In response to a request of the House of Representatives Committee on Education and Labor, the General Accounting Office (GAO) studied how school districts use funds for compensatory education under Chapter 1 of the Elementary and Secondary Education Act of 1965. To obtain this information, the GAO gathered Chapter 1 expenditures for the school year 1990-91 from eight selected large school districts in four states, two of which were urban. To meet student needs, districts used a variety of strategies, falling into the following categories: (1) classroom services (primarily salaries and benefits for teachers and teacher assistants, and supplies and equipment used in classrooms); (2) support services (primarily curriculum development, teacher training, activities to increase student involvement, and salaries and benefits for such personnel as counselors and truant officers); and (3) administration (primarily salaries and benefits for Chapter 1 coordinators and administrative staff, and supplies and equipment used to support the Chapter 1 program). In the eight districts studied, an average of nearly three of four Chapter 1 dollars went to classroom services during the 1990-91 school year. Most of the money went to salaries and expenses for supplemental teachers and teacher aides. Although the two urban districts had the lowest percentages of expenditures for classroom services, they differed from each other. One spent a smaller percentage of its Chapter 1 funds on classroom services than the other - 65 percent compared with 80 percent. Appendix 1 discusses the scope and methodology of the study. Appendix 2 gives an analysis of Chapter 1 expenditures in each district. Appendix 3 lists major contributions to the report. There are two tables and three graphs of study data. (SLD)