A knowledge economy produces new knowledge; transforms knowledge into innovative products, processes, and services; moves innovations into the marketplace; and ultimately, develops new markets. It is global in perspective, collaborative in process, and dynamic in its responsiveness to changing conditions. Most important, it is fed by a healthy postsecondary education system that produces new knowledge and a well-prepared workforce, both of which are sustained by stable funding and inter-sector partnerships. Understanding the broader implications of living in a knowledge economy, and directing its deliberations and proposed actions toward the realization of higher education's full potential within that context, have been at the root of the first phase of the Academic Excellence and Economic Development (AEED) Working Group. From the identification of opportunity areas to the exploration of current campus initiatives and challenges, the focus of AEED has been very broad, encompassing not only science and technology, but also Oregon's traditional natural resources, health care delivery in communities, K-12 education, and cultural and recreational services. All of these areas impact the state's economic vitality, and all are important to consider in targeting postsecondary contributions. Appended are: (1) Research and Development Indicators in Selected Countries; (2) 2002 State New Economy Index--Ranked by Overall Score; and (3) Oregon Postsecondary Education Economic Investment Strategy Development Matrix. (Contains 14 figures.)