This report describes how children bear the brunt of poverty and explains why they are central to poverty reduction in developing nations. The report also illustrates UNICEF's support for the process of improving access to, and quality of, health care, education, water and sanitation, and child protection. It describes how the participation of the poor, as well as children themselves, combined with policy advocacy, contribute to poverty reduction and the fulfillment of human rights. Section 1 of the report describes how poverty produces handicaps in early childhood that can prove to be detrimental for a lifetime and transmit poverty to the next generation; this section also discusses poverty as a denial of human rights and describes the varieties of poverty. Progress in reducing income- and basic-need poverty is illustrated. In addition, this section shows how the AIDS epidemic has seriously escalated the problem of poverty. Section 2 focuses on UNICEF's efforts to reduce poverty through interventions in basic education, primary health care, nutrition, water and sanitation, special protection, policy advocacy, and microcredit programs. Programs in various developing countries are described. The allocation of UNICEF resources to the poorest countries is also discussed. The report concludes by noting that investments in children will help lay a solid foundation for sustained and equitable economic growth in the future. The report's four appendices include information on the number of children per poor or non-poor family, poverty incidence as measured by income and basic needs, the widening income disparities between and within countries, and the relationship between poverty and access to basic education. (Contains a 51-item bibliography.) (KB)