The major objective of this contract is to establish a database for the optimization of the co-processing concept by improving the effectiveness of the co-processing catalyst system. Two major mechanisms for improving the catalyst system are to be investigated: employment of more effective catalysts and utilization of improved catalytic environments. This report covers the period of October 1, 1993 to December 31, 1993. During this period work on Subtask 3.2.2, Improvement in Catalytic Environment, was carried out and the bench-scale co-processing pilot plant was operated in the co-current mode with product recycle and increased catalyst concentration. The project objective was to achieve 90+ % conversion of the 510{degrees}C+ non-distillables at 2800 psig. Currently work is on-going in a stirred autoclave at the same catalyst concentration as that in the runs reported here, and the results of these autoclave runs will be summarized in Technical Progress Report No. 23.