This three-part annual report examines the challenges facing Arizona and the nation in the "war on adult illiteracy" and describes the state's responses to the multiple aspects of lifelong learning. Demographic data in Part I point out the basic elements of the challenges in adult education in Arizona. These challenges include cultural lag, the need to know about the status of skills nationwide and in the state and the consequences of their lack in the modern socio-economic world, problems of schooling in the United States, the realities of the problems as made clearer by new assessment procedures in adult education, and challenges to adult education to be responsive to social problems and concerns, such as family income and the dropout rate, socioeconomic implications of illiteracy, the relationship of literacy to welfare, high rates of failure to attain entry-level job skills, and health problems of undereducated individuals and their families. Part II is a brief portrayal of the role of the Arizona Department of Education in meeting these challenges. Data are provided on clientele in instructional and testing programs, adult education programs, courses offered, testing programs for adults, program goals, educational outcomes, student and teacher recruitment, and staff development. Part III makes recommendations based on these challenges and responses and suggests sources for further information. An appendix lists Project Directors and General Educational Development Approved Testing Centers. The document contains 43 tables and 47 figures. (YLB)