This current annual report describes the progress made in the following aspects of the organizational plan; the identification of a model of reading which includes a description of subskills that may be present in skilled readers and are acquired by most normal readers, the construction of criterion referenced tests to measure each of these subskills, a comparison of normal and disabled readers in terms of their performance on the component subskills, and development of curricular procedures for disabled readers. The contents of the report include; "Overview of the Project," which discusses the organizational plan; "Model of Reading," which directs the reader to the model presented in the first annual report; "Measurement of Reading Subskills," which discusses the measuring instruments used, the areas of reading evaluated and the results obtained from the use of the measuring instruments; "Comparison of Normal and Disabled Readers," which discusses the learning hierarchies for good and poor readers, and an analysis of the comparative skills of normal and disabled readers; "Summary of Cognitive Deficiencies of Disabled Readers," which reviews several studies related to the cognitive deficiencies of disabled readers; "Affiliated Projects," which presents several research projects conducted in collaboration with the staff of the Spencer Foundation Project; and "Dissemination of Findings." (WR)