This annual report examines recent changes in Australian education. Two strong emerging trends emerging are: increasing participation rates as more young people stay in the formal education system beyond the compulsory years and a shift in focus from the input in education to outcomes and sharpening of the way in which the outcomes are defined. The report includes: (1) "Director's Comment: Competence or Expertise?"; (2) "Highlights of the Year for ACER"; (3) "Research and Development Activities" (Overview of Themes, Beyond the Compulsory School Years; Cognition, Technology and the Classroom; Teachers and Teaching; Educational Management and Change; Assessment and Reporting; Measurement Division Contract Projects; Testing Services; Product Development); (4) "Other Activities" (Library and Information Services; Development and Training; Management Developments; Publishing, Consultant and Marketing Services); (5) "Staff Publications"; (6) "Financial Report" (Overview; Director's Statement; Auditor's Report); (7) "Members of ACER Council"; (8) "Members of ACER Staff"; and (9) "Report from the Institutes of Educational Research." (EH)