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Byrne and Ledez (1983) showed reading-disabled adults to be deficient in the phonetic encoding of spoken words in a continuous word recognition task, although their performance was comparable to that of normal readers in nonword recognition. The present study has similarly compared reading disabled and normal reading adults on these tasks, but has in addition controlled for ability by selecting subjects in the low average range on two mental ability tests. Both groups showed evidence of the use of the semantic code in memory in continuous recognition, but neither group evidenced phonetic encoding. In contrast, both reading groups revealed use of phonetic encoding in the nonword recognition task. It appears from a comparison of the results in this study with those of Byrne and Ledez that employment of phonetic encoding may be ability-linked, and its usefulness in reading research may therefore be limited. The subjects were also tested on a syllable classification task to assess their awareness of the phoneme as a unit of the speech stream in a way which did not require the subjects deliberately to manipulate speech segments. Both reading groups demonstrated phonemic awareness, a finding which contrasts with previous research in which poor readers have demonstrated a deficiency in this aspect of metalinguistic knowledge. Different testing methods may lead to different conclusions about phonemic awareness.