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To study the effects of perinatal HIV-1 infection and early institutional rearing on the physical and cognitive development of children, 64 Ukrainian uninfected and HIV-infected institutionalized and family-reared children were examined (mean age = 50.9 months). Both HIV infection and institutional care were related to delays in physical and cognitive development, with a larger effect of the rearing environment. Family care, even of compromised quality, was found to be more favorable for children’s physical and cognitive development than institutional care. The impact of the quality of child care on physical and cognitive development is discussed in light of future interventions.