When California implemented its class-size reduction (CSR) program in 1996, a number of questions regarding financial burdens, teacher shortages, scarcity of facilities, and collective bargaining were raised. This first-year implementation study aims to provide some contextual information as background for answering questions, to clarify these issues and to provide a more comprehensive, long-term evaluation of CSR, contextual information. In section 1, the introduction examines the status of the class-size reduction initiative and discusses what the research says. Section 2 provides the study design and then describes the major findings, focusing on the effects on special populations, on staff development, on classroom practices, on parent involvement, and on implementation challenges. Section 3 contains detailed coverage of findings in these same areas of focus. Section 4 provides an overview of policy and research implications of CSR. The emphasis throughout the report is on the perceptions of school-level educators, so as to provide evidence of how CSR unfolded in particular schools across California in its first year of implementation. Findings show that district officials, teachers, principals, and coordinators generally believe that CSR will lead to high student achievement. Some specific areas of CSR that warrant more careful evaluation are provided. (Contains 36 endnotes and 51 references.) (RJM)