Assessment of the functional competencies of patients with dementia is typically conducted in an indirect manner. Psychological tests of cognition or descriptions by relatives or other caregivers are often used to make judgments as to the patient's ability to adapt to the demands of the environment. However, these methods have built-in biases. The need for direct assessment of functional status was addressed by developing a standardized operational procedure to examine areas of functional competence which may become impaired in Alzheimer's disease and other related memory disorders. The resulting instrument has high interrater and test-retest reliabilities. Convergent validity is evidenced by significant correlations between the scale and established measures of functional status. Patients with Alzheimer's disease exhibited deficits in functional capacities relative to age-equivalent normal controls and to elderly patients with a primary major depression.