This document is a guide for small school districts that are interested in using a nongraded arrangement at the elementary school level. Nongrading recognizes that children learn at different rates and in different ways and allows them to progress as individuals rather than classes. A 4-year phase-in approach eases implementation of the nongraded system. After the phase-in period, one additional grade level should be added each year until grades K-6 are completely covered. A school-based team reviews and places students by considering the students' mental, physical, emotional, educational, and social development. Teams of two or more teachers assume responsibility for groups of learners through cooperative planning, instruction, grouping and regrouping, and student evaluation. The continuous progress approached promotes mainstreaming of exceptional students allowing teachers of special programs to serve as consulting teachers or tutors. Gifted students work at the level that best meets their needs. Suggested solutions for several problems offered, including: (1) statewide testing based on grade levels; (2) the expectation that students will receive report cards indicating their promotion to the next grade level; and (3) state reporting systems using grade categories. (KS)