This document presents the distribution of Chapter 1 funds in North Carolina during academic year 1985-86, and analyzes the effects Chapter 1 programs have on student's academic performance. Included among the findings are the following: (1) 125,355 students, or nine percent of the students in North Carolina's 1,378 schools, participated in Chapter 1 programs; (2) the total expenditures were $79.4 million, of which $71.7 million was for personnel; (3) $53.0 million was used for reading instruction, $11.7 million for math instruction; (4) the average expenditure per participant was $633; (5) 57 percent of participants were male, 43 percent were female; (6) 51 percent of participants were Black, 45.1 percent were White, and 3.1 percent were American Indian; (7) pre-post achievement tests scores reveal that the participants made measurable gains in reading and mathematics; and (8) teachers comprised 68 percent of Chapter 1 staff, aides comprised 18 percent. Data are presented in 13 figures. (BJV)