The report evaluates the functions and effectiveness of sheltered workshops for handicapped students in Minnesota. The initial chapter reviews the history of the workshops, discusses participation in state workshops, describes programs and services of vocational rehabilitation, and summarizes funding of rehabilitation facilities. A chapter on client outcomes focuses on comparisons with other state rehabilitation agencies, movement toward competitive employment, wages and benefits, and closures during 1983. Recommendations are made for changing the emphasis from work adjustment programs for sheltered workshops to programs teaching job skills geared toward competitive employment. A chapter on vocational rehabilitation funding of sheltered workshops addresses the application of the Minnesota Division of Vocational Rehabilitation (DVR) funding formula. Recommendations include the need to amend existing state laws to expand the definition of sheltered employment programs. A final chapter on leadership and oversight on the part of the DVR assesses that agency's performance in funding programs, certifying workshops' programs, evaluating the performance of sheltered workshops, and providing leadership in work and training model development. (CL)