general books because of
a  higher-priced  product mix and improved  response  rates to  mailings.  Also,
Poland benefited from the launch of Select Editions.

During August 1998,  we scaled back our  operations in Russia in response to the
economic crisis in that country. As a result,  operating losses were realized in
1999. However, in 2000 we realized a small profit.

1999 v. 1998

Revenues for Global Books and Home Entertainment decreased 9% in 1999 to $1,518,
compared with $1,676 in 1998. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues decreased 8%. This decrease was primarily from
a decline in revenues in the United States, Russia and the United Kingdom, which
was offset by growth in Germany, France and Brazil.

The decline in revenues in the United  States was  primarily  attributed  to the
strategic  reduction  of the  number of  mailings  for  general  books and music
products,  which was initiated  during the second half of 1999. This decline was
partially  offset by sales of a  higher-priced  mix of  products.  The  economic
crisis in Russia  led to the  elimination  of most bulk  mailing  activity.  The
decline in the United Kingdom was driven by the  elimination of an  unprofitable
merchandise  catalog  business  and video  series  products,  along with reduced
mailing activity for music products.

Germany  experienced  an increase in responses to mailings as a result of strong
product offerings. In France,  increased revenues were primarily the result of a
higher-priced  mix of general books and increased unit sales of music  products.
Increased  revenues  in  Brazil  primarily  reflected  increased  sales of music
products and revenue growth from Select Editions.

Operating profit for Global Books and Home  Entertainment  increased 45% in 1999
to $84,  compared  with $58 in 1998.  The increase was  primarily  from improved
profitability  in the United States,  Germany and the United Kingdom,  offset by
operating losses in Russia. In the United States, operating profit improved as a
result of significant  reductions in promotion and overhead  costs.  In Germany,
significantly improved profits were the result of higher customer response rates
to product  offerings.  In the United  Kingdom,  growth in operating  profit was
realized from promotion cost  reductions for general books,  the  elimination of
unprofitable  product  lines  and  cost  savings  from  fewer  mailings.   These
improvements  were partially offset by weaker  performance in Russia as a result
of the economic crisis,  which led to substantial  losses on mailings and higher
inventory reserves.

U.S. Magazines

2000 v. 1999

Revenues for U.S. Magazines  decreased 3% in 2000 to $651, compared with $674 in
1999. Subscription revenues from Reader's Digest magazine were lower as a result
of planned  reductions in the circulation rate base. We reduced the rate base to
12.5 million at the beginning of 2000,  compared with a base of 15.0 million for
the first half of 1999 and a base of 13.3  million  for the second half of 1999.
We also sold our  subscription  list for, and ceased  publication  of,  American
Health magazine during the first quarter of 2000, which reduced revenues by $21.
Our last  issue of that  magazine  was  published  in  October  1999.  Partially
offsetting  these  decreases were higher  average  selling prices across all QSP
product  lines  and an  increase  in sales of QSP gift  products.  In  addition,
revenues  increased  as a  result  of the  acquisition  of  American  Woodworker
magazine in the second quarter of 1999.

Operating profit for U.S. Magazines  decreased 13% in 2000 to $92, compared with
$106  in  1999.  The  decrease  reflects  investment  spending  to  develop  new
circulation channels for Reader's Digest magazine,  higher corporate allocations
of  Information   Technology  costs,  lower  subscription  income  from  planned
reductions in the circulation  rate base and costs related to the acquisition of
the sales force of World's  Finest  Chocolate,  Inc. This decrease was partially
offset by lower  promotion  and  product  costs for  Reader's  Digest  magazine,
primarily from the reduction in the circulation rate base.

1999 v. 1998

Revenues for U.S. Magazines  increased by 1% in 1999 to $674, compared with $667
in 1998.  The increase in revenues was  attributable  to an increase in Reader's
Digest magazine advertising revenues,  the acquisition of American Woodworker in
the  second   quarter  of  1999  and  an  increase  in  the  sales  of  magazine
subscriptions   at  QSP.   Partially   offsetting   these  increases  was  lower
subscription  revenues for Reader's  Digest  magazine  because of the  strategic
reduction of the magazine's circulation rate base.


<PAGE>


Operating profit  increased 58% in 1999 to $106,  compared with $67 in 1998. The
increase  principally  resulted  from  lower  overhead  costs in 1999,  improved
margins at QSP, and lower promotion and production  spending for Reader's Digest
magazine because of cost-reduction initiatives. The increase in operating profit
was partially  offset by higher  promotional  spending  associated  with special
interest magazines.

International Magazines

2000 v. 1999

Revenues for International Magazines decreased 6% in 2000 to $296, compared with
$313 in 1999.  Excluding  the  adverse  effect of changes  in  foreign  currency
exchange rates,  revenues were flat. Revenue declines were primarily a result of
our  strategic  reduction  of the  circulation  rate  base for  Reader's  Digest
magazine  in most  markets.  Additionally,  operations  in Russia  were  sharply
reduced during the second quarter of 1999 in response to the economic  crisis in
that country,  resulting in significantly fewer subscribers in 2000. The closing
or sale of unprofitable  operations (Chile,  Colombia,  Peru and South Africa in
1999,  and Italy in 2000) also  contributed  to the decline in  revenues.  These
declines  in  revenues  were  offset by  increases  in  subscription  prices and
circulation rates, particularly in Mexico and Brazil.

Operating  profit improved in 2000 to $1 from an operating loss of $(18) in 1999
as a result of  subscription  price  increases in many  markets,  re-engineering
efforts to reduce  paper and  printing  costs,  lower  promotion  costs from the
strategic  reduction  in  promotional  mailings,  and  the  closing  or  sale of
unprofitable operations.

1999 v. 1998

Revenues for International Magazines decreased 9% in 1999 to $313, compared with
$344 in 1998.  Excluding  the  adverse  effect of changes  in  foreign  currency
exchange rates,  revenues  decreased 6%.  Circulation levels for Reader's Digest
magazine were reduced in most markets,  particularly in the United Kingdom.  The
publication  frequency  of the Russian  edition  was reduced  from twelve to six
issues per year in response to the Russian economic  crisis.  These actions were
partially  offset by subscription  price increases in most markets.  Advertising
revenues declined in most markets primarily as a result of fewer pages sold at a
lower rate per page.  Advertising  revenues  decreased  in Asia and Canada  from
adverse   market   conditions   and  in  Italy  and  Benelux  from   circulation
rate-base-related reductions.

Operating  losses for  International  Magazines  increased 10% in 1999 to $(18),
compared with $(17) in 1998,  principally from lower revenues,  partially offset
by reduced product and promotion costs.

Other Businesses

2000 v. 1999

Revenues from Other Businesses  increased 69% in 2000 to $45,  compared with $27
in 1999, as a result of additional revenues from gifts.com,  Inc. (including the
full-year  effect of the  acquisition  of Good Catalog  Company)  and  insurance
alliances.

Operating losses from Other Businesses  amounted to $(46) in 2000, compared with
losses of $(5) in 1999.  These losses were from marketing and start-up costs for
a number of ventures, primarily gifts.com, Inc. Profits from insurance alliances
during the period partially offset these losses.


<PAGE>


1999 v. 1998

Revenues from Other Businesses increased  significantly in 1999 to $27, compared
with $4 in 1998, and operating losses from Other Businesses decreased in 1999 to
$(5),  compared with $(8) in 1998. The increase in revenues was principally from
the acquisition of Good Catalog Company in October 1998.

Liquidity and Capital Resources
(forward-looking information)

The  consolidated  statement of cash flows for the year ended June 30, 2000,  is
summarized below:

Cash and cash equivalents at June 30, 1999                                $ 414

Net change in cash due to:
  Operating activities                                                      175
  Investing activities                                                     (486)
  Financing activities                                                      (42)
  Effect of exchange rate changes on cash and cash equivalents              (11)

Net change in cash and cash equivalents                                    (364)
                                                                          -----

Cash and cash equivalents at June 30, 2000                                $  50
                                                                          =====

Cash and cash  equivalents  decreased 88% in 2000 to $50,  compared with $414 in
1999.  The  decrease  was  principally  from the  acquisition  of BAF for  $393,
investments in new initiatives of $97 (primarily  transactions involving World's
Finest Chocolate, Inc. and BrandDirect Marketing, Inc.), capital expenditures of
$34 and common stock repurchases totaling $133.  Offsetting these investments of
cash were positive cash flows from  operating  activities and an increase in net
short-term borrowings of $87.

As described in Note 10 to our consolidated financial statements, we are a party
to a Competitive  Advance and Revolving  Credit  Facility  Agreement (the Credit
Agreement) that expires on October 31, 2001 and provides for borrowings of up to
$300.  The Credit  Agreement  was amended as of September 2, 1999.  Prior to the
amendment,  the Credit Agreement included a covenant to maintain a minimum level
of consolidated tangible net worth. The amendment provides borrowing flexibility
by  replacing  this  covenant  with  covenants  to  maintain  minimum  levels of
consolidated  assets and net worth and a maximum level of leverage.  At June 30,
2000, we had borrowings of $87 outstanding under the Credit Agreement. It is our
intent to repay the outstanding amount within the next fiscal year.

In January 2000, we announced authorization to repurchase up to 5 million shares
or about 5 percent of our outstanding Class A nonvoting common stock. As of June
30, 2000, we had purchased approximately 4 million shares totaling $133.

In September 1999, we executed a share exchange with the DeWitt Wallace-Reader's
Digest Fund and the Lila  Wallace-Reader's  Digest Fund (the  Funds).  Under the
terms of the exchange, the Funds exchanged approximately 9 million shares of our
Class B voting common stock (Class B) for  approximately 8 million shares of our
Class A nonvoting  common stock (Class A), at an exchange ratio of 0.865 Class A
shares for each Class B share. As a result, we exchanged Class A treasury shares
at a cost of $165 and a market value of $240,  for Class B shares,  resulting in
additional paid-in capital of $75.

Some of our  international  subsidiaries have available lines of credit totaling
$43. At June 30, 2000, no amounts were outstanding under these lines of credit.

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

Currency Risk Management
(forward-looking information)

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

At June 30, 2000, our primary  foreign  currency market  exposures  included the
euro and the  British  pound.  We  estimate  that the  results of a uniform  10%
weakening and 10%  strengthening in the value of the U.S. dollar relative to the
currencies in which the option and forward  contracts are denominated,  with all
other variables held constant, would have the following effect:

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

Option Contracts                        $  (7.4)           $  13.2
Forward Contracts                       $ (13.2)           $  10.8

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

Additional  information concerning derivative financial instruments is available
in Note 1 and Note 6 to our consolidated financial statements.

Impact of the Euro Conversion
(forward-looking information)

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

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

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

New Accounting Standards

In 1998, the Financial  Accounting  Standards  Board (FASB) issued  Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities," and in 2000, SFAS No. 138, "Accounting for
Certain Derivative  Instruments and Certain Hedging Activities,  an amendment of
SFAS No. 133." Effective July 1, 2000, these statements  require us to recognize
all derivative instruments on our balance sheet at fair value.  Derivatives that
are  not  hedges  should  be  adjusted  to  fair  value  through  earnings.  For
derivatives that are effective  hedges,  changes in fair value of the derivative
should be  recorded  in either  other  comprehensive  income  or  earnings.  The
ineffective  portion of a derivative  classified as a hedge will be  immediately
recognized in earnings.

These  statements are not required to be applied  retroactively to prior periods
and their effects on our results of operations, financial position or cash flows
are not expected to be significant.

In 1998, the Accounting  Standards Executive Committee of the American Institute
of Certified Public Accountants  issued Statement of Position 98-1,  "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." This
statement  was  adopted  on July 1, 1999 and did not  significantly  affect  our
results of operations, financial position or cash flows.

Fiscal 2001 Outlook
(forward-looking information)

We expect  continued  improvement  in both  revenues and  operating  profit.  We
anticipate  that our  revenue  growth  rate for fiscal  2001 will  approach  the
high-single-  or  low-double-digits.  We expect  that  year-over-year  operating
profit will  continue to increase,  but at a somewhat  slower rate than in 2000,
based in part on our larger revenue base.


<PAGE>


Cautionary Statement
(forward-looking information)

This report includes "forward-looking statements" within the meaning of the U.S.
federal securities laws.  Forward-looking statements include any statements that
address  future  results  or  occurrences.   These  forward-looking   statements
inherently  involve  risks and  uncertainties  that could  cause  actual  future
results  and  occurrences  to  differ   materially   from  the   forward-looking
statements.  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;
-       effects of modified and varied promotions;
-       ability to identify customer trends;
-       ability to continue to create a broadly appealing mix of new
        products;
-       ability to attract and retain new and younger magazine
        subscribers and product customers in view of the maturing of an
        important portion of our U.S. customer base;
-       ability to attract and retain subscribers and customers in an
        economically efficient manner;
-       effect of selective adjustments in pricing;
-       ability to expand and more effectively utilize our customer
        database;
-       ability to expand into new international markets and to
        introduce new product lines into new and existing markets;
-       ability to expand into new channels of distribution;
-       ability to negotiate and implement productive acquisitions,
        strategic alliances and joint ventures;
-       ability to integrate newly acquired and newly formed businesses
        successfully;
-       strength of relationships of newly acquired and newly formed
        businesses with their employees, suppliers and customers;
-       accuracy of the basis of forecasts relating to newly acquired
        and newly formed businesses;
-       ability to contain and reduce costs, especially through global
        efficiencies;
-       cost and effectiveness of re-engineering of business processes
        and operations;
-       accuracy of management's assessment of the current status of
        our business;
-       evolution of our organizational and structural capabilities;
-       ability we have to respond to competitive pressures within and
        outside the direct marketing industry,  including the Internet;
-       effect of worldwide paper and postage costs;
-       effect of possible postal disruptions on deliveries;
-       effect  of  foreign  currency   fluctuations;
-       accuracy  of management's assessment of the future effective tax
        rate and the effect of  initiatives  to reduce the rate;
-       effect of the transition to the euro;
-       effect and pace of our stock repurchase program; and
-       effect of general economic conditions.


<PAGE>


The Reader's Digest Association, Inc. and Subsidiaries

Consolidated Statements of Income


<TABLE>
<CAPTION>
                                                                          Years ended June 30,
In millions, except per share data                               2000            1999            1998

<S>                                                          <C>             <C>             <C>
Revenues                                                     $ 2,553.7       $ 2,532.2       $ 2,691.2

Product, distribution and editorial expenses                     948.7         1,008.5         1,095.1
Promotion, marketing and administrative expenses               1,347.8         1,356.7         1,495.9
Other operating items                                              3.4            37.9            70.0
                                                             ---------       ---------       ---------
 Operating profit                                                253.8           129.1            30.2

Other income, net                                                 10.0            82.6            11.3
                                                             ---------       ---------       ---------
  Income before provision for income taxes                       263.8           211.7            41.5

Provision for income taxes                                        90.0            85.1            23.6
                                                             ---------       ---------       ---------
  Income before cumulative effect of change in
    accounting principles                                        173.8           126.6            17.9

Cumulative effect of change in accounting principles
  for pension assets, net of tax provision of $15.2                 --            25.3              --
                                                             ---------       ---------       ---------
Net income                                                   $   173.8       $   151.9       $    17.9
                                                             =========       =========       =========
Basic and diluted earnings per share

Basic earnings per share
  Weighted average common shares outstanding                     106.0           107.3           106.5

  Before cumulative effect of change in accounting
   principles                                                $    1.63       $    1.16       $    0.16
  Cumulative effect of change in accounting principles              --            0.24              --
                                                             ---------       ---------       ---------
 Basic earnings per share                                    $    1.63       $    1.40       $    0.16
                                                             =========       =========       =========
Diluted earnings per share
  Adjusted weighted average common shares outstanding            107.0           108.0           106.7

  Before cumulative effect of change in accounting
   principles                                                $    1.61       $    1.15       $    0.16
  Cumulative effect of change in accounting principles              --            0.24              --
                                                             ---------       ---------       ---------

  Diluted earnings per share                                    $ 1.61          $ 1.39          $ 0.16
                                                             =========       =========       =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>


The Reader's Digest Association, Inc. and Subsidiaries

Consolidated Balance Sheets


<TABLE>
<CAPTION>

                                                                   June 30,
In millions                                                    2000         1999

<S>                                                       <C>          <C>
Assets
Current assets
  Cash and cash equivalents                               $     49.7   $    413.4
  Receivables, net                                             285.3        319.9
  Inventories, net                                             120.3         94.9
  Prepaid and deferred promotion costs                         115.5        109.0
  Prepaid expenses and other current assets                    201.7        193.5
                                                          ----------   ----------
Total current assets                                           772.5      1,130.7

Marketable securities                                          173.5         20.9
Property, plant and equipment, net                             152.4        148.4
Intangible assets, net                                         438.8         68.5
Other noncurrent assets                                        221.6        248.0
                                                          ----------   ----------

Total assets                                              $  1,758.8   $  1,616.5
                                                          ==========   ==========

Liabilities and stockholders' equity
Current liabilities
  Loans and notes payable                                 $     89.4   $      0.4
  Accounts payable                                             146.4        130.7
  Accrued expenses                                             309.6        352.2
  Income taxes payable                                          38.7         56.0
  Unearned revenue                                             289.4        336.5
  Other current liabilities                                     30.9         16.5
                                                          ----------   ----------
Total current liabilities                                      904.4        892.3

Postretirement and postemployment benefits other
  than pensions                                                142.3        146.9
Other noncurrent liabilities                                   207.8        195.8
                                                          ----------   ----------
Total liabilities                                            1,254.5      1,235.0
                                                          ----------   ----------
Stockholders' equity
  Capital stock                                                 28.9         24.8
  Paid-in capital                                              223.1        146.2
  Retained earnings                                          1,106.6        955.4
  Accumulated other comprehensive income (loss)                 31.0        (56.6)
  Treasury stock, at cost                                     (885.3)      (688.3)
                                                          ----------   ----------
Total stockholders' equity                                     504.3        381.5
                                                          ----------   ----------
Total liabilities and stockholders' equity                $  1,758.8   $  1,616.5
                                                          ==========   ==========

</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>


The Reader's Digest Association, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                        Years ended June 30,
In millions                                                         2000       1999        1998

<S>                                                             <C>         <C>         <C>
Cash flows from operating activities
Net income                                                      $  173.8    $  151.9    $   17.9
Cumulative effect of change in accounting principles                --         (25.3)       --
Asset impairments                                                    3.7        22.8        --
Depreciation and amortization                                       47.5        43.7        46.2
Minority interest                                                   (2.6)       --          --
Net loss (gain) on the sales of certain investments, assets
  and other businesses                                               1.1       (79.6)      (15.4)
Changes in assets and liabilities, net of effects of
  acquisitions and dispositions
    Receivables, net                                                20.9        49.5        10.9
    Inventories, net                                                35.2        64.1        (1.9)
    Unearned revenue                                                (3.2)       (2.4)        7.6
    Accounts payable and accrued expenses                          (55.8)      (39.0)        9.3
    Other, net                                                     (45.7)       36.8        19.3
                                                                --------    --------    --------
Net change in cash due to operating activities                     174.9       222.5        93.9
                                                                --------    --------    --------
Cash flows from investing activities
Proceeds from maturities and sales of marketable securities
  and short-term investments                                        23.2         2.3        32.5
Proceeds from sales of businesses and other long-term
  investments, net                                                  13.8        14.6        45.7
Proceeds from sales of property, plant and equipment                 2.8       193.0        25.0
Purchases of investments and marketable securities                 (97.2)      (35.8)       (2.3)
Payments for business acquisitions                                (393.9)      (32.7)       --
Capital expenditures                                               (34.3)      (26.3)      (34.1)
Other, net                                                          (0.1)       (0.5)       --
                                                                --------    --------    --------
Net change in cash due to investing activities                    (485.7)      114.6        66.8
                                                                --------    --------    --------
Cash flows from financing activities
Short-term borrowings, net                                          86.5       (14.3)      (13.5)
Proceeds from other borrowings                                       7.8        --          --
Proceeds from employee stock purchase plan and exercise of
  stock options                                                     15.1        11.6         5.6
Dividends paid                                                     (22.6)      (41.5)      (97.1)
Common stock repurchased                                          (133.5)       --          --
Other, net                                                           5.0         7.8         2.3
                                                                --------    --------    --------
Net change in cash due to financing activities                     (41.7)      (36.4)     (102.7)
                                                                --------    --------    --------
Effect of exchange rate fluctuations on cash                       (11.2)      (10.1)       (4.3)
                                                                --------    --------    --------
Net change in cash and cash equivalents                           (363.7)      290.6        53.7
                                                                --------    --------    --------
Cash and cash equivalents at beginning of year                     413.4       122.8        69.1
                                                                --------    --------    --------
Cash and cash equivalents at end of year                        $   49.7    $  413.4    $  122.8
                                                                ========    ========    ========
Supplemental information
Cash paid for interest                                          $    3.0    $    3.5    $    5.4
Cash paid for income taxes                                      $   57.9    $   47.7    $   20.5
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>


The Reader's Digest Association, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>

                                         Capital Stock                                   Accumulated
                                                     Unamortized                            Other        Treasury
                               Preferred   Common     Restricted   Paid-In    Retained   Comprehensive   Stock, at
In millions                      Stock      Stock       Stock      Capital    Earnings   Income (Loss)      Cost          Total

<S>                           <C>        <C>         <C>         <C>        <C>          <C>           <C>              <C>
Balance at June 30, 1997       $  28.8    $    1.4    $   (1.2)   $  141.8   $    924.2   $  (33.7)     $   (715.3)      $  346.0

Comprehensive income
Net income                                                                         17.9                                      17.9
Other comprehensive income:
  Translation loss                                                                           (16.4)                         (16.4)
  Net unrealized gain on
   investments                                                                                 0.3                            0.3
                                                                                                                         --------
Total comprehensive income                                                                                                    1.8
                                                                                                                         ========

Stock issued under various
 plans                                                   (12.4)        3.0                                    17.3            7.9

Common stock dividends                                                            (95.8)                                    (95.8)
Preferred stock dividends                                                          (1.3)                                     (1.3)
                               -------    --------    --------    --------   ----------   --------      ----------       --------
Balance at June 30, 1998          28.8         1.4       (13.6)      144.8        845.0      (49.8)         (698.0)         258.6
                               -------    --------    --------    --------   ----------   --------      ----------       --------

Comprehensive income
Net income                                                                        151.9                                     151.9

Other comprehensive income:
  Translation loss                                                                            (6.8)                          (6.8)
                                                                                                                         --------
Total comprehensive income                                                                                                  145.1
                                                                                                                         ========

Stock issued under various
 plans                                                     8.2         1.4                                     9.7           19.3
Common stock dividends                                                            (40.2)                                    (40.2)
Preferred stock dividends                                                          (1.3)                                     (1.3)
                               -------    --------    --------    --------   ----------   --------      ----------       --------
Balance at June 30, 1999          28.8         1.4        (5.4)      146.2        955.4      (56.6)         (688.3)         381.5
                               -------    --------    --------    --------   ----------   --------      ----------       --------

Comprehensive income
Net income                                                                        173.8                                     173.8
Other comprehensive income:
  Translation loss                                                                           (16.4)                         (16.4)
  Net unrealized gain on
   investments, net of
    deferred taxes of $56.0                                                                  104.0                          104.0
                                                                                                                         --------
Total comprehensive income                                                                                                  261.4
                                                                                                                         ========
Stock issued under various
 plans                                                     4.1         1.9                                    11.5           17.5

Exchange of common stock                                              75.0                                   (75.0)            --
Common stock repurchased                                                                                    (133.5)        (133.5)
Common stock dividends                                                            (21.3)                                    (21.3)
Preferred stock dividends                                                          (1.3)                                     (1.3)
                               -------    --------    --------    --------   ----------   --------      ----------       --------
Balance at June 30, 2000       $  28.8    $    1.4    $   (1.3)   $  223.1   $  1,106.6   $   31.0      $   (885.3)      $  504.3
                               =======    ========    ========    ========   ==========   ========      ==========       ========

</TABLE>


See accompanying Notes to Consolidated Financial Statements.

<PAGE>


The Reader's Digest Association, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
Dollars in millions, except per share data


Unless  indicated  otherwise,  references  in  Notes to  Consolidated  Financial
Statements to "we", "our" and "us" are to The Reader's Digest Association,  Inc.
and its subsidiaries. All references to 2000, 1999 and 1998, unless specifically
identified, are to fiscal 2000, fiscal 1999 and fiscal 1998, respectively.

Note 1         Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts
of The Reader's Digest Association, Inc. and its U.S. and international
subsidiaries.  All significant intercompany accounts and transactions
have been eliminated in consolidation.

Certain  prior year  amounts  have been  restated to conform to our current year
presentation.  Customer service costs in 1999 and 1998 have been reclassified to
reflect  these  costs as a  component  of product,  distribution  and  editorial
expenses rather than promotion, marketing and administrative expenses.

Use of Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that affect reported  amounts in these  financial  statements.
Although these estimates are based on  management's  knowledge of current events
and actions that we may undertake in the future,  actual  results may ultimately
differ from those estimates.

New Accounting Standards

In 1998, the Financial  Accounting  Standards  Board (FASB) issued  Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities," and in 2000, SFAS No. 138, "Accounting for
Certain Derivative  Instruments and Certain Hedging Activities,  an amendment of
SFAS No. 133." Effective July 1, 2000, these statements  require us to recognize
all derivative instruments on our balance sheet at fair value.  Derivatives that
are  not  hedges  should  be  adjusted  to  fair  value  through  earnings.  For
derivatives that are effective  hedges,  changes in fair value of the derivative
should be  recorded  in either  other  comprehensive  income  or  earnings.  The
ineffective  portion of a derivative  classified as a hedge will be  immediately
recognized in earnings.

These  statements are not required to be applied  retroactively to prior periods
and their effects on our results of operations, financial position or cash flows
are not expected to be significant.

In 1998, the Accounting  Standards Executive Committee of the American Institute
of Certified Public Accountants  issued Statement of Position 98-1,  "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." This
statement  was  adopted  on July 1, 1999 and did not  significantly  affect  our
results of operations, financial position or cash flows.


<PAGE>


Cash and Cash Equivalents

We consider all highly  liquid  investments  with  original  maturities of three
months or less at the date of  purchase  to be cash  equivalents.  The  carrying
amount  approximates  fair value  based upon the  short-term  maturity  of these
investments.

Receivables, net

Receivables,  net are reflected  net of allowances  for returns and bad debts of
$146.0,  $153.8  and  $173.0  at June 30,  2000,  1999 and  1998,  respectively.
Additions to the allowances amounted to $465.8, $509.1 and $505.0, respectively,
and amounts  written off amounted to $473.6,  $528.3 and $498.2 during the years
ended June 30, 2000, 1999 and 1998, respectively.

Inventories

Inventories  are  stated  at the  lower  of cost  or  market  value.  Generally,
inventory in the United  States,  with the exception of inventory  held by Books
Are Fun,  Ltd.,  is valued on the  last-in,  first-out  (LIFO)  basis.  In other
markets,  inventory is primarily  determined on the first-in,  first-out  (FIFO)
basis.

Financial Instruments

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

Foreign  currency  option  contracts  that reduce our exposure to the effects of
fluctuating  foreign  currencies on our  earnings,  and forward  contracts  that
reduce exposure to the effects of fluctuating foreign currencies on specifically
identifiable  anticipated  transactions,  do not meet  the  criteria  for  hedge
accounting.  However,  option  contracts  that are designated as hedges and that
reduce  our  exposure  to the  effects  of  fluctuating  foreign  currencies  on
specifically  identifiable anticipated  transactions,  where it is probable that
the transactions  will occur,  meet the criteria for hedge  accounting.  Forward
contracts that reduce our exposure on foreign  currency  denominated  assets and
liabilities  meet the criteria for hedge  accounting as they are  designated as,
and are  effective  as,  hedges  of  specifically  identified  foreign  currency
denominated assets and liabilities.

Premiums on option  contracts  that qualify for hedge  accounting  are amortized
over the term of the  contract  and any gains at maturity  are included in other
income,  net.  If an option  contract is  terminated  before its  maturity,  the
unamortized  premium associated with the contract is written off and included in
other income, net. Option contracts that do not qualify for hedge accounting are
recorded at fair market  value and changes in market  value on such  instruments
are included in other  income,  net. The carrying  value of option  contracts is
included in prepaid expenses and other current assets.


<PAGE>


The net carrying  value of forward  contracts is included at market value on our
balance  sheet in prepaid  expenses and other  current  assets and other current
liabilities.  Changes in the market value of forward  contracts  are included in
other income, net. In the event that the underlying foreign currency denominated
asset or liability is extinguished or terminated prior to the forward contract's
maturity,  our policy is to enter into a separate forward contract to offset any
changes  in market  value  from that date  until the  maturity  of the  original
contract.

Depreciation and Amortization

Property, plant and equipment are stated at cost, except for property, plant and
equipment that have been impaired.  For impaired assets,  the carrying amount is
reduced to the estimated fair market value.  During 2000, we modified the useful
lives assigned to certain assets to gain global consistency of useful lives, the
effect of which was not significant.

Buildings,  equipment,  and  furniture  and fixtures are  depreciated  using the
straight-line  method over useful lives up to 40 years for  buildings and useful
lives  ranging from three to 10 years for  equipment and furniture and fixtures.
Leasehold  improvements  are amortized using the  straight-line  method over the
term of the lease or the useful life of the improvement, whichever is shorter.

Intangible Assets, net

Intangible   assets,  net  is  composed  of  distribution   rights,   contracts,
subscription  lists and other intangible  assets, as well as the excess of costs
over the fair value of net assets of  acquired  businesses.  The excess of costs
over the fair value of  businesses  acquired is  amortized,  on a  straight-line
basis,  over  varying  periods,  not  in  excess  of 40  years.  Other  acquired
intangibles are amortized, on a straight-line basis, over their estimated useful
lives, not in excess of 10 years. We continually  evaluate the recoverability of
our  intangible  assets to determine  whether  current  events or  circumstances
warrant  adjustments  to the carrying  value.  Such  evaluation  may be based on
current  and  projected  income  and  cash  flows  from  operations  of  related
businesses  on an  undiscounted  basis  as well as  other  economic  and  market
variables.

Stock-Based Compensation

Compensation cost is recognized for stock-based compensation using the intrinsic
value method. Under this method, compensation cost is the excess, if any, of the
quoted  market  price of the stock at the grant date over the amount an employee
must pay to acquire  the stock.  Our  policy is to grant  stock  options at fair
market value at the date of grant.

Revenues

Sales of Global Books and Home Entertainment and Other Businesses  products less
provisions  for  returns  and bad debts are  recorded as revenues at the time of
shipment.  Sales of magazine  subscriptions  are recorded as unearned revenue at
the gross subscription price at the time the orders are received.  Proportionate
shares  of the  gross  subscription  price  less  provision  for bad  debts  are
recognized as revenues when the subscriptions  are fulfilled.  Sales of magazine
advertising   less   discounts   are  recorded  as  revenues  at  the  time  the
advertisements are published.

Promotion Costs

Costs of direct  response  advertising  are matched  with the  expected  revenue
stream.  Direct  response  advertising  consists  primarily of  promotion  costs
incurred in connection with the sale of magazine subscriptions,  books and other
products.  Promotion  costs of $753.3,  $824.1 and $927.0 were  incurred for the
years ended June 30, 2000, 1999 and 1998, respectively.

Deferred  promotion costs in 1999 were reclassified to current assets to conform
to our current year's presentation.

Income Taxes

Income tax expense is based on reported  earnings before income taxes.  Deferred
income  taxes,  net of  valuation  allowances,  reflect the impact of  temporary
differences  between assets and liabilities  recognized for financial  reporting
purposes and such amounts  recognized  for income tax purposes.  These  deferred
taxes are measured by applying currently enacted tax laws.

Basic and Diluted Earnings Per Share

Basic earnings per share is computed by dividing net income less preferred stock
dividend  requirements  ($1.3 for 2000,  1999 and 1998) by the weighted  average
number of common shares  outstanding during the year. Diluted earnings per share
is computed in the same manner except that the weighted average number of common
shares outstanding  assumes the exercise and conversion of certain stock options
(1.0 million shares for 2000, 0.7 million shares for 1999 and 0.2 million shares
for 1998).

Options to purchase approximately 3.8 million shares of Class A nonvoting common
stock were  outstanding  during  2000 (5.0  million  in 1999 and 5.9  million in
1998),  but were not included in the computation of diluted  earnings per share.
The exercise  prices of these options were greater than the average market price
of the Class A nonvoting common stock during the period.

Foreign Currency Translation

The  functional  currency for most  foreign  operations  is the local  currency.
Revenues  and expenses  denominated  in foreign  currencies  are  translated  at
average  monthly  exchange  rates  prevailing  during  the year.  The assets and
liabilities of  international  subsidiaries  are translated into U.S. dollars at
the rates of  exchange  in effect  at the  balance  sheet  date.  The  resulting
translation  adjustment  is reflected as a separate  component of  stockholders'
equity within accumulated other comprehensive income.

The U.S. dollar is used as the functional currency for subsidiaries operating in
highly inflationary economies,  for which both translation adjustments and gains
and losses on foreign currency transactions are included in other income, net.

Note 2         Acquisitions and Investments

Acquisitions

In October 1999, we purchased 100% of the outstanding  common stock of Books Are
Fun,  Ltd.  (BAF).  BAF sells  books and gift items by display  marketing  those
products on-site at schools and corporate  businesses.  The total purchase price
of  $393.2  was  financed  through  a  combination  of  internal  funds and bank
borrowings of $120.0,  which were repaid during the second  quarter of 2000. The
acquisition  was  accounted  for using the  purchase  method of  accounting  and
generated  $346.0  in  goodwill.  The  goodwill  is being  amortized  using  the
straight-line  method  over a period of 20 years.  The  results of BAF have been
consolidated  since October 1, 1999,  and are included in our financial  results
for 2000.


<PAGE>


The following  table presents pro forma  information  as though the  acquisition
took place at the beginning of each period presented.

                                                          2000         1999
Pro forma information (unaudited)

Revenues                                              $  2,584.6    $  2,728.4

Income before change in accounting principles         $    168.2    $    118.8

Net income                                            $    168.2    $    144.1

Earnings per share (unaudited)

  Basic                                                    $1.57         $1.33

  Diluted                                                  $1.56         $1.32

These  unaudited pro forma results have been prepared for  comparative  purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill,  increased  interest  expense from the acquisition of debt
and lower  interest  income  from  reduced  cash on hand.  The  results  are not
intended  to be  indicative  of past or future  results  of  operations  had the
acquisition taken place at the beginning of each period.

Available for Sale Marketable Securities

Marketable  securities on the balance sheet primarily represents the fair market
value (based on quoted market prices) of our investments in LookSmart,  Ltd. and
Healtheon/WebMD  Corporation.  These securities are accounted for and classified
as available for sale securities. As of June 30, 2000, the market value of those
shares  totaled  $166.5  for  LookSmart,   Ltd.  and  $6.4  for  Healtheon/WebMD
Corporation.

Net unrealized gains on these investments, net of deferred taxes, is included in
accumulated  other  comprehensive  income (loss) in stockholders'  equity on the
balance sheet and amounted to $104.0 as of June 30, 2000.

Investments, at Cost

In October 1999, we entered into an agreement with BrandDirect Marketing,  Inc.,
an  affinity,  membership-based,  direct  marketing  company,  to acquire an 18%
equity interest in BrandDirect  Marketing,  Inc. As prescribed by the agreement,
we paid $30.0 in 2000 and are scheduled to make another payment of $20.0 in July
2000, for a total  investment of $50.0. The agreement also permits us to acquire
additional  equity in  BrandDirect  Marketing,  Inc.  through  the  exercise  of
warrants and other rights.  The investment is being accounted for using the cost
method and is  included in other  noncurrent  assets on the  balance  sheet.  In
addition, we are working with BrandDirect Marketing,  Inc. to develop and market
Reader's Digest-branded membership clubs.

We hold several other  investments,  at cost,  totaling $14.2. These investments
are included in other noncurrent assets on the balance sheet.


<PAGE>


Licensing Agreement

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

Note 3         Other Operating Items

Other operating items represent charges related primarily to the streamlining of
our  organizational   structure  and  the  strategic  repositioning  of  certain
businesses.  We recorded other operating  items of $3.4 in 2000,  $37.9 in 1999,
and $70.0 in 1998.  The  components  of other  operating  items are described in
further detail below:

-   Employee  Retirement and Severance  Benefits - For each reporting period, we
    have  identified  employees  who would be  separated  as a result of actions
    taken to streamline the  organizational  structure  through a combination of
    voluntary and involuntary severance programs. During 2000, approximately 100
    employees  were  identified to be separated  from our  operations,  of which
    approximately  one-half were separated as of June 30, 2000. In addition,  as
    of June 30, 2000,  virtually all of the  identified  employees  from charges
    prior to 2000 have been separated from our operations.

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

-   Impairment  Losses - As a result of  restructuring  activities,  we incurred
    charges  related to the carrying  value of certain  leasehold  improvements,
    computer hardware and software and, to a lesser extent,  property, plant and
    equipment no longer used in our operations.

During 2000, we recorded net other operating items of $3.4 comprising:

-   Charges  of  $9.9  primarily  for  severance   costs   associated  with  the
    outsourcing  of customer  service in certain  countries,  centralization  of
    certain  accounting  functions and  discontinuance  of certain  unproductive
    activities;

-   Adjustments of $10.2 to accrual balances from charges originally recorded in
    1999, 1998 and 1996; and

-   Asset  impairments  of $3.7  related  principally  to  property,  plant  and
    equipment in the United Kingdom.

Net other operating items in 1999 of $37.9 comprised:

-   Charges of $93.5  primarily  related to employee  retirement  and  severance
    benefits of $60.0 and asset impairment losses of $22.8; and

-   Adjustments of $55.6 to accrual balances from charges originally recorded in
    1998, 1997 and 1996.  These  adjustments  were primarily for several actions
    initiated by prior  management that will not be completed in connection with
    our long-term strategy.

Other operating items in 1998 of $70.0 was composed primarily of severance costs
associated with workforce reductions and certain contract terminations. Spending
related to these initiatives is substantially complete.

At June 30, 2000, we had accruals for other  operating  items of $19.7 primarily
for employee  retirement  and severance  benefits.  Accruals as of June 30, 1999
totaled $63.0 ($48.0 related to employee  retirement and severance  benefits and
$15.0 related to contract  terminations and other initiatives).  During 2000, we
recorded a net amount of $6.6 to reduce these  accruals  (charges of $9.9 offset
by adjustments of $10.2 and other  movements of $6.3).  Payments  totaling $36.7
were made  during  2000,  of which  $26.2  related to  employee  retirement  and
severance benefits.

Note 4         Other Income, Net

                                          2000       1999       1998

Interest income                         $  13.5    $  12.5    $   6.9
Interest expense                           (5.6)      (5.7)      (9.4)
(Impairments) and net gain on the
  sales of certain investments, net        (2.2)       0.7        5.2

Net gain on the sales of certain
  assets and other businesses               1.1       78.9       10.2
Net gain (loss) on foreign exchange         3.7       (2.5)       1.3
Other expense, net                         (0.5)      (1.3)      (2.9)
                                        -------    -------    -------
Total other income, net                 $  10.0    $  82.6    $  11.3
                                        =======    =======    =======

The net  gain on the  sales of  certain  assets  and  other  businesses  in 1999
primarily  consisted of gains from the sale of important works from our fine art
collection and certain businesses,  partially offset by losses from the sales of
publishing  operations  in South  Africa and certain  international  real estate
holdings.

Note 5         Supplemental Balance Sheet Information

The  components of certain  balance sheet  accounts as of June 30, 2000 and 1999
are as follows:

Inventories

                                           2000       1999

Raw materials                           $  13.4     $ 12.7
Work-in-progress                           21.1       20.2
Finished goods                             85.8       62.0
                                        -------     ------
Total inventories                       $ 120.3     $ 94.9
                                        =======     ======

If the  FIFO  method  of  inventory  had  been  used  for  all  U.S.  locations,
inventories  would have been $6.7 higher  than the amounts  reported at June 30,
2000 and 1999.  Finished goods inventory for 2000 includes net inventory held by
BAF of $41.5.


<PAGE>


Property, Plant and Equipment

                                           2000        1999

Land                                    $   10.6    $   11.9
Buildings and building improvements        165.8       185.7
Furniture, fixtures and equipment          228.4       238.3
Leasehold improvements                      14.5        11.8
                                        --------    --------
                                           419.3       447.7
Accumulated depreciation and
 amortization                             (266.9)     (299.3)
                                        --------    --------
Total property, plant and equipment     $  152.4    $  148.4
                                        ========    ========


Intangible Assets

                                          2000        1999

Distribution rights, contracts,
 subscription lists and other           $  86.0     $  58.6
Excess of cost over fair value of
 net assets of businesses acquired        423.2       104.8
                                        --------    --------
                                          509.2       163.4
Accumulated amortization                  (70.4)      (94.9)
                                        --------    --------
Total intangible assets                 $ 438.8     $  68.5
                                        ========    ========


Accrued Expenses

                                          2000        1999

Compensation and other employee
 benefits                               $ 111.9     $  96.0
Royalties and copyrights payable           24.2        33.9
Taxes, other than income taxes             13.0        16.6
Other, principally operating
 expenses                                 160.5       205.7
                                        --------    --------
Total accrued expenses                  $ 309.6     $ 352.2
                                        ========    ========


Other,  principally  operating expenses includes $19.7 and $63.0 relating to the
remaining  balances  associated with other operating items (discussed in Note 3)
at June 30, 2000 and 1999, respectively.

Note 6         Financial Instruments

We are a party to  financial  instruments  with  off-balance  sheet risk.  These
financial  instruments  are used in the normal  course of business to manage our
exposure to fluctuations in foreign currency exchange rates.

We may be  exposed  to  credit  losses  in the  event of  nonperformance  by the
financial institutions that are counterparties to these instruments; however, we
mitigate this risk through specific minimum credit standards and diversification
of   financial   institutions   with  which  we  enter  into  these   derivative
transactions.

Our derivative  financial  instruments also involve elements of market risk as a
result of potential  changes in foreign currency exchange rates. The market risk
associated   with  option  and  forward   contracts   relating  to  specifically
identifiable  anticipated transactions is limited to the carrying value of these
contracts on our consolidated balance sheet.

Forward  contracts  that  reduce our  foreign  exchange  exposure on the foreign
currency  denominated assets and liabilities  outstanding at the end of the year
are natural hedges of existing foreign currency exposures. Therefore, the impact
of  potential  changes  in  future  foreign  currency  exchange  rates  on these
instruments  would  generally  offset  the  related  impact  on the  assets  and
liabilities being hedged.

The following  chart  summarizes our derivative  positions  included  within the
balance sheet:


<PAGE>


                           Notional/                           Fiscal
                           Principal   Carrying      Fair       Year
                            Amounts      Value      Value     Maturity
2000:
Forward Contracts
  Assets                    $ 133.3      $  --     $ 133.3       2001
  Liabilities               $ 133.3      $  --     $ 133.3       2001
Option Contracts
  Assets                    $ 186.9      $ 8.8     $   9.8       2001

1999:
Forward Contracts
  Assets                    $  94.0         --     $  92.3       2000
  Liabilities               $  94.0      $ 1.5     $  93.8       2000
Option Contracts
  Assets                    $ 116.1      $ 4.6     $   5.0       2000


The net fair value of our forward  contracts is included in prepaid expenses and
other current assets and other current  liabilities  on the balance  sheet.  The
carrying  value of option  contracts  is included in prepaid  expenses and other
current assets on the balance sheet.

Note 7         Pension Plans and Other Postretirement Benefits

Change in Accounting for Pension Assets

Effective July 1, 1998, we changed our method for calculating the market-related
value  of  pension  plan  assets.   This  method  is  used  in  determining  the
return-on-asset  component  of annual  pension  expense and the  cumulative  net
unrecognized gain (loss) subject to amortization. We believe that the new method
is more widely used in practice and is  preferred  because it results in pension
plan  asset  values  that more  closely  approximate  fair  value,  while  still
mitigating the effect of annual market value fluctuations.  In addition, the new
method  facilitates  the global  management  of pension plans as it results in a
consistent methodology for all plans.

Under the old method,  realized and  unrealized  gains or losses on pension plan
assets were  amortized and  recognized  over a five-year  period.  Dividends and
interest earned during the plan year were immediately recognized.  Under the new
method,  we  recognize  an expected  return on pension  plan assets and amortize
differences between actual and expected returns over a five-year period.

This change  resulted in a non-cash  benefit in 1999 of $40.5 ($25.3 after tax).
The benefit  represents  the  cumulative  effect of the change  related to years
prior to 1999. In addition, we realized $19.0 ($11.9 after tax) in lower pension
expense in 1999,  compared with the previous  accounting method. Had this change
been applied  retroactively,  pension  expense  would have been reduced by $15.8
($9.9 after tax) in 1998.

Change in Measurement Date for Pensions

In 1999, we elected to change the  measurement  date for pension plan assets and
liabilities  from June 30 to March 31, as permitted by SFAS No. 87,  "Employers'
Accounting for Pensions." This change had no significant effect on 1999 or prior
years' pension expense.

Pension and Other Benefits

Assumptions used to determine  pension costs and projected  benefit  obligations
are as follows:

                                                   U.S. Plans
                                              2000     1999    1998

Discount rate                                  7.7%    7.0%     7.0%

Compensation increase rate                     5.0%    5.0%     5.0%

Long-term rate of return on plan assets        9.5%    9.5%     9.5%


<PAGE>


                                               International Plans
                                              2000     1999    1998

Discount rate                                 5-18%   5-12%    4-15%

Compensation increase rate                    2-16%   3-10%    3-10%

Long-term rate of return on plan assets       5-19%   5-13%    5-16%

Components of consolidated net periodic pension (benefit) cost are as follows:

                                               Pension Benefits
                                           2000     1999     1998

Service cost                            $  16.9  $  20.5  $  18.2
Interest cost                              44.9     44.6     45.7
Expected return on plan assets            (80.9)   (79.8)   (60.7)
Amortization                               (4.6)    (2.9)    (3.2)
Recognized actuarial gain                  (8.9)    (9.7)    (3.4)
Special items                              (0.2)     2.4       --
                                        -------  -------  -------
Net periodic pension benefit            $ (32.8) $ (24.9) $  (3.4)
                                        =======  =======  =======


We provide  medical and dental  benefits  to U.S.  retired  employees  and their
dependents.  Substantially  all of our U.S.  employees become eligible for these
benefits when they meet minimum age and service requirements.  We have the right
to modify or terminate these unfunded benefits.  Discount rates of 7.7% for 2000
and 7.0%  for  both  1999 and 1998  were  used in  determining  the  accumulated
postretirement benefits liability.


<PAGE>


Components of costs for postretirement benefits are as follows:

                                                 Other Benefits
                                             2000     1999    1998

Service cost                                  $ 0.9   $ 1.8    $ 1.6
Interest cost                                   4.1     4.6      5.5
Amortization                                   (0.6)     --       --
Recognized actuarial gain                      (3.7)   (2.7)    (2.2)
Special items                                    --    (0.4)      --

Postretirement benefit costs                  $ 0.7   $ 3.3    $ 4.9

A  reconciliation  of beginning and ending  balances of benefit  obligations and
fair value of plan assets, and the funded status of the plans are as follows:

                                   Pension Benefits     Other Benefits
                                     2000     1999      2000      1999
Change in benefit obligation:
Benefit obligation at
  beginning of year               $  689.8  $  697.2  $   64.7  $   81.8
Service cost                          16.9      17.4       0.9       1.3
Interest cost                         44.9      36.2       4.1       3.5
Actuarial (gain) loss                (32.8)     23.0      (7.0)    (14.0)
Plan amendments                       (0.7)    (12.6)      0.4      (6.0)
Exchange rate changes                 (7.9)     (6.6)     --        --
Settlements/curtailments              (0.6)    (30.3)     --        (0.4)
Benefits paid                        (55.0)    (34.2)     (4.9)     (3.0)
Other items                            1.5      (0.3)     --         1.5
                                  --------  --------  --------  --------
Benefit obligation at end of
  year                               656.1     689.8      58.2      64.7
                                  --------  --------  --------  --------

Change in plan assets:
Fair value at beginning of year      928.2     936.1      --        --
Actual return on plan assets         117.0      63.8      --        --
Settlements                           (0.4)    (24.0)     --        --
Employer contribution                 11.8       8.5       0.3       0.1
IRC section 401(h) transfer           (4.6)     (4.1)      4.6       4.1
Exchange rate changes                 (8.6)     (6.5)     --        --
Benefits paid                        (55.0)    (34.2)     (4.9)     (4.2)
Other items                           (3.1)    (11.4)     --        --
                                  --------  --------  --------  --------
Fair value at end of year            985.3     928.2      --        --
                                  --------  --------  --------  --------

Funded status                        329.2     238.4     (58.2)    (64.7)
Unrecognized actuarial gain         (237.3)   (181.4)    (52.7)    (49.0)
Unrecognized transition (asset)       (7.6)    (12.3)      0.9      --
Unrecognized prior service
  obligation benefit                  (4.7)     (3.8)     (4.8)     (5.0)
Employer - fourth quarter              1.2       1.1      --        --
  contribution
                                  --------  --------  --------  --------
Net amount recognized             $   80.8  $   42.0  $ (114.8) $ (118.7)
                                  --------  --------  --------  --------

During 2000 and 1999, in accordance  with Internal  Revenue Code section 401(h),
we  transferred  $4.6 and $4.1,  respectively,  of excess pension assets to fund
postretirement benefits.

Amounts recognized on the balance sheet are as follows:


<PAGE>


                                 Pension Benefits    Other Benefits
                                  2000      1999     2000      1999

Other noncurrent assets        $  166.2  $  124.9  $   --    $   --
Noncurrent liabilities            (85.6)    (83.1)   (114.8)   (118.7)
Intangible assets, net              0.2       0.2      --        --
                                  -----     -----    ------    ------
Net amount recognized          $   80.8  $   42.0  $ (114.8) $ (118.7)
                                  =====     =====    ======    ======

Balances of plans with projected and accumulated  benefit  obligations in excess
of the fair value of plan assets are as follows:


<PAGE>


                                Plans with Projected         Plans with
                                Benefit Obligations      Accumulated Benefit
                                 in Excess of Plan      Obligations in Excess
                                       Assets                of Plan Assets

                                  2000     1999            2000      1999

Projected benefit obligation    $ 84.9    $ 91.9            N/A        N/A

Accumulated benefit obligation     N/A       N/A         $ 80.6     $ 85.6

Fair value of plan assets       $  2.5    $  2.8         $  1.3     $  2.8

Health Care Inflation and Cost Trend Rates

The health  care  inflation  assumption  used to  determine  the  postretirement
benefits  liability was 7.5% for 2000 and 8% for 1999,  decreasing  gradually to
5.5% by 2004 and remaining at that level thereafter.

Assumed  health care cost trend rates have a  significant  effect on the amounts
reported for postretirement benefits. A one-percentage-point increase in assumed
health  care cost  trend  rates  would  increase  the total of the  service  and
interest cost components by $0.3 and the  postretirement  benefit  obligation by
$4.6. A  one-percentage-point  decrease in assumed  health care cost trend rates
would decrease the total of the service and interest cost components by $0.3 and
the postretirement benefit obligation by $4.1.

Note 8         Employee Compensation Plans

We maintain several employee compensation plans relating to stock or stock-based
awards,  including stock options,  restricted stock, stock appreciation  rights,
phantom stock and phantom stock options.

We have  adopted the  disclosure  provisions  of SFAS No. 123,  "Accounting  for
Stock-Based  Compensation," and, as permitted by that statement,  have continued
to measure  compensation  cost as the excess of the quoted  market  price of our
stock at the grant  date over the amount  the  employee  must pay for the stock.
Since we grant  stock  options  at fair  market  value at the date of grant,  no
compensation  expense is  recognized.  Compensation  expense is recognized  with
respect to stock appreciation rights, phantom stock and phantom stock options.

SFAS No. 123 requires  disclosure of pro forma net income and earnings per share
as if the fair  value-based  method had been applied in  measuring  compensation
cost for stock-based awards granted after 1995.

We believe that 2000, 1999 and 1998 pro forma amounts are not  representative of
the effects of  stock-based  awards on future pro forma net income and  earnings
per share  because these pro forma  amounts  exclude the pro forma  compensation
expense  related to unvested  stock  options  granted  before 1996. In addition,
certain  options vest over several  years,  and awards in future years may occur
whose terms and conditions may vary.

As required by SFAS No. 123,  we have  disclosed  below the pro forma  impact of
using the fair value method to calculate  compensation  expense of stock options
and stock purchase rights granted.

                                              2000     1999      1998

Net income           As reported            $ 173.8  $ 151.9    $ 17.9
                     Pro forma              $ 162.8  $ 144.0    $ 10.5

Earnings per share   As reported - basic      $1.63    $1.40     $0.16
                     Pro forma - basic        $1.52    $1.33     $0.09
                     As reported - diluted    $1.61    $1.39     $0.16
                     Pro forma - diluted      $1.51    $1.32     $0.09

The weighted  average fair value of options  granted in 2000, 1999 and 1998 were
$11.30,  $5.91 and  $8.38,  respectively.  The  weighted  average  fair value of
options  granted in 1998 includes the value of our November grant less the value
of our October grant as of the date that the November  grant was issued (see the
discussion of the 1989 and 1994 Key Employee Long Term Incentive Plans, below).

The fair values of the options granted were estimated on the date of their grant
using the  Black-Scholes  option-pricing  model based on the following  weighted
average assumptions:

                                        2000        1999        1998

Risk-free interest rate                  6.0%        4.6%       5.5%
Expected life                         4.1 years   4.2 years   3.7 years
Expected volatility                     35.3%       30.1%      29.4%
Expected dividend yield                  0.5%        0.6%       1.0%

The following table summarizes  information  about stock options  outstanding at
June 30, 2000:

                      Options Outstanding             Options Exercisable
                            Weighted
                             Average     Weighted
    Range of                Remaining     Average                  Weighted
    Exercise      Options  Contractual   Exercise     Options       Average
     Prices       (000's)   Life (yrs.)    Price      (000's)   Exercise Price

 $16.94 - $18.97   1,843        8.22       $18.94        408        $18.93
 $21.47 - $29.53   2,539        7.33       $23.95      1,546        $24.47
 $30.00 - $39.81   2,028        9.02       $32.01         90        $38.23
 $41.31 - $48.00   3,527        4.41       $44.31      2,982        $44.23
 $50.94 - $55.13      50        4.53       $51.99         50        $51.99
                   -----
                   9,987        6.79       $31.99      5,076        $36.15
                   =====



<PAGE>


Changes in outstanding options are as follows:

                                                 Shares         Weighted
                                               Subject to       Average
(Options in thousands)                          Options      Exercise Price


Outstanding at June 30, 1997                       6,893       $   43.35
  Granted                                          4,880       $   24.76
  Exercised                                          (26)      $   20.13
  Canceled                                        (2,965)      $   32.05
                                                  ------
Outstanding at June 30, 1998                       8,782       $   36.90
  Granted                                          2,534       $   19.54
  Exercised                                         (256)      $   23.14
  Canceled                                        (1,275)      $   38.02
                                                  ------
Outstanding at June 30, 1999                       9,785       $   32.61
  Granted                                          2,055       $   31.67
  Exercised                                         (410)      $   22.10
  Canceled                                        (1,443)      $   39.03
                                                  ------
Outstanding at June 30, 2000                       9,987       $   31.99
                                                  ======
Options exercisable at June 30, 2000               5,076       $   36.15

Options available for grant at June 30, 2000       8,138


1989 and 1994 Key Employee Long Term Incentive Plans (the plans)

The plans provide that the Compensation and Nominating Committee of the Board of
Directors (the committee) may grant stock options,  stock  appreciation  rights,
restricted stock,  performance  units,  performance shares and other stock-based
awards to eligible employees.  The committee may grant awards up to a maximum of
17,300,000  underlying  shares of Class A nonvoting common stock (Class A) under
the 1994 plan.  Effective  in November  1999,  no further  awards may be granted
under the 1989 plan.  Under the plans,  options have been granted with  exercise
prices not less than the fair  market  value of our Class A stock at the time of
the grant,  with an exercise term (as determined by the committee) not to exceed
10 years.  The vesting  terms of the options (as  determined  by the  committee)
generally become exercisable over four years.

On October 9, 1997, options and stock appreciation rights related to 2.1 million
shares of Class A stock were granted to over 800 eligible  employees pursuant to
the  stock-based  plans (the October  grant).  The exercise price of the October
grant  was  $27.03  per  share,  the fair  market  value of our Class A stock at
October 9, 1997. The October grant was never distributed.

On November  18,  1997,  the October  grant was  canceled  and options and stock
appreciation rights related to 2.1 million shares of Class A stock were reissued
to eligible  employees at a price of $21.47 per share,  the fair market value of
the Class A stock at November 18, 1997 (the November grant). This reissuance was
in  connection  with  a  significant  revision  of  our  executive  compensation
structure,  involving the elimination of long-term cash performance  awards, the
reduction  of annual  cash  bonuses and  greater  reliance  on equity  incentive
awards. The other terms of the November grant were not changed from the terms of
the October grant.

Restricted  Stock - The market value of  restricted  stock awards is recorded as
unamortized  restricted  stock,  that is included in capital  stock.  Restricted
stock is amortized over the term of the restriction period. Amortization expense
of restricted  stock  amounted to $4.1,  $7.6 and $2.3 for 2000,  1999 and 1998,
respectively. In 1998, we granted 596,700 restricted Class A shares with a value
of $15.7 to over 100  employees at no cost.  During 2000,  the  restrictions  on
these shares lapsed.


<PAGE>


Performance  Shares - During  2000  and  1999,  the  committee  awarded  phantom
performance  shares that give the  recipients the right to receive cash equal to
the value of shares of Class A stock  that are  earned if  specific  performance
goals are achieved during a specific  performance  period.  The awards relate to
the 1999-2000,  1999-2001 and 2000-2002  performance  periods.  We have recorded
$9.6 and $5.9 as expense during 2000 and 1999,  respectively,  for these awards.
In  August  2000,  we  anticipate  distributing  $10.5 to the  award  recipients
relating to the 1999-2000 performance period.

1989 Employee Stock Purchase Plan (the ESPP)

Under the  ESPP,  we are  authorized  to issue up to  1,650,000  Class A shares,
principally to our full-time employees in the United States,  nearly all of whom
are eligible to participate.  Under the terms of the ESPP,  employees can choose
every six months to have up to 10% of their  annual  base  earnings  withheld to
purchase Class A shares. The purchase price of the shares is 85% of the lower of
the fair  market  values  of the Class A stock on the first and last days of the
six-month  purchase period.  In 2000,  approximately  40% of eligible  employees
participated  in the ESPP.  In the two years prior,  the  percentage of employee
participation was 50%.

In addition,  several of our  international  subsidiaries  have  employee  stock
purchase plans (international ESPP plans) under which we are authorized to issue
up to 300,000 Class A shares to our full-time  employees each year. The terms of
the  international  ESPP plans in most locations are essentially the same as the
ESPP,  and the purchase price of the shares is generally 85% of the lower of the
fair  market  values  of the  Class A stock on the  first  and last  days of the
six-month purchase period.

Under the ESPP and the  international  ESPP plans,  employees  purchased 191,928
shares in 2000, 208,752 shares in 1999, and 251,700 shares in 1998.

The  calculation  of the fair  value of these  shares  using  the  Black-Scholes
option-pricing  model assumes that options were issued to employees on the first
day of the purchase  period.  The weighted  average fair values of these assumed
options  granted  in  2000,   1999  and  1998  were  $9.13,   $6.99  and  $8.21,
respectively.

These fair values were estimated using the following assumptions:

                                    2000          1999          1998

Risk-free interest rate             5.4%           4.9%         6.5%
Expected life                     0.5 years      0.5 years    1.0 years
Expected volatility                40.7%          37.1%        34.0%
Expected dividend yield             0.5%           0.6%         3.5%


Other Compensation Plans

Employee  Ownership Plan and 401(k)  Partnership (the 401(k) plan) - The 401 (k)
plan  consists of both a profit  sharing plan and savings plan  component  under
section 401 (k) of the Internal  Revenue Code. The savings plan component allows
employees to make pre-tax  contributions to specified investment options. At the
discretion of the Board of Directors,  we can make matching contributions to the
401(k) plan. The matching contributions vest ratably over a five-year period. We
contributed  $5.6,  $3.7 and $5.0 to the  401(k)  plan for 2000,  1999 and 1998,
respectively.  Effective  July 1, 2000,  we ceased  contributions  to the profit
sharing plan portion of the 401 (k) plan.

Stock Appreciation Rights -- We granted 212,000 stock appreciation rights to key
employees in 1998. We also issued 6,000  phantom  stock options to  non-employee
members of the Board of Directors in 1998.


<PAGE>


Note 9         Income Taxes

Income before provision for income taxes is as follows:

                                   2000          1999          1998

United States                    $  128.0      $  183.1      $   8.1
International                       135.8          28.6         33.4
                                 --------      --------      -------
Income before income taxes       $  263.8      $  211.7      $  41.5
                                 ========      ========      =======

Components of the provision (benefit) for income taxes are as follows:

                                    2000         1999         1998
Current
  Federal                        $    2.9      $   39.4      $  (3.8)
  State and local                     4.5           3.7          1.1
  International                      50.2          34.5         17.4
                                 --------      --------      -------
Total current                        57.6          77.6         14.7
                                 --------      --------      -------
Deferred
  Federal                            33.3          21.3          2.2
  State and local                     3.8           1.8          1.0
  International                      (4.7)        (15.6)         5.7
                                 --------      --------      -------
 Total deferred                      32.4           7.5          8.9
                                 --------      --------      -------
Provision for income taxes       $   90.0      $   85.1      $  23.6

A reconciliation between the statutory U.S. federal income tax rate and
the effective income tax rate is as follows:

                                           2000        1999       1998

U.S. statutory tax rate                    35.0%       35.0%      35.0%
International operations                   (1.7)        1.3        2.1
State taxes, net                            2.0         1.4        1.2
Tax benefit from disposition of assets     (3.4)       --         --
Nondeductible goodwill                      1.7        --         --
Other operating items                      (0.4)        2.3       19.4
Other, net                                  0.9         0.2       (0.8)

Effective tax rate                         34.1%       40.2%      56.9%



<PAGE>


Components of deferred tax assets and liabilities are as follows:

                                                           2000          1999

Deferred compensation and other employee benefits       $   43.6      $   72.8
Accounts receivable and other allowances                    54.3          44.8
Net operating loss carryforwards                             9.7          30.9
State and local taxes                                       14.9          20.2
Other operating items                                       14.1          31.3
Other, net                                                  31.0          17.8
                                                        --------      --------
  Gross deferred tax assets                                167.6         217.8
Valuation allowance (1)                                     (9.5)        (23.5)
                                                        --------      --------
  Total net assets                                         158.1         194.3
                                                        --------      --------
Deferred compensation and other employee benefits            7.4           6.9
Unrealized gain on investments                              56.0          --
Other, net                                                  12.4          20.1
                                                        --------      --------
  Total net liabilities                                     75.8          27.0
                                                        --------      --------
Net deferred taxes                                      $   82.3      $  167.3
                                                        ========      ========

(1) The reduction in the valuation  allowance  from $(23.5) in 1999 to $(9.5) in
  2000 was primarily due to the closing or sale of several operations.  In 1999,
  we provided a valuation  allowance  for all of the deferred tax assets held by
  these operations.

Balance  sheet  classifications  of deferred tax assets and  liabilities  are as
follows:

                                               2000      1999

Prepaid expenses and other current assets     $ 69.5    $ 83.4
Other noncurrent assets                         22.8     110.9
Other current liabilities                        1.9       3.7
Other noncurrent liabilities                     8.1      23.3
                                              ------   -------
Net deferred taxes                            $ 82.3    $167.3
                                              ======   =======


We have  concluded  that it is more  likely  than not that the results of future
operations will generate  sufficient  taxable income to realize the net deferred
tax assets.

Net  operating  loss  carryforwards  of $39.9 at June 30, 2000,  the majority of
which may be carried  forward  indefinitely,  are available to reduce future tax
obligations of certain foreign subsidiaries in a number of jurisdictions.

Deferred federal income taxes have not been provided on  undistributed  earnings
of foreign  subsidiaries  as any federal taxes  payable  would be  substantially
offset by foreign tax credits.

Note 10     Debt

Competitive Advance and Revolving Credit Facility Agreement (the Credit
Agreement)

We are a party to a Competitive  Advance and Revolving Credit Facility Agreement
(the Credit  Agreement) that provides for borrowings of up to $300.0 and expires
on October 31, 2001.  The Credit  Agreement was amended as of September 2, 1999.
Prior to the amendment,  the Credit Agreement  included a covenant to maintain a
minimum  level of  consolidated  tangible  net  worth.  The  amendment  provides
borrowing  flexibility  by replacing  this covenant  with  covenants to maintain
minimum  levels of  consolidated  assets  and net  worth and a maximum  level of
leverage.

Interest rates are based on several pricing options that can vary based upon our
operating  results.  The  proceeds  of the  borrowings  may be used for  general
corporate  purposes,  including  acquisitions,  share repurchases and commercial
paper backup. The Credit Agreement contains certain  restrictions on our ability
to incur  debt,  create  liens and  guarantee  indebtedness.  Borrowings  may be
denominated in U.S. dollars and various foreign currencies.

The Credit  Agreement  obligates  us to pay a facility  fee that is dependent on
levels of earnings and is paid  regardless  of use.  Fees range between 0.2% and
0.375% of the total  commitment.  Also,  we must pay  administrative  fees and a
utilization fee of 0.05% of the loans  outstanding when borrowings exceed 50% of
the committed amount. Fees are payable quarterly in arrears.

At June 30, 2000, we had short-term  borrowings of $87.0  outstanding  under the
Credit  Agreement and we were in compliance  with all covenants.  This amount is
included in loans and notes payable on the balance sheet.  The weighted  average
interest rate in 2000 for these  borrowings was 7.3%. The carrying amount of the
borrowings  approximated  fair value at June 30, 2000.  At June 30, 1999,  there
were no borrowings outstanding under the Credit Agreement.

Lines of Credit

International  lines of credit  totaled $43.1 at June 30, 2000 and $60.0 at June
30, 1999, of which no amounts were outstanding.  These lines of credit expire at
various dates throughout 2001.


<PAGE>


Note 11        Capital Stock

Capital stock and treasury stock consist of the following:

                                                       2000      1999
First preferred stock,
  par value $1.00 per share;
  authorized 40,000 shares;
  issued and outstanding 29,720 shares             $    3.0     $   3.0
Second preferred stock,
  par value $1.00 per share;
  authorized 120,000 shares;
  issued and outstanding 103,720 shares                10.3        10.3
Third subordinated preferred stock,
  par value $1.00 per share;
  authorized 230,000 shares;
  issued and outstanding 155,022 shares                15.5        15.5
Preference stock,
  par value $0.01 per share;
  authorized 25,000,000 shares;
  issued and outstanding none                            --          --
                                                   --------     --------
Total preferred stock                                  28.8        28.8
                                                   --------     --------

Class A nonvoting common stock,
  par value $0.01 per share;
  authorized 200,000,000 shares;
  issued 119,428,472 shares                             1.2          1.2
Class B voting common stock,
  par value $0.01 per share;
  authorized 25,000,000 shares;
  issued 21,716,057 shares                              0.2          0.2
                                                   --------     --------

Total common stock                                      1.4          1.4

Unamortized restricted stock                           (1.3)        (5.4)
                                                   --------     --------
Total capital stock                                $   28.9     $   24.8
                                                   ========     ========

Common stock in treasury, at cost
  Class A shares:  28,961,039 in 2000 and
    33,511,640 in 1999                             $ (720.4)    $ (688.3)
  Class B shares:  9,283,893 in 2000                 (164.9)          --
                                                   --------     --------
Total common stock in treasury, at cost            $ (885.3)    $ (688.3)
                                                   ========     ========


All shares of preferred  stock have a preference in  liquidation  of $100.00 per
share. The difference between the aggregate par value and liquidation preference
has been  appropriated  from retained earnings and is shown as part of the value
of  preferred  stock.  At our option  and at any time,  all  preferred  stock is
redeemable at $105.00 per share plus accrued  dividends.  The terms of the first
preferred  stock and the second  preferred  stock provide for annual  cumulative
dividends  of $4.00 per  share.  The terms of the third  subordinated  preferred
stock provide for annual cumulative dividends of $5.00 per share.


<PAGE>


Share Exchange

In September 1999, we executed a share exchange with the DeWitt Wallace-Reader's
Digest Fund and the Lila  Wallace-Reader's  Digest Fund (the  Funds).  Under the
terms of the exchange,  the Funds exchanged  approximately 9.3 million shares of
Class B voting common stock (Class B) for  approximately  8.0 million  shares of
Class A stock,  at an  exchange  ratio of 0.865  Class A shares for each Class B
share. As a result, we exchanged Class A treasury shares at a cost of $164.9 and
a market value of $239.9,  for Class B shares,  resulting in additional  paid-in
capital of $75.0.

Share Repurchase Authorization

In January  2000,  we announced  authorization  to  repurchase up to 5.0 million
shares or about 5 percent of our outstanding Class A stock. As of June 30, 2000,
we had purchased approximately 4.0 million shares totaling $133.5.

Note 12        Commitments and Contingencies

General Litigation

We are a defendant  in  lawsuits  and claims  arising in the  regular  course of
business.  Based on the  opinions of  management  and  counsel on such  matters,
recoveries,  if any, by plaintiffs and claimants would not significantly  affect
our financial position or our results of operations.

Supply and Service Agreements

We maintain several long-term agreements with vendors primarily for the purchase
of paper, printing and fulfillment services.  These agreements expire at various
times through 2007.

Sale and Leaseback

During 1999, we sold and leased back a portion of our operating  facility in the
United Kingdom.  The gain is being  amortized on a straight-line  basis over the
term of the lease as a reduction in lease expense.

Lease Obligations

We  occupy  certain  facilities  under  lease  arrangements  and  lease  certain
equipment.

Rental expense and sublease income are as follows:

                                      2000       1999       1998

Rental expense                       $ 20.6     $ 18.5     $ 25.6
Sublease income                        (1.6)      (0.9)      (6.0)
                                     ------     ------     ------
Net rental expense                   $ 19.0     $ 17.6     $ 19.6
                                     ======     ======     ======



<PAGE>


Future minimum rental  commitments,  net of sublease income,  for  noncancelable
operating leases are as follows:

                         Minimum        Minimum
                          Rental        Sublease
                         Payments         Income            Net

2001                      $ 16.0         $ (2.4)          $ 13.6
2002                      $ 14.7         $ (2.4)          $ 12.3
2003                      $ 13.9         $ (2.5)          $ 11.4
2004                      $ 12.1         $ (2.5)          $  9.6
2005                      $ 12.1         $ (2.5)          $  9.6
Later years               $ 98.6         $ (9.5)          $ 89.1


Note 13        Segments

As of June 30, 1999, we adopted SFAS No. 131,  "Disclosures  about Segments of a
Business Enterprise and Related  Information,"  which establishes  standards for
reporting  information  about our  operating  segments.  Operating  segments are
defined as components of our business about which separate financial information
is evaluated regularly by our chief operating decision maker to determine how to
allocate resources and assess performance.

In the first quarter of 2000, we modified our segment  reporting  information to
conform to our present  method of internal  reporting.  We have  incorporated  a
fourth operating segment labeled Other Businesses, which includes the activities
of  gifts.com,  Inc.  (including  Good  Catalog  Company),   financial  services
alliances, and other developing businesses. Our operating segments are currently
Global Books and Home Entertainment, U.S. Magazines, International Magazines and
Other Businesses.

Reportable  segments  are based on our  method of  internal  reporting  and each
operating segment is a strategic business unit that is managed separately. Prior
period  revenue and  operating  profit (loss)  information  has been restated to
present our four reportable  segments.  Accounting  policies of our segments are
the same as those  described in Note 1. In addition,  we allocate all  corporate
administrative costs to operating segments.

We evaluate  performance and allocate  resources based on operating  income from
continuing  operations  excluding other operating items.  Identifiable assets by
segment  are those  assets  that are used in the  operations  of that  business.
Corporate assets consist primarily of cash and cash equivalents, certain prepaid
expenses,  marketable  securities  and certain other current  assets.  Sales are
attributed  to  countries  based on  selling  location.  Long-lived  assets  are
principally composed of property,  plant and equipment,  net; intangible assets,
net; and prepaid pension benefits.

Operating Segments

Global  Books and Home  Entertainment  publishes  and markets  Select  Editions,
series and general books,  as well as music and video  products,  which are sold
primarily through direct  marketing.  Global Books and Home  Entertainment  also
sells books and gift items by display marketing  products on-site at schools and
businesses through BAF, which was acquired in October 1999.

U.S.  Magazines  publishes Reader's Digest magazine and several special interest
magazines in the United  States.  These  magazines  are sold  primarily  through
direct  marketing.  In addition,  U.S.  Magazines  sells its magazines and other
magazines and products through youth fundraising campaigns of QSP, Inc.

International  Magazines publishes Reader's Digest magazine in numerous editions
and  languages  outside the United  States as well as several  special  interest
magazines in certain international  markets.  These magazines are sold primarily
through direct marketing.

Other Businesses  consists of the activities of gifts.com,  Inc. (including Good
Catalog Company), financial services alliances and other developing businesses.

Operating Segment Financial Information

                                                   Years ended June 30,
                                               2000        1999        1998
Revenues
   Global Books and Home Entertainment      $ 1,561.8   $ 1,517.9   $ 1,676.5
   U.S. Magazines                               651.1       674.3       667.3
   International Magazines                      295.7       313.3       343.7
   Other Businesses                              45.1        26.7         3.7
                                            ---------   ---------   ---------
Total revenues                              $ 2,553.7   $ 2,532.2   $ 2,691.2
                                            =========   =========   =========

Operating profit (loss)
   Global Books and Home Entertainment      $   209.8   $    84.4   $    58.3
   U.S. Magazines                                91.7       105.8        67.1
   International Magazines                        1.4       (18.5)      (16.8)
   Other Businesses                             (45.7)       (4.7)       (8.4)
                                            ---------   ---------   ---------
Segment operating profit                        257.2       167.0       100.2
Other operating items                            (3.4)      (37.9)      (70.0)
                                            ---------   ---------   ---------
Total operating profit                      $   253.8   $   129.1   $    30.2
                                            =========   =========   =========

Identifiable assets
   Global Books and Home Entertainment      $   904.0   $   663.4   $   875.1
   U.S. Magazines                               146.4       299.2       340.4
   International Magazines                      168.9       156.5       164.3
   Other Businesses                              22.1        20.9        --
   Corporate                                    517.4       476.5       121.9
                                            ---------   ---------   ---------
Total identifiable assets                   $ 1,758.8   $ 1,616.5   $ 1,501.7
                                            =========   =========   =========

Depreciation, amortization and asset
  impairments
   Global Books and Home Entertainment      $    32.1   $    24.2   $    29.3
   U.S. Magazines                                13.3        15.6         8.4
   International Magazines                        4.5        10.5         5.4
   Other Businesses                               0.5         0.3        --
   Corporate                                      0.8        15.9         3.1
                                            ---------   ---------   ---------
Total depreciation, amortization and
  asset impairments                         $    51.2   $    66.5   $    46.2
                                            =========   =========   =========



<PAGE>



                                              Years ended June 30,
                                            2000      1999      1998
Capital expenditures
   Global Books and Home Entertainment     $ 16.7     $ 9.6    $ 20.9
   U.S. Magazines                             9.9       8.6       6.1
   International Magazines                    2.8       4.8       4.3
   Other Businesses                           0.6       1.6        --
   Corporate                                  4.3       1.7       2.8
                                           ------    ------    ------
Total capital expenditures                 $ 34.3    $ 26.3    $ 34.1
                                           ======    ======    ======

Information about geographic areas is as follows:

                                              Years ended June 30,
                                       2000         1999          1998

Revenues
   United States                   $  1,289.8    $  1,159.0    $  1,238.9
   International                      1,269.5       1,378.3       1,459.4
   Inter-area                            (5.6)         (5.1)         (7.1)
                                   ----------    ----------    ----------
Total revenues                     $  2,553.7    $  2,532.2    $  2,691.2
                                   ==========    ==========    ==========

Revenues inter-area
   United States                   $      1.9    $      1.5    $      2.7
   International                          3.7           3.6           4.4
                                   ----------    ----------    ----------
Total revenues inter-area          $      5.6    $      5.1    $      7.1
                                   ==========    ==========    ==========

Long-lived assets
   United States                   $    665.3    $    282.6    $    204.5
   International                         80.5         136.7         263.2
                                   ----------    ----------    ----------
Total long-lived assets            $    745.8    $    419.3    $    467.7
                                   ==========    ==========    ==========




<PAGE>





Independent Auditors' Report

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

We have audited the  accompanying  consolidated  balance  sheets of The Reader's
Digest Association,  Inc. and subsidiaries as of June 30, 2000 and 1999, and the
related consolidated  statements of income, changes in stockholders' equity, and
cash flows for each of the years in the  three-year  period ended June 30, 2000.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of The Reader's Digest
Association, Inc. and subsidiaries at June 30, 2000 and 1999, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 2000, in conformity with accounting  principles  generally
accepted in the United States of America.

As discussed in Note 7 to the Consolidated  Financial  Statements,  for the year
ended  June 30,  1999,  the  Company  changed  its method  for  calculating  the
market-related value of pension plan assets used in the determination of pension
expense.

KPMG LLP

New York, New York
August 15, 2000

Report of Management

We have  prepared  the  accompanying  financial  statements  and  other  related
financial  information  contained  in this  Annual  Report  in  conformity  with
generally  accepted  accounting  principles,   applying  certain  estimates  and
judgments as required.

We  maintain  a system of  internal  accounting  controls  designed  to  provide
reasonable  assurance,  at reasonable  cost,  that  transactions  and events are
recorded  properly and that assets are safeguarded.  Our internal control system
is supported by written  policies and procedures  and by the careful  selection,
training,  and  supervision  of  qualified  personnel,  and is  monitored  by an
internal audit function.

Our financial statements have been audited by KPMG LLP, independent auditors, as
stated in their report, which is presented herein.

The Audit  Committee of the Board of  Directors,  composed only of directors who
are not employed by us, meets  periodically  with management,  internal auditors
and the independent auditors to review accounting, auditing, financial reporting
and other related matters.  The internal auditors and independent  auditors have
full and unrestricted access to the Audit Committee.

/s/THOMAS O. RYDER               /s/GEORGE S. SCIMONE
Chairman of the Board and        Senior Vice President and
Chief Executive Officer          Chief Financial Officer





<PAGE>


Selected Financial Data


<PAGE>


<TABLE>
<CAPTION>
In millions, except per share data                      2000(2)         1999(3)        1998(4)       1997(5)       1996(6)
Income Statement Data
<S>                                                   <C>            <C>            <C>           <C>           <C>
Revenues                                              $    2,553.7   $    2,532.2   $   2,691.2   $   2,896.5   $   3,153.2
EBITDA as adjusted (1)                                $      307.0   $      204.2   $     160.1   $     287.6   $     402.3
Operating profit                                      $      253.8   $      129.1   $      30.2   $     192.8   $     109.3
Net income                                            $      173.8   $      151.9   $      17.9   $     133.5   $      80.6
Basic and diluted earnings per share                  $ 1.63/$1.61   $ 1.40/$1.39         $0.16         $1.24         $0.73
Dividends per common share                                  $0.200         $0.375         $0.90         $1.80         $1.75
Balance Sheet Data
Cash and cash equivalents, short-term investments
  and marketable securities                           $      228.6   $      437.2   $     126.1   $     102.4   $     374.2
Total assets                                          $    1,758.8   $    1,616.5   $   1,501.7   $   1,615.8   $   1,878.7
Stockholders' equity                                  $      504.3   $      381.5   $     258.6   $     346.0   $     478.9
Weighted-average common shares outstanding (basic
  and diluted)                                         106.0/107.0    107.3/108.0         106.5         106.7         107.9
Book value per common share                                  $4.90          $3.28         $2.14         $2.98         $4.18
</TABLE>


  (1) Earnings before interest, taxes, depreciation and amortization (EBITDA)
    excludes these items as well as items  affecting the comparability of
    reported results (other operating items for the respective years; in 2000,
    a loss on the sale of certain  assets in Italy of $2.7, a write-off of an
    investment of $4.0 and a gain on the sale of American Health magazine of
    $6.5; and in 1999, a net gain on the sales of certain assets and
    businesses of $82.4).

  (2) Results  for 2000  include  the net effect of third  quarter  charges  and
    fourth quarter adjustments (aggregate pre-tax charges of $3.4).

  (3) Results  for 1999  include  the net effect of second  and  fourth  quarter
    charges (aggregate pre-tax charges of $37.9).

  (4) Results for 1998 include the effect of first  quarter  charges  (aggregate
    pre-tax charges of $70.0).

  (5) Results for 1997 include the effect of fourth quarter  charges  (aggregate
    pre-tax charges of $35.0).

  (6) Results for 1996 include the effects of third quarter  charges  (aggregate
    pre-tax charges of $245.0) and fourth quarter savings on the finalization of
    our lease  termination  program in the United  Kingdom  (pre-tax  benefit of
    $10.0).

Selected Quarterly Financial Data and Dividend and Market Information
   (Unaudited)

<TABLE>
<CAPTION>

 In millions, except                           Per Share
   per share data                              Dividends           Net Income                        Stock Price Range
   and shareholder                  Operating     Per               Per Share                          High - Low
   information            Revenues    Profit    Share(1)    Amount    Basic     Diluted       Class A              Class B

2000
<S>                       <C>        <C>         <C>        <C>       <C>        <C>       <C>      <C>         <C>      <C>
   First Quarter          $  519.2   $ 38.8      $0.050     $ 28.6    $0.26      $0.26     $42.50 - $28.75      $39.13 - $26.25
   Second Quarter            844.0    146.2       0.050       96.8     0.91       0.90     $33.50 - $26.75      $30.13 - $24.50
   Third Quarter(2)          620.4     31.1       0.050       25.1     0.23       0.23     $39.63 - $28.38      $35.75 - $25.25
   Fourth Quarter(2)         570.1     37.7       0.050       23.3     0.22       0.22     $41.13 - $29.69      $37.75 - $26.00
                          --------   ------      ------     ------    -----      -----     ------   ------      ------   ------
                          $2,553.7   $253.8      $0.200     $173.8    $1.63      $1.61     $42.50 - $26.75      $39.13 - $24.50
                          ========   ======      ======     ======    =====      =====     ======   ======      ======   ======
 1999
   First Quarter          $  579.7   $ 16.6      $0.225      $27.8    $0.26     $ 0.26     $29.00 - $17.00      $29.25 - $18.44
   Second Quarter(3)         817.0     67.9       0.050       86.5     0.80       0.80     $26.13 - $16.25      $25.38 - $16.00
   Third Quarter             605.0     34.3       0.050       25.0     0.23       0.23     $36.25 - $24.75      $33.38 - $23.75
   Fourth Quarter(3)         530.5     10.3       0.050       12.6     0.11       0.11     $40.94 - $28.13      $38.00 - $25.50
                          --------   ------      ------     ------    -----      -----     ------   ------      ------   ------
                          $2,532.2   $129.1      $0.375    $ 151.9    $1.40      $1.39     $40.94 - $16.25      $38.00 - $16.00
                          ========   ======      ======    =======    =====      =====     ======   ======      ======   ======
</TABLE>

Our Class A and Class B stock are  listed on the New York Stock  Exchange  under
the  symbols  RDA  and  RDB,  respectively.  As of June  30,  2000,  there  were
approximately  1,838  holders of record of our Class A stock and 217  holders of
record of our Class B stock.

   (1) Cash  dividends  on common  stock are  declared  and paid share and share
     alike on Class A and Class B stock.

   (2) Results for 2000 include the net effect of third quarter  pre-tax charges
     of $9.3 and fourth quarter pre-tax adjustments of $(5.9).

   (3)Results for 1999 include the net effect of second quarter  pre-tax charges
     of $31.0 and fourth quarter pre-tax charges of $6.9.