This report details a project to develop a system to distribute federal funds under the Education Amendments of 1976 to all eligible recipients on the basis of annual applications. The first section describes the pertinent federal and state legislation, project scope, and guidelines used to develop the new system. Data sources and the criteria delineated for inclusion in the state plan are discussed in section 2. Section 3 addresses development of the federal funding formula associated with the proposed system for postsecondary and secondary. Application procedures for the distribution of federal vocational education dollars are discussed in section 4. Section 5, on process operationalization, presents 12 recommendations for consideration by the Division of Vocational-Technical Education for short- and long-range planning. Exhibits contained in section 6 include a list of the 12 project work objectives and Model Guidelines for Annual Application. Section 7, titled Federal Funding, provides a compilation of the newly proposed system in a format consistent with the Minnesota State Plan for Vocational Technical Education, including an operationalization of the system of Fund Application and Distribution. (YLB)