SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

    For the fiscal year ended June 30, 2001 Commission file number: 1-10434

                      The Reader's Digest Association, Inc.
             (Exact name of registrant as specified in its charter)

                        Delaware                     13-1726769
             (State or other jurisdiction of       (I.R.S. Employer
             incorporation or organization)        Identification No.)
                 Pleasantville, New York                10570
        (Address of principal executive offices)     (Zip Code)

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

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

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

            Class B Voting Common Stock       New York Stock Exchange
             par value $.01 per share

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

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

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

The aggregate market value of registrant's voting stock held by non-affiliates
of registrant, at September 13, 2001, was approximately $101,131,000, based on
the closing price of registrant's Class B Voting Stock on the New York Stock
Exchange--Composite Transactions on such date.

At September 13, 2001, 90,245,112 shares of the registrant's Class A Nonvoting
Common Stock and 12,432,164 shares of the registrant's Class B Voting Common
Stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Annual Report to Stockholders of The Reader's Digest Association, Inc. for
the fiscal year ended June 30, 2001.  Certain information therein is
incorporated by reference into Part I and Part II hereof.

Proxy Statement for the Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. to be held on November 9, 2001.  Certain information
therein is incorporated by reference into Part III hereof.



<PAGE>



                                TABLE OF CONTENTS

                                                                           Page
PART I

    ITEM 1. BUSINESS....................................................     1
      Strategic Initiatives.............................................     1
      Operating Segments................................................     1
      Books and Home Entertainment......................................     2
         Select Editions................................................     2
         Series Books...................................................     2
         General Books..................................................     3
         Music..........................................................     3
         Video..........................................................     3
         Books Are Fun, Ltd.............................................     4
         Reader's Digest Young Families and Reader's Digest Children's
          Publishing....................................................     4
         Production and Fulfillment.....................................     5
      Reader's Digest Magazine and Special Interest Magazines...........     5
         Circulation and Advertising....................................     6
         QSP............................................................     7
         rd.com.........................................................     8
         Editorial......................................................     8
         Production and Fulfillment.....................................     8
      New Business Development..........................................     9
         Strategy.......................................................     9
         Financial Services Marketing...................................     9
         Financial Publishing...........................................    10
         Health Services Marketing......................................    10
         Other Direct Marketing Services................................    10
         International Expansion of U.S.-Based Businesses...............    10
         gifts.com and Good Catalog.....................................    10
      Marketing.........................................................    11
      Information Technology and Customer Database Enhancement..........    12
      Competition and Trademarks........................................    12
      Employees.........................................................    13
      Executive Officers................................................    13

    ITEM 2. PROPERTIES..................................................    15

    ITEM 3. LEGAL PROCEEDINGS...........................................    16

    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........    16


PART II

    ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.........................................    16

    ITEM 6. SELECTED FINANCIAL DATA.....................................    16

    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATION..........................    16


<PAGE>


                                TABLE OF CONTENTS
                                   (Continued)

                                                                           Page

    ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
            MARKET RISK.................................................    18

    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................    18

    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL DISCLOSURE......................    18


PART III

    ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........    18

    ITEM 11.EXECUTIVE COMPENSATION......................................    18

    ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT..............................................    18

    ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............    19


PART IV

    ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
            ON FORM 8-K.................................................    20

    SIGNATURES..........................................................    23

    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..........................    24









   Unless the context otherwise requires, references in this Annual Report on
    Form 10-K to "Reader's Digest," "we," "us" and "our" are to The Reader's
                 Digest Association, Inc. and its subsidiaries.


       "Reader's Digest" and the Pegasus logo are registered trademarks of
                      The Reader's Digest Association, Inc.


<PAGE>



                                     PART I
ITEM 1.  BUSINESS

      We are a preeminent global leader in publishing and direct marketing, and
we create and deliver products that inform, enrich, entertain and inspire,
including magazines, books, recorded music collections, and home videos.

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

      We are best known for publishing our flagship Reader's Digest magazine.
DeWitt and Lila Acheson Wallace founded Reader's Digest magazine in 1922. Today,
Reader's Digest has a worldwide circulation of about 23 million and over 100
million readers each month. Reader's Digest is published in 48 editions and 19
languages.


Strategic Initiatives

      The key elements of our long-term growth strategy include:

        -   expanding our presence in five areas of intense consumer
            interest--health, home, family, finance and faith;

        -   selling non-publishing products and services in those areas;

        -   continuing our geographic expansion;

        -   developing new marketing channels;

        -   broadening our customer base to include more younger customers,
            starting with family formation, and producing more products for
            older customers, focusing on the growing 50+ age demographic; and

        -   integrating the Internet into all of our businesses.

To implement this strategy, we expect to invest in internal growth opportunities
in our core businesses. We also expect to make acquisitions and form alliances
that leverage our core strengths.


Operating Segments

      During the fourth quarter of fiscal 2001, we modified our reporting
segments to reflect our new internal management organization.  Our reporting
segments are:  North America Books and Home Entertainment, U.S. Magazines,
International Businesses, and New Business Development.

      North America Books and Home Entertainment publishes and markets,
primarily through direct marketing, Books and Home Entertainment products in the
United States and Canada. In addition, North America Books and Home
Entertainment includes the publication and marketing of Reader's Digest magazine
in Canada and the sale of this magazine and other magazines and products through
youth fundraising campaigns of Quality Service Programs, Inc. in Canada. North
America 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.
In addition, North America Books and Home Entertainment manages some of our
alliances, including those relating to vitamin marketing and health publishing
in the United States.


<PAGE>


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

      International Businesses operates outside of the United States and Canada.
This segment publishes and markets, primarily through direct marketing, Books
and Home Entertainment products, Reader's Digest magazine in numerous editions
and languages, and special interest magazines outside of the United States and
Canada.

      New Business Development comprises the activities of Gifts.com, Inc.
(including Good Catalog Company), financial services alliances, certain special
interest magazines in international markets and other developing businesses.

      Financial information about each of our reporting segments is included in
Note 13 to our consolidated financial statements, which are incorporated by
reference into this report.


Books and Home Entertainment

      Our Books and Home Entertainment products consist of Reader's Digest
Select Editions, series books, general books, recorded music collections and
series, home video products and series, and Reader's Digest Young Families and
Reader's Digest Children's Publishing products. We market these products
principally by direct mail through our North America Books and Home
Entertainment and International Businesses reporting segments. North America
Books and Home Entertainment also sells books and gift items by display
marketing products on-site at schools and businesses through Books Are Fun. For
more information about how we market our Books and Home Entertainment products,
please refer to the section of this report captioned "Marketing."


   Select Editions

      Reader's Digest Select Editions, which were formerly called "Condensed
Books" in many markets, are a continuing series of condensed versions of current
popular fiction. A condensed work reduces the length of an existing text, while
retaining the author's style, integrity and purpose. Today, we publish Select
Editions in 15 languages, and market them in the United States, Canada and 28
other countries. We generally publish six volumes of Select Editions a year.
Some of our international subsidiaries publish four or five volumes a year.
Select Editions generated revenues for North America Books and Home
Entertainment of $97.7 million in fiscal 2001, $102.5 million in fiscal 2000 and
$99.6 million in fiscal 1999.

      International editions of Select Editions generally include some material
from the U.S. edition or from other international editions, translated and
edited as appropriate. International editions also include some condensed
versions of locally published works. Each local editorial staff determines
whether existing Select Editions selections are appropriate for their local
market. Select Editions generated revenues for International Businesses of
$161.0 million in fiscal 2001, $163.5 million in fiscal 2000 and $154.4 million
in fiscal 1999.


   Series Books

      We market two types of series books--reading series and illustrated
series. These book series may be either open-ended and continuing or
closed-ended, consisting of a limited number of volumes. We publish reading
series books in four languages and market them in the United States, Canada and
nine other countries. Our reading series include The World's Best Reading, which
consists of full-length editions of classic works of literature. We publish six
or seven volumes of The World's Best Reading each year in the United States,
Canada and four other countries and in two languages. We publish illustrated
series, which are generally closed-ended, in eight languages and market them in
the United States, Canada and 14 other countries. Series books generated
revenues for North America Books and Home Entertainment of $30.1 million in
fiscal 2001, $28.8 million in fiscal 2000 and $29.2 million in fiscal 1999.
Series books generated revenues for International Businesses of $96.8 million in
fiscal 2001, $92.7 million in fiscal 2000 and $96.3 million in fiscal 1999.


   General Books

      Our general books consist primarily of reference books, cookbooks,
"how-to" and "do-it-yourself" books and children's books, some of which we
publish in series. We also publish books on subjects such as history, travel,
religion, health, nature and the home. We publish general books in 19 languages
and market them in the United States, Canada and 35 other countries. General
books generated revenues for North America Books and Home Entertainment of $85.4
million in fiscal 2001, $103.7 million in fiscal 2000 and $148.2 million in
fiscal 1999. General books generated revenues for International Businesses of
$330.8 million in fiscal 2001, $340.3 million in fiscal 2000 and $359.2 million
in fiscal 1999.

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

      We sell most copies of a general book through initial bulk promotional
mailings. We also sell substantial additional copies through subsequent
promotions, through catalog sales and through the use of sales inserts in
mailings for other Reader's Digest products. We also distribute our general
books for retail sale in stores through independent distributors.


   Music

      Our music collections, released on compact discs and cassettes in the
United States, Canada and 29 other countries, span a broad range of musical
styles, ranging from classical to pop, and from jazz to local folk. We offer
both international and local repertoires, which reflect our customers' taste and
expectations. In most markets, we also sell music series, in various musical
genres. Music products generated revenues for North America Books and Home
Entertainment of $79.9 million in fiscal 2001, $80.4 million in fiscal 2000 and
$105.2 million in fiscal 1999. Music products generated revenues for
International Businesses of $186.4 million in fiscal 2001, $197.1 million in
fiscal 2000 and $240.4 million in fiscal 1999.

      We license existing recordings from major record companies and sponsor our
own recordings with the world's most renowned orchestras and with international
and local artists. Our music vault now consists of approximately 20,000
selections, which are used in our music collections around the world. We also
license our selections to third parties for retail sales or for movie
synchronization. Our focus in recent years has been acquiring more rights to
master recordings.

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


   Video

      Our single sales home video products and series reflect the core interests
of our global customers--travel, natural history, history, science, and emerging
areas of interest---health and computers. We market video products through
direct response channels in the United States, Canada and 22 other countries. In
some countries, we also sell our home video products through retail outlets.
While we are pursuing continued growth in our more established markets, we are
supporting the dynamic potential of video operations in Latin America and
Eastern Europe. Home video products generated for North America Books and Home
Entertainment of $56.1 million in fiscal 2001, $77.5 million in fiscal 2000 and
$96.6 million in fiscal 1999. Home video products generated revenues for
International Businesses of $79.5 million in fiscal 2001, $81.4 million in
fiscal 2000 and $96.4 million in fiscal 1999.

      We are working with award-winning production companies in the United
States, Europe and Australia to create original programs with very high
editorial and production standards--programs that will stand out in a
competitive marketplace. Several original programs have won awards of
excellence, including five Emmy awards and, in 2001, four Crystal Awards of
Excellence and a Cine Golden Eagle Award. In May 1999, Reader's Digest entered
into a multi-year agreement with CBS Productions to develop television movies
and mini-series based on the personal dramas chronicled in Reader's Digest; four
scripts are currently in production. Most of our original documentary programs
have been licensed to broadcasters worldwide through a major international
distributor. We are keeping pace with new technological developments--including
creating a Global Video Digital Library--that will allow us to deliver even
better quality, multi-dimensional programs to our customers.


   Books Are Fun, Ltd.

      Books Are Fun, Ltd., a wholly owned subsidiary of Reader's Digest, sells
premium-quality books and gift items at discount prices by display marketing
those products on-site at schools and businesses in all 50 states of the United
States and across Canada using book fairs and similar displays. Books Are Fun's
book categories include best-selling novels, cookbooks, children's books,
education, sports, hobby, nature, travel and self-help titles. Non-book
categories include music, videos and gift items, such as jewelry and art. Books
Are Fun's products are sold through approximately 800 independent sales agents.
Books Are Fun serves approximately 60,000 schools, 12,000 large corporations and
institutions, 9,000 day-care centers and 20,000 small businesses. Since many
individuals purchase Books Are Fun products for gift giving, Books Are Fun's
sales cycle is largely seasonal, reflecting substantial volume in the second
quarter of the fiscal year.

      Books Are Fun purchases book titles from over 250 of the world's leading
publishers. Many of its top titles are purchased in quantities exceeding 100,000
copies on a non-returnable basis, affording Books Are Fun substantial purchasing
power. Books Are Fun purchases gift and other products from a variety of
suppliers. All products are test-marketed by the purchase of a modest number of
units in advance of a large commitment. Books Are Fun uses an extensive network
of independent public warehousing facilities and carriers to store and transport
product.


   Reader's Digest Young Families and Reader's Digest Children's Publishing

      Our Reader's Digest Young Families subsidiary sells products for children
up to age 8, primarily through direct mail and telemarketing. The division's
products include interactive books, such as Sesame Street ABCs and Elmo's
Neighborhood, and videos, such as The Country Mouse and the City Mouse. Young
Families currently sells it products principally in the United States. Our
Reader's Digest Children's Publishing subsidiary produces books, games and other
products under the Reader's Digest Children's Publishing imprint for children up
to age 12 for retail sale as well as direct marketing through Reader's Digest
(mail, telemarketing, display marketing, company catalogs, etc.) and other
channels, including the Internet. The products represent popular brands such as
Barbie, Disney (Winnie the Pooh and classic Disney characters), Hasbro (Tonka
and Play-Doh), and Fisher-Price (Little People). The products, which have been
translated into 28 languages, are marketed in the United States, Canada, Europe,
South America, Australia and Asia.



<PAGE>


   Production and Fulfillment

      We hire independent contractors to print and bind the various editions of
Select Editions. We have an exclusive agreement with a printing company for
printing English-language Select Editions distributed in the United States and
Canada. That agreement expires in 2005. Substantially all other U.S. book
products produced by Reader's Digest are printed by a single independent
contractor. We usually hire independent contractors to produce and manufacture
our music and video products.

      Paper is the principal raw material necessary for production of our Select
Editions, series books and general books. We have an exclusive agreement with a
major supplier to supply paper for Select Editions. The agreement expires in
2002. We purchase paper for series books and general books for each printing. We
believe that our existing contractual arrangements and other available sources
of paper provide us with an adequate supply of paper at competitive prices. We
use independent contractors to arrange for us to acquire some of the necessary
raw materials to manufacture music and video products.

      We hire independent contractors to handle our fulfillment, warehousing,
customer service and payment processing. We have an agreement with a single
independent contractor to handle fulfillment and payment processing for our
North America Books and Home Entertainment and U.S. Magazines operations. That
agreement expires in 2006. The printers or suppliers of our products generally
package and deliver those products directly to the postal service. For
information about postal rates and postal services, please refer to the section
of this report captioned "Marketing."

      It is our direct marketing policy that a customer may return any book or
home entertainment product to us for a refund, either before or after payment.
We believe that our returned goods policy is essential to our reputation and
that it elicits a greater number of orders. Many of those orders are not
returned because a high number of consumers are satisfied with our products.

      Sales of Books and Home Entertainment products are seasonal. In the direct
marketing industry as a whole, more consumers respond in the fall and winter
months than during the rest of the year. Also, sales are typically higher during
the pre-Christmas season than in spring and summer.


Reader's Digest Magazine and Special Interest Magazines

      Reader's Digest magazine is a monthly, general interest magazine
consisting of original articles, previously published articles in condensed
form, and a condensed version of a previously published or soon-to-be published
full-length book. Reader's Digest also contains monthly humor columns such as
"Laughter, The Best Medicine(R)," "Life's Like That(R)," "That's
Outrageous!(R)," and "All In A Day's Work(R)," and other regular features,
including "Quotable Quotes(R)," "Word Power(R)," "Virtual Hilarity(R)," and
"Personal Glimpses(R)." The international editions of Reader's Digest include
similar features.

      We publish Reader's Digest in the United States and Canada and in 45
editions and 19 languages outside the United States and Canada. We license
independent contractors to publish Reader's Digest in India, Italy, Korea, South
Africa and Turkey. These magazines are sold primarily through direct marketing.
In addition, we sell Reader's Digest and other magazines and products in the
United States and in Canada through youth fundraising campaigns of our
subsidiaries QSP, Inc. in the United States and Quality Service Programs, Inc.
in Canada.

      We publish Reader's Digest in several editions in the United States,
including an English-language edition, a Spanish language edition entitled
Selecciones and the Reader's Digest Large Edition for Easier Reading. We license
independent contractors to publish a braille edition and a recorded edition in
the United States.

      We publish several special interest magazines that we believe are
consistent with our image, editorial philosophy and market expertise. In the
United States, we publish The Family Handyman(R), New Choices: The Magazine for
Your Health, Money and TravelTM, and American Woodworker(R). The Family Handyman
provides instructions and guidance for "do-it-yourself" home improvement
projects. New Choices: The Magazine for Your Health, Money and TravelTM is aimed
at active, mature readers and provides information on entertainment, travel,
health and leisure time activities. American Woodworker(R) and its consumer
trade show operations provide information, instruction and guidance for
professional and serious amateur woodworkers. In July 2001, we announced plans
to cease publication of Walking(R) magazine, which provides information on
health and fitness for walking enthusiasts. Walking(R) will cease publication
after the September/October 2001 issue.

      Internationally, we publish Moneywise, a magazine devoted to helping
families manage their finances, in the United Kingdom. We also publish Receptar,
a leading Czech do-it-yourself and gardening monthly magazine and Krizovky, a
Czech entertainment puzzle magazine, which were acquired in June 2000.

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

      We also publish other limited-edition special interest publications in the
United States, such as Reader's Digest Christmas, which we have published
annually since 1997 and Reader's Digest Your Family, which debuted as a special
edition in May 1999.


   Circulation and Advertising

      The following table shows circulation and advertising information for our
magazines for fiscal 2001.

<TABLE>

                                                        June 30, 2001   Advertising
                                               Issues    Circulation       Pages
                  Magazine Title              Per Year    Rate Base       Carried


<S>                                              <C>     <C>               <C>
Reader's Digest--U.S.--English edition ..        12      12,500,000        1,155
Reader's Digest--Canada--English and
French editions..........................        12       1,255,300        1,651
Reader's Digest--Other international
 editions................................        12       9,415,757        9,103
Reader's Digest Large Edition for
 Easier Reading..........................        12         500,000          169
American Woodworker .....................         7         325,000          397
The Family Handyman .....................        10       1,100,000          599
New Choices: The Magazine for Your
Health, Money and Travel.................        10         600,000          431
Selecciones .............................        12         250,000          262
Walking .................................         7         650,000          388
Moneywise ...............................        12          97,182          760
Receptar ................................        12         180,000           30
Krizovky ................................        12          50,000          289
</TABLE>


      Approximately 69% of total U.S. fiscal 2001 revenues for Reader's Digest
was generated by circulation revenues and 31% by advertising revenues.
Approximately 66% of total U.S. fiscal 2001 revenues for the special interest
magazines were generated by circulation revenues and 34% by advertising
revenues.

      We have determined that the U.S.--English edition of Reader's Digest has
the largest paid circulation of any U.S. magazine, other than those
automatically distributed to all members of the American Association of Retired
Persons. Our determination is based on the most recent audit report issued by
the Audit Bureau of Circulation, Inc., a not-for-profit organization that
monitors circulation in the United States and Canada. Approximately 95% of the
U.S. paid circulation of Reader's Digest consists of subscriptions. The balance
consists of single copy sales at newsstands and in supermarkets and similar
retail establishments. We sell our special interest magazines by subscription
and at newsstands.

      We maintain the circulation rate base for Reader's Digest through annual
subscription renewals and new subscriptions. In fiscal 2001, we sold
approximately 4.9 million new subscriptions in the United States and
approximately 2 million new international Reader's Digest subscriptions to
maintain the current circulation rate base. We sell new subscriptions in the
United States through a variety of direct response marketing techniques and we
sell new subscriptions in international markets primarily by direct mail. We
sell the largest percentage of subscriptions between July and December of each
year. Subscribers to Reader's Digest may cancel their subscriptions at any time
and we will refund the unused subscription price. For additional information
regarding direct marketing of subscriptions, please refer to the section of this
report captioned "Marketing."

      Many international editions of Reader's Digest have the largest paid
circulation for monthly magazines both in the individual countries and in the
regions in which they are published. For most international editions of Reader's
Digest, subscriptions comprise almost 90% of circulation. The balance is
attributable to newsstand and other retail sales. Approximately 83% of total
international fiscal 2001 revenues for Reader's Digest were generated by
circulation revenues and 17% by advertising revenues.

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


   QSP

      We also market and sell subscriptions to Reader's Digest and the special
interest magazines in the United States through QSP. QSP helps schools and youth
groups prepare fundraising campaigns in which participants sell magazine
subscriptions, music and video products, books, food and gifts. QSP derives its
revenues from the sale of products through fundraising organizations. A
substantial majority of QSP's sales occur during the first half of our fiscal
year, which includes the fall school semester.

      In May 2000, QSP completed the hiring of the sales representatives of
World's Finest Chocolate, Inc., a leading chocolate sales fundraiser, who joined
the sales representatives of QSP. QSP currently has approximately 470 sales
representatives. QSP also entered into a long-term licensing agreement with
World's Finest Chocolate providing for a long-term commitment to purchase
World's Finest Chocolate products and the exclusive right to sell those products
for fundraising purposes. QSP and World's Finest Chocolate expect to combine the
product lines that they offer for sale by their fundraising clients.

      In March 2000, QSP entered into an alliance agreement with Schoolpop,
Inc., an online fundraiser that enables online shoppers to contribute funds to
schools. Through the alliance, QSP will introduce and build awareness of
Schoolpop, Inc.'s online fundraising programs among school and youth
organizations and QSP's magazine subscription services and fundraising services
and World's Finest Chocolate products will be promoted online through Schoolpop.
QSP also acquired a 10% equity interest in Schoolpop, Inc.

      Quality Service Programs, Inc., our Canadian subsidiary, which is included
in the North America Books and Home Entertainment reporting segment, conducts in
Canada substantially similar operations to those conducted by QSP in the United
States. In June 2001, Quality Service Programs acquired eFundraising.com, which
uses the Internet to enhance fundraising activities. eFundraising.com uses
proprietary software that enables students to send e-mail messages about their
school or youth group's fundraising activities to family and friends. The e-mail
directs the recipients to the school or youth group's Web site, where they may
purchase magazine subscriptions and a variety of gift and food products.


   rd.com

      We have created our rd.com Web site to extend the experience of reading
Reader's Digest through audio, graphic, text and video enhancements, interactive
discussions and reader involvement, and additional content relating to Reader's
Digest. We are also utilizing rd.com to market our products through e-mail and
the Internet, as well as to communicate with and service our customers online.
For more information about rd.com, please refer to the section of this report
captioned "Marketing."


   Editorial

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

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

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


   Production and Fulfillment

      We hire independent contractors to print all editions of Reader's Digest
and our special interest magazines. We have an exclusive contract with a U.S.
printer to print the U.S. editions of Reader's Digest. The contract will expire
in 2007. We believe that generally, there is an adequate supply of alternative
printing services available to us at competitive prices, should the need arise.
Nevertheless, significant short-term disruption could occur. We have contingency
plans to minimize recovery time should our current contract printers be unable
to meet our production requirements.

      Lightweight coated and uncoated paper are the principal raw materials used
in the production of Reader's Digest and special interest magazines. We have
exclusive supply contracts with a number of global and regional suppliers of
paper. Our principal contract expires in 2002. We believe those supply contracts
provide an adequate supply of paper for our needs and that, in any event,
alternative sources are available at competitive prices. A variety of factors
affect paper prices, including demand, capacity, pulp supply, and general
economic conditions.

      We have an agreement with a single independent contractor to handle our
fulfillment and payment processing. That agreement expires in 2006. The same
contractor also handles these matters for our North America Books and Home
Entertainment operations.

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

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

      Several hundred other publishers make magazine subscriptions available to
QSP at competitive, discounted prices. QSP also obtains discounted music
products from a large music publisher. QSP engages an independent contractor to
handle processing of magazine, music and book orders. A substantial portion of
QSP's chocolate food products are obtained from World's Finest Chocolate and QSP
has the exclusive right to sell those products for fundraising purposes. Three
other manufacturers provide a substantial portion of the other food and gift
products offered by QSP. A subsidiary of QSP handles processing of gift and food
orders.


New Business Development

   Strategy

      Our new business development strategy is principally founded on the
premise that Reader's Digest can provide distinctive marketing capabilities to
third parties. Our partnerships variously leverage our capabilities in
multi-channel marketing strategy development, database management, content
development, promotion creation and production, distribution logistics, and
customer relationship management. These ventures seek to monetize our customer
database (or external lists), our marketing skills, and our content in support
of partners' marketing objectives. These activities are intended to build a
series of service lines new to Reader's Digest and to substantially expand
Reader's Digest's presence in key consumer affinities, such as finance, health
and families.

   Financial Services Marketing

      Insurance. Reader's Digest and its subsidiaries have formed alliances with
several leading insurance companies under which the insurers market a variety of
insurance products to our customers in the United States and other countries.
Our alliance partners include American International Group, Inc., Torchmark
Corporation, GE Capital Assurance Company, Physicians Mutual Insurance Company,
Pethealth Inc., Allianz, AXA, ING Direct and Manulife Financial. The products,
which include life, health, homeowners, long term care and pet insurance and
hospital indemnity products, are marketed and sold through a combination of
direct mail, telemarketing, advertising in our magazines, the Internet and other
marketing channels. The insurer underwrites and administers the products,
provides customer and claims services, and covers marketing costs. Reader's
Digest provides expertise in research and test design, database management and
targeting, and promotion creation and production.

      Credit Products. Reader's Digest is actively pursuing alliances to provide
a range of credit products to our customer base. In August 1999, we signed an
agreement with First USA, a subsidiary of Bank One Corporation, to market a
Reader's Digest-branded credit card to our customers in the United States. Under
the agreement, First USA launched a Reader's Digest Platinum MasterCard in April
2000. First USA administers the credit cards. Internationally, we are partnering
with GE Capital Assurance Company and its subsidiaries to market loan products
in France and Germany and with the Bank of Scotland in the United Kingdom.

      Investment Products. In June 2001, we formed an alliance with The Vanguard
Group under which Vanguard will offer its mutual funds and other financial
services, such as brokerage, financial planning, asset management and trust
services, to our customers in the United States. We are pursuing other
opportunities with investment products internationally.

   Financial Publishing

      New Business Development manages the publication of Moneywise magazine.
(See "Magazines," above.) The Moneywise.co.uk Web site augments the magazine
content and provides customer service. In August 1999, we acquired Benchmark,
Ltd., a publisher of quarterly investment guides distributed in Hong Kong,
Taiwan and Singapore in English and Chinese. After being repositioned to appeal
to a broader population of retail investors, Benchmark publishes 12 issues per
year with a fiscal 2001 annual circulation of approximately 20,000 and operates
the Web site asiafunds.com.


   Health Services Marketing

      Vitamins. In June 2000, we launched programs with Twinlab Corporation, a
leading U.S.-based vitamin manufacturer and marketer, to market vitamins,
minerals and supplements to Reader's Digest customers in the United States and
Europe. The products, including a monthly subscription vitamin service, are
marketed principally through direct mail, advertising in Reader's Digest and
both companies' Web sites. Twinlab is responsible for manufacturing and
fulfilling the products. The arrangement includes both revenue and cost sharing.
We have a similar alliance with Vitahealth in Canada. These businesses are
managed by North America Books and Home Entertainment and their results are
reported in that segment.

      During 2001, we promoted several vitamin catalogs in Germany. This
business is managed by North America Books and Home Entertainment and its
results are reported in that segment. We plan to expand our vitamin catalog and
subscription business into other countries.


   Other Direct Marketing Services

      Custom Publishing.  In March 2001, we entered into an agreement with
McMurry Publishing, Inc., a leading independent custom publisher in the
health category in the United States, to deliver custom publishing services
to clients in North America.


   International Expansion of U.S.-Based Businesses

      We are testing and launching non-U.S. pilots of several U.S.-based
businesses. These included Books Are Fun efforts in Mexico and France, a QSP
pilot in the United Kingdom, a test of an Australian version of The Family
Handyman, and testing Reader's Digest Young Families products in several
international markets.


   gifts.com and Good Catalog Company

      Our Gifts.com, Inc. subsidiary comprises the Good Catalog Company
division, a catalog marketer of home, garden and gift-related products, and
the gifts.com division, an online and catalog gift shopping service.  We own
an 80.1% interest in Gifts.com, Inc. and Domain.com, Inc., an affiliate of
StarTek, Inc., owns a 19.9% interest.  We created the gifts.com online
shopping service in fall 1999.  The gifts.com Web site and catalogs feature
over 500 different products, including leading brands and non-branded
specialty items.

      Good Catalog Company offers over 2,000 different products through five
different catalog titles, which have a total circulation of over 15 million and
through its Web site, goodcatalog.com. Merchandise ranges from home furnishing
and decorative accents to garden, health, fitness, sports and electronic goods,
as wells as children's toys, games and crafts.


Marketing

      We sell magazine subscriptions, Select Editions, series books, general
books, music and video products, as well as certain other products, principally
through direct mail solicitations to households on our customer lists. Our books
and home entertainment products and product offers and many international
magazine subscription offers are usually accompanied by sweepstakes entries and,
in some cases, premium merchandise offers. For many years, we have been
acknowledged as a pioneer and innovator in the direct mail industry.

      As part of our growth strategy and our strategy to decrease our reliance
on sweepstakes marketing, we are increasing distribution of our products through
direct-response channels other than direct mail. These other distribution
channels include direct-response television, telemarketing, the Internet and
catalogs. For example, under an agreement with WebMD Corporation, WebMD will
purchase a minimum of three million copies of Reader's Digest through June 2005
for distribution by annual subscription to physicians, healthcare provides and
healthcare facilities. Also, in fiscal 2001, Reader's Digest magazine obtained
the majority of its new subscribers in the United States from non-sweepstakes
sources.

      We are adapting the editorial content and the marketing methods of our
magazines and books and home entertainment products to new technologies. Our Web
site--rd.com--links our 27 local and international Web sites and our 11 online
stores, for shopping and information about our products. In 2001, rd.com had
over 14 million visitors from around the world. We are using rd.com and our
local international Web sites to market subscriptions to our products. In
Brazil, we are using our Web site, Mil Premios, to create a database of active
e-commerce buyers. We are also utilizing electronic direct marketing (eDM) to
offer magazine subscriptions through one-click e-mail.

      To promote the sale of our products in the United States, we usually offer
a sweepstakes in our promotional mailings. Prizes totaled about $7 million for
the 2001 edition of the sweepstakes. Generally, each of our international
subsidiaries sponsors its own sweepstakes. The mechanics of the sweepstakes vary
from jurisdiction to jurisdiction, depending upon local law.

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

      In March 2001, we announced a voluntary comprehensive agreement with
attorneys general for 32 states and the District of Columbia regarding standards
for direct mail sweepstakes promotions. We will promote consumer education and
adopt standards for promotions in the United States similar to those agreed to
by other direct marketing and publishing companies. The agreement includes
establishment of a consumer fund of approximately $6 million to be used at the
discretion of the attorneys general for activities including consumer education
efforts. In addition, we are including with all sweepstakes promotion mailings a
fact sheet that explains in detail how our sweepstakes work and have modified
the language and packaging we use for those mailings. We have paid the total
amount due under the agreement, including approximately $2 million in attorneys'
fees.

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

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

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


Information Technology and Customer Database Enhancement

      The size and quality of our computerized customer database of current and
prospective customers in each country where we operate contributes significantly
to our business. We are constantly striving to improve our customer databases.
We believe that our U.S. database of over 54 million households--over half the
total number of households in the country--is one of the largest direct response
databases in the United States. Our international databases include a total of
approximately 47 million households.

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

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


Competition and Trademarks

      Although Reader's Digest is a unique and well-established institution in
the magazine publishing industry, it competes with other magazines for
subscribers and with magazines and all other media, including television, radio
and the Internet, for advertising. We believe that the extensive and
longstanding international operations of Reader's Digest provide us with a
significant advantage over competitors seeking to establish a global
publication.

      We own numerous trademarks that we use in our business worldwide. Our two
most important trademarks are "Reader's Digest" and the "Pegasus" logo. We
believe that the name recognition, reputation and image that we have developed
in each of our markets significantly enhance customer response to our direct
marketing sales promotions. For these reasons, trademarks are important to our
business and we aggressively defend our trademarks.

      We believe that our company name, image and reputation, as well as the
quality of our customer lists, provide a significant competitive advantage over
many other direct marketers. However, our books and home entertainment business
competes with companies selling similar products at retail as well as by direct
marketing through various channels, including the Internet. Because tests show
that consumers' responses to direct marketing promotions can be adversely
affected by the overall volume of direct marketing promotions, we also compete
with all other direct marketers, regardless of whether their products are
similar to our products.

      Each of our special interest magazines competes with other magazines of
the same genre for readers and advertising. Nearly all of our products compete
with other products and services that utilize leisure activity time or
disposable income.

Employees

      As of June 30, 2001, we employed about 5,000 people worldwide. We employed
about 2,400 in the United States and about 2,600 in our international
subsidiaries. Our relationship with our employees is generally satisfactory.

Executive Officers

      The following is some information about our executive officers.

Name and Age                Positions With Reader's Digest and Recent
                               Business Experience

Thomas O. Ryder (57)        Mr. Ryder has been Chairman of the Board and
                            Chief Executive Officer and a Director of
                            Reader's Digest since April 1998.  Mr. Ryder was
                            President, American Express Travel Related
                            Services International, a division of American
                            Express Company (travel, financial and network
                            services), prior to April 1998.

M. John Bohane  (65)        Mr. Bohane has been a Senior Vice President of
                            Reader's Digest since rejoining Reader's Digest
                            in September 1997.  In addition, he has been
                            President, International, and Global Publishing
                            since January 2001.  He was President, Global
                            Books and Home Entertainment from July 1998 to
                            January 2001 and was Senior Vice President of
                            Reader's Digest and President, International
                            Operations before July 1998.  He first joined
                            Reader's Digest in 1964 and served in a number of
                            executive capacities, including President, Direct
                            Marketing, until leaving Reader's Digest in July
                            1991.

Michael A. Brizel (44)      Mr. Brizel has been Vice President and General
                            Counsel of Reader's Digest since July 1998.
                            Before July 1998, he was Vice President, Legal
                            U.S. and Associate General Counsel of Reader's
                            Digest.  Mr. Brizel joined Reader's Digest in
                            July 1989.

Elizabeth G. Chambers (38)  Ms. Chambers has been Senior Vice
                            President, Global Strategy and Business Development
                            since January 2001. She was Senior Vice President,
                            Strategy and Business Redesign from November 1999 to
                            January 2001. Before November 1999, she was Vice
                            President, Business Redesign, a position she held
                            since joining Reader's Digest in August 1998. Before
                            August 1998, she was a partner at the management
                            consulting firm of McKinsey & Company.



<PAGE>



Name and Age                Positions With Reader's Digest and Recent
                               Business Experience

Peter J.C. Davenport (61)   Mr. Davenport has been Senior Vice President,
                            Books and Home Entertainment Global Publishing
                            since January 2001.  He was Senior Vice
                            President, Global Marketing and Publishing from
                            October 1999 to January 2001.  Before October
                            1999, he was Senior Vice President, Global Direct
                            Marketing, except for the period March to
                            September 1997 when he temporarily retired.  Mr.
                            Davenport first joined the Company in 1958.

Clifford H.R. DuPree (51)   Mr. DuPree has been Vice President, Corporate
                            Secretary and Associate General Counsel of
                            Reader's Digest since July 1998.  He was Vice
                            President, Associate General Counsel and
                            Assistant Secretary prior to July 1998.  He
                            joined Reader's Digest in May 1992.

Thomas D. Gardner (43)      Mr. Gardner has been Senior Vice President of
                            Reader's Digest and President, North America
                            Books and Home Entertainment and Global Marketing
                            since January 2001.  He was Senior Vice
                            President, U.S. New Business Development of
                            Reader's Digest from July 1998 to January 2001,
                            and Vice President, Marketing, Reader's Digest
                            U.S.A. prior to July 1998.  Mr. Gardner joined
                            Reader's Digest in February 1992.

Michael S. Geltzeiler (42)  Mr. Geltzeiler joined Reader's
                            Digest as Senior Vice President and Chief Financial
                            Officer in September 2001. Mr. Geltzeiler was
                            previously Senior Vice President and Chief Financial
                            Officer of ACNielsen Corporation (market research,
                            information and analysis), a subsidiary of VNU NV,
                            from March 2001 to September 2001, Senior Vice
                            President and Controller from August 1997 to March
                            2001, and Senior Vice President and Chief Financial
                            Officer, Europe, Middle East & Africa Region prior
                            to August 1997.

Robert J. Krefting (57)     Mr. Krefting has been Senior Vice President and
                            President, International Magazine Publishing of
                            Reader's Digest since July 1998.  Before joining
                            Reader's Digest, Mr. Krefting was sole proprietor
                            of Holly Hill Publishing, a management services
                            corporation serving the publishing and venture
                            capital industries.

Albert L. Perruzza (54)     Mr. Perruzza has been Senior Vice President,
                            Global Operations since October 1999.  Before
                            October 1999, he was Vice President, Database
                            Management Operations, a position he held since
                            August 1998.  Mr. Perruzza served as Vice
                            President, Customer Service Operations before
                            August 1998.  Mr. Perruzza joined Reader's Digest
                            in 1972.



<PAGE>





Name and Age                Positions With Reader's Digest and Recent
                               Business Experience

Robert E. Raymond (45)      Mr. Raymond has been Senior Vice President,
                            Strategic Acquisitions & Alliances of Reader's
                            Digest since June 1999.  Before June 1999, he was
                            Vice President and General Manager, Music, Video,
                            Special Channels, a position he held since April
                            1998.  Mr. Raymond also served as Vice President
                            Marketing, Video/New Business from December 1997
                            until April 1998 and Director of Marketing,
                            Video/New Business before December 1997.  Mr.
                            Raymond joined Reader's Digest in 1993.

Gary S. Rich (40)           Mr. Rich has been Senior Vice President, Human
                            Resources and Global Communications of Reader's
                            Digest since August 1998.  Before joining
                            Reader's Digest, he was Senior Vice President,
                            Global Human Resources for AC Nielsen
                            Corporation, a position he held from June 1996 to
                            July 1998.  Before June 1996, Mr. Rich was Vice
                            President, Human Resources-Europe, Middle East
                            and Africa, at American Express Company (travel,
                            financial and network services).

Eric W. Schrier (49)        Mr. Schrier has been Senior Vice President and
                            Global Editor-in-Chief of Reader's Digest since
                            joining Reader's Digest in January 2000.  Before
                            January 2000, he was President and Chief
                            Executive Officer of Time Inc. Health (health
                            information).


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

ITEM 2.  PROPERTIES

      Our headquarters and principal operating facilities are situated on
approximately 120 acres in Westchester County, New York. We acquired much of
this property in 1940. The table below shows our headquarters and other
properties that we own or lease.

Location                 Area (sq. ft.)        Principal uses

Westchester County, NY   703,000 owned    Executive, administrative, editorial
                                          and operational offices; data
                                          processing; other facilities

New York, NY             153,180 leased   Books and home entertainment products
                                          editorial offices; Reader's Digest
                                          magazine advertising sales offices;
                                          special interest magazines offices

Various U.S. cities      117,961 leased   Editorial offices, advertising sales
                                          offices; other facilities

Conyers, GA              163,375 leased   QSP fulfillment facilities

Jefferson, GA            102,708 leased   QSP fulfillment facilities

International            557,514 owned    Headquarters, administrative and
                         569,131 leased   editorial offices; warehouse
                                          facilities

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

ITEM 3.  LEGAL PROCEEDINGS

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

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

      No matter was submitted to a vote of our security holders during the
fourth quarter of the fiscal year ended June 30, 2001.


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The information contained under the caption "Selected Quarterly Financial
Data and Dividend and Market Information" in our 2001 Annual Report to
Stockholders is incorporated into this Item by reference.

ITEM 6.  SELECTED FINANCIAL DATA

      The information contained under the caption "Selected Quarterly Financial
Data and Dividend and Market Information" and "Selected Financial Data" in our
2001 Annual Report to Stockholders is incorporated into this Item by reference.

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

      The information contained under the caption "Management's Discussion and
Analysis" in our 2001 Annual Report to Stockholders is incorporated into this
Item by reference.

      This report contains or incorporates by reference "forward-looking
statements" within the meaning of the U.S. federal securities laws.
Forward-looking statements include any statements that address future results or
occurrences. These forward-looking statements inherently involve risks and
uncertainties that could cause actual future results and occurrences to differ
materially from the forward-looking statements. Some of these risks and
uncertainties include factors relating to:

-     the effects of potentially more restrictive privacy and other
      governmental regulation relating to our marketing methods;

-     the effects of modified and varied promotions;

-     our ability to identify customer trends;

-     our ability to continue to create and acquire a broadly appealing mix
      of new products;

-     our ability to attract and retain new and younger magazine subscribers
      and product customers in view of the maturing of an important portion
      of our U.S. customer base;

-     our ability to attract and retain subscribers and customers in an
      economically efficient manner;

-     the effects of selective adjustments in pricing;

-     our ability to expand and more effectively utilize our customer
      database;

-     our ability to expand into new international markets and to introduce
      new product lines into new and existing markets;

-     our ability to expand into new channels of distribution;

-     our ability to negotiate and implement productive acquisitions,
      strategic alliances and joint ventures;

-     our ability to integrate newly acquired and newly formed businesses
      successfully;

-     the strength of relationships of newly acquired and newly formed
      businesses with their employees, suppliers and customers;

-     the accuracy of the basis of forecasts relating to newly acquired and
      newly formed businesses;

-     our ability to achieve financial savings related to restructuring
      programs;

-     our ability to contain and reduce costs, especially through global
      efficiencies;

-     the cost and effectiveness of our re-engineering of business processes
      and operations;

-     the accuracy of our management's assessment of the current status of
      our business;

-     the evolution of our organizational and structural capabilities;

-     our ability to respond to competitive pressures within and outside the
      direct marketing industry, including the Internet;

-     the effects of worldwide paper and postage costs;

-     the effects of possible postal disruptions on deliveries;

-     the effects of foreign currency fluctuations;

-     the accuracy of our management's assessment of the future effective tax
      rate and the effects of initiatives to reduce the rate;

-     the effects of the transition to the euro;

-     the adequacy of our financing resources;

-     the effects and pace of our stock repurchase program;

-     the effects of unforeseen economic and political changes in the markets
      where we compete; and

-     the economic effects of the September 11, 2001 terrorist attacks in New
      York and near Washington, D.C.

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


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The information contained under the caption "Management's Discussion and
Analysis" in the section entitled "Currency Risk Management" in our 2001 Annual
Report to Stockholders is incorporated into this Item by reference.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Our Consolidated Financial Statements appearing on pages 49 through 101 of
our 2001 Annual Report to Stockholders, together with the report of KPMG LLP
appearing on page 102, are incorporated into this Item by reference.


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

      None.


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information with respect to our directors under the caption "Proposal 1:
Election of Directors" in the Proxy Statement for our Annual Meeting of
Stockholders to be held on November 9, 2001 is incorporated into this Item by
reference. Information with respect to our executive officers appears under the
caption "Executive Officers" in Item 1 of Part I of this report and is
incorporated into this Item by reference.


ITEM 11. EXECUTIVE COMPENSATION

      Information with respect to executive compensation under the captions
"Executive Compensation," "Report of the Compensation and Nominating Committee"
and "Performance Graph" in the Proxy Statement for our Annual Meeting of
Stockholders to be held on November 9, 2001 is incorporated into this Item by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information with respect to security ownership of certain beneficial
owners and management under the caption "Equity Security Ownership" in the Proxy
Statement for our Annual Meeting of Stockholders to be held on November 9, 2001
is incorporated into this Item by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      None.


<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1 Financial Statements
      An index of our Consolidated Financial Statements appears on page 23 of
      this report.

    2 Financial Statement Schedules
      All schedules have been omitted since the information required to be
      submitted has been included in the Consolidated Financial Statements or
      Notes thereto or has been omitted as not applicable or not required.

    3 Exhibits

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

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

3.1.2 Certificate of Amendment of the Certificate of Incorporation of The
      Reader's Digest Association, Inc. filed with the State of Delaware on
      November 19, 1999 filed as Exhibit 10.29 to our Quarterly Report on Form
      10-Q for the quarter ended March 31, 2000, is incorporated herein by
      reference.

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

10.1  The Reader's Digest Association, Inc. Management Incentive Compensation
      Plan (Amendment and Restatement as of July 1, 1994) filed as Exhibit 10.1
      to our Annual Report on Form 10-K for the year ended June 30, 1994, is
      incorporated herein by reference.*

10.2  The Reader's Digest Association, Inc. 1989 Key Employee Long Term
      Incentive Plan, as amended effective April 13, 2001, filed as Exhibit
      10.29 to our Quarterly Report on Form 10-Q for the quarter ended March 31,
      2001, is incorporated herein by reference.*

10.3  The Reader's Digest Association, Inc. Deferred Compensation Plan
      (Amendment and Restatement as of July 8, 1994) filed as Exhibit 10.4 to
      our Annual Report on Form 10-K for the year ended June 30, 1994, is
      incorporated herein by reference.*

10.4  The Reader's Digest Association, Inc. 1989 Income Continuation Plan for
      Senior Management (amended and restated) filed as Exhibit 10.5 to our
      Annual Report on Form 10-K for the year ended June 30, 1993, is
      incorporated herein by reference.*

10.5  Excess Benefit Retirement Plan of The Reader's Digest Association, Inc.
      (Amendment and Restatement as of July 1, 1994) filed as Exhibit 10.7 to
      our Annual Report on Form 10-K for the year ended June 30, 1994, is
      incorporated herein by reference.*


      *Denotes a management contract or compensatory plan.


<PAGE>


10.6  The Reader's Digest 1992 Executive Retirement Plan (Amendment and
      Restatement as of October 10, 1996), filed as Exhibit 10.12 to our Annual
      Report on Form 10-K for the year ended June 30, 1997, is incorporated
      herein by reference.*

10.7  The Reader's Digest Association, Inc. Executive Cash Balance Retirement
      Plan, filed as Exhibit 10.7 to our Annual Report on Form 10-K for the year
      ended June 30, 2000, is incorporated herein by reference.*

10.8  The Reader's Digest Association, Inc. Executive Financial Counseling Plan,
      amended and restated as of July 1, 1998 filed as Exhibit 10.10 to our
      Annual Report on Form 10-K for the year ended June 30, 1998, is
      incorporated herein by reference.*

10.9  Amendment No. 1 to The Reader's Digest Association, Inc. Management
      Incentive Compensation Plan (effective as of April 11, 1996) filed as
      Exhibit 10.1.1 to our Quarterly Report on Form 10-Q for the quarter
      ended March 31, 1996, is incorporated herein by reference.*

10.10 Five-Year Revolving Credit and Competitive Advance Facility Agreement
      dated as of July 27, 2001 between the registrant, the Borrowing
      Subsidiaries, The Chase Manhattan Bank and J.P. Morgan Securities Inc.,
      etc.

10.11 364-Day Revolving Credit and Competitive Advance Facility Agreement
      dated as of July 27, 2001 between the registrant, the Borrowing
      Subsidiaries, The Chase Manhattan Bank and J.P. Morgan Securities Inc.,
      etc.

10.12 The Reader's Digest Association, Inc. Director Compensation Program, filed
      as Exhibit 10.31 to our Quarterly Report on Form 10-Q for the quarter
      ended March 31, 1998, is incorporated herein by reference.*

10.13 The Reader's Digest Association, Inc. Deferred Compensation Plan for
      Directors, amended and restated as of March 13, 1998, filed as Exhibit
      10.31 to our Quarterly Report on Form 10-Q for the quarter ended March 31,
      1998, is incorporated herein by reference.*

10.14 Employment Agreement dated as of April 28, 1998 between The Reader's
      Digest Association, Inc. and Thomas O. Ryder, filed as Exhibit 10.33 to
      our Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
      incorporated herein by reference.*

10.15 The Reader's Digest Association, Inc. 1994 Key Employee Long Term
      Incentive Plan, as amended effective April 13, 2001, filed as Exhibit
      10.20 to our Quarterly Report on Form 10-Q for the quarter ended March 31,
      2001, is incorporated herein by reference.*

10.16 Agreement dated December 18, 2000 between the registrant and M. John
      Bohane, filed as Exhibit 10.28 to our Quarterly Report on Form 10-Q for
      the quarter ended December 31, 2000, is incorporated herein by reference.*

10.17 The Reader's Digest Association, Inc. 2001 Income Continuation Plan for
      Senior Management, filed as Exhibit 10.21 to our Quarterly Report on
      Form 10-Q for the quarter ended March 31, 2001, is incorporated herein
      by reference.*

10.18 Termination Agreement dated as of April 23, 2001 between The Reader's
      Digest Association, Inc. and Eric W. Schrier.*


      *Denotes a management contract or compensatory plan.


<PAGE>


10.19 Termination Agreement dated as of September 8, 1997 between The Reader's
      Digest Association, Inc. and Peter J.C. Davenport, filed as Exhibit 10.22
      to our Annual Report on Form 10-K for the year ended June 30, 2000, is
      incorporated herein by reference.*

10.20 Supplemental Retirement Benefit Agreement dated as of August 25, 1988
      between The Reader's Digest Association, Inc. and M. John Bohane, filed
      as Exhibit 10.11 to our Registration Statement on Form S-1
      (Registration No. 33-32566) filed on December 19, 1989, is incorporated
      herein by reference.*

10.21 Supplemental Retirement Agreement dated as of August 25, 1988 between The
      Reader's Digest Association, Inc. and Peter J.C. Davenport, filed as
      Exhibit 10.25 to our Annual Report on Form 10-K for the year ended June
      30, 2000, is incorporated herein by reference.*

10.22 The Reader's Digest Association, Inc. Senior Management Incentive Plan,
      filed as Exhibit 10.27 to our Annual Report on Form 10-K for the year
      ended June 30, 1999, is incorporated herein by reference.*

10.23 Assurance of Voluntary Compliance or Discontinuance dated February 26,
      2001 by and among the State Attorneys General and the registrant, filed as
      Exhibit 99.2 to our Current Report on Form 8-K dated March 9, 2001, is
      incorporated herein by reference.

13    Financial information appearing at pages 49 through 101 of our 2001 Annual
      Report to Stockholders, together with the report thereon of KPMG LLP
      appearing on page 102 (furnished for the information of the Securities and
      Exchange Commission only and not to be deemed filed as part of this Annual
      Report on Form 10-K, except for the portions thereof that are specifically
      incorporated herein by reference).

21    Subsidiaries of The Reader's Digest Association, Inc.

23    Consent of KPMG LLP.


*Denotes a management contract or compensatory plan.



(b)   Reports on Form 8-K

      During the three months ended June 30, 2001, we filed the following
      Current Reports on Form 8-K.

            Current Report on Form 8-K dated May 2, 2001 including a press
      release and conference call transcript relating to third quarter fiscal
      2001 earnings release.

            Current Report on Form 8-K dated May 4, 2001 including a press
      release relating to stockholder developments.




<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         The Reader's Digest Association, Inc.


                              By:     /s/ THOMAS O. RYDER
                                 ---------------------------------------
                                             (Thomas O. Ryder)
                                    Chairman and Chief Executive Officer
Date:  September 27, 2001


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

            Signature                       Title                  Date

   /s/  THOMAS O. RYDER           Chairman and Chief        September 27, 2001
      (Thomas O. Ryder)           Executive Officer and a
                                    Director

   /s/MICHAEL S. GELTZEILER       Senior Vice President  September 27, 2001
      (Michael S. Geltzeiler)     and Chief Financial
                                  Officer

   /s/  THOMAS D. BARRY           Vice President and        September 27, 2001
      (Thomas D. Barry)           Corporate
                                  Controller (chief
                                  accounting officer)

   /s/JONATHAN B. BULKELEY        Director                  September 27, 2001
      (Jonathan B. Bulkeley)

   /s/    HERMAN CAIN             Director                  September 27, 2001
      (Herman Cain)

   /s/  LYNNE V. CHENEY           Director                  September 27, 2001
      (Lynne V. Cheney)

   /s/M. CHRISTINE DEVITA         Director                  September 27, 2001
      (M. Christine DeVita)

   /s/ JAMES E. PRESTON           Director                  September 27, 2001
      (James E. Preston)

   /s/LAWRENCE R. RICCIARDI       Director                  September 27, 2001
      (Lawrence R. Ricciardi)

   /s/    C.J. SILAS              Director                  September 27, 2001
      (C.J. Silas)

   /s/ WILLIAM J. WHITE           Director                  September 27, 2001
      (William J. White)

   /s/     ED ZSCHAU              Director                  September 27, 2001
      (Ed Zschau)


<PAGE>


                      THE READER'S DIGEST ASSOCIATION, INC.

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                           Page


Management's Discussion and Analysis....................................    *

Financial Statements:

      Consolidated Statements of Income--For the Years Ended June 30,
         2001, 2000 and 1999............................................    *

      Consolidated Balance Sheets--June 30, 2001 and 2000...............    *

      Consolidated Statements of Cash Flows--For the Years Ended June 30,
         2001, 2000 and 1999............................................    *

      Consolidated Statements of Changes in Stockholders' Equity--For
         the Years Ended June 30, 2001, 2000 and 1999...................    *

Notes to Consolidated Financial Statements..............................    *

Independent Auditors' Report............................................    *

Report of Management....................................................    *

Selected Financial Data.................................................    *

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


      *This financial information is incorporated by reference to our 2001
Annual Report to Stockholders. For additional information, please refer to Item
8 of this report.