This report describes the activities and operations of the Western Interstate Commission for Higher Education (WICHE). Over the past 12 months, WICHE member states have faced the toughest financial times in recent memory. Higher education in member states, as in the rest of the country, has been hit hard, with midyear budget cuts, reduced financial aid, and student populations that continue to grow. In the past year, WICHE has been busy analyzing policy options and exploring alternatives and solutions to financial problems facing higher education. WICHE has produced its annual report on tuition and fees and has been instrumental in the study of distance education options. A WICHE core activity for years has been the facilitation of student exchange among institutions in different states, and these activities continued in the past year. Although finance issues are not the only problems facing WICHE members, financial constraints relate to each of these important concerns: access, quality and innovation, workforce development, and accountability. This annual report shows how WICHE has been working on these issues. Individual sections describe WICHE efforts with regard to: (1) policy analysis and research; (2) programs and services; (3) the Western Cooperative for Educational Telecommunications; (4) a mental health program; and (5) the Consortium for North American Higher Education Collaboration. (SLD)