INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

Filed by the Registrant  [X]

Filed by a Party Other than the Registrant  [   ]

Check the appropriate box:

APOLLO GROUP, INC.

(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (check the appropriate box):

[X]	No fee required.
[   ]	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

Title of each series of securities to which transaction applies:

(1)	Aggregate number of securities to which transaction applies:

(2)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

(3)	Proposed maximum aggregate value of transaction: $
(4)	Total fee paid: $

[   ]	Fee paid previously with preliminary materials.
[   ]	Check box if any part of the fee is offset as provided by Exchange Act Rule  0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)	Amount previously paid:

(2)	Form, Schedule or Registration Statement No.:

(3)	Filing Party:

(4)	Date Filed:

APOLLO GROUP, INC.

April   , 2000

Dear shareholder:

      We invite you to attend a Special Meeting of the shareholders of Apollo Group, Inc., an Arizona corporation, to be held at 10:00 a.m. (Arizona time), on May   , 2000, at our offices located at 4615 East Elwood Street, Phoenix, Arizona, 85040. At this Special Meeting we will ask you to consider and approve the Tracking Stock Proposal described in the accompanying Proxy Statement.

      The Tracking Stock Proposal will allow us to issue a new series of common stock (“University of Phoenix Online common stock”) intended to reflect the performance of our online business division of the University of Phoenix, Inc. called University of Phoenix Online. Before we issue University of Phoenix Online common stock, we will reclassify our existing common stock as “APOL common stock.” APOL common stock is intended to reflect the performance of our other businesses as well as a retained interest in University of Phoenix Online. The Tracking Stock Proposal will also allow us to issue one or more additional series of stock in the future that could reflect the performance of other divisions of our business.

      Soon after the Special Meeting, we plan to offer to the public, for cash, shares of University of Phoenix Online common stock. We currently estimate that we will sell to the public approximately      % of the equity value attributed to University of Phoenix Online and that we will use the net proceeds from that offering to expand our online business.

      We are proceeding with the Tracking Stock Proposal primarily for the following reasons:

	•	The proposal will permit the market to review separate information about University of Phoenix Online and separately value University of Phoenix Online common stock. This should encourage investors and analysts to focus more attention on University of Phoenix Online and result in greater market recognition of the value of University of Phoenix Online to us as a whole.
	•	The proposal will allow investors to invest in APOL common stock, University of Phoenix Online common stock, or both, depending on their particular investment objectives.
	•	The proposal will allow us to issue stock options and other stock-based awards representing University of Phoenix Online common stock, thereby providing more focused incentives to University of Phoenix Online management and employees. The proposal will also allow us to issue stock options and other stock-based awards representing University of Phoenix Online common stock to management and employees of us who, in the judgment of our board of directors, make direct contributions to University of Phoenix Online thereby similarly providing more focused incentives on behalf of University of Phoenix Online.
	•	The proposal will provide us with greater flexibility to raise capital and respond to strategic opportunities, because it will allow us to issue either University of Phoenix Online common stock or APOL common stock as appropriate under the circumstances.
	•	The proposal will allow us to monetize some of the value of University of Phoenix Online while preserving the financial, tax, operational, strategic, and other benefits of being a single consolidated entity.
	•	The proposal will permit us to accomplish similar objectives with respect to our other business divisions in the future.

      In addition to the Tracking Stock Proposal, we will ask you to consider and approve related proposals to adopt a new stock incentive plan and amend certain of our existing benefit plans. The board of directors has carefully considered and unanimously approved the Tracking Stock Proposal and these additional proposals and recommends that you vote for them. We describe the proposals in more detail in the accompanying Proxy Statement, which you should read in its entirety before voting.

      Because the Special Meeting is being held solely for the purpose of voting on the Tracking Stock Proposal and the proposals to adopt and amend certain benefit plans, there will not be any presentations by officers of Apollo Group, Inc. at the Special Meeting.

      In addition to the Notice of Special Meeting and Proxy Statement, we have attached for your convenience, in a question and answer format, a summary of certain questions you may have about the Tracking Stock Proposal and our answers to these questions.

      Thank you for your cooperation and continued support and interest in us.

	Sincerely yours,
	John G. Sperling
	Chairman

QUESTIONS AND ANSWERS

Q:	Why am I receiving this Proxy Statement? What is the Tracking Stock Proposal?
A:	We are sending you this Proxy Statement in connection with a Special Meeting to be held at 10:00 a.m. (Arizona time), on May    , 2000, at our offices located at 4615 East Elwood Street, Phoenix, Arizona, 85040. At this Special Meeting, we will ask you to consider and approve the Tracking Stock Proposal described in this Proxy Statement. The Tracking Stock Proposal would allow us to amend and restate our articles of incorporation to:

	•	Authorize the board of directors to issue common stock in multiple series — Class A APOL common stock, Class B APOL common stock, University of Phoenix Online common stock, and one or more series of undesignated common stock.
	•	Reclassify each outstanding share of existing Class A common stock into a share of Class A APOL common stock, and each outstanding share of existing Class B common stock into a share of Class B APOL common stock. (In this Proxy Statement, we will refer to the Class A APOL common stock and the Class B APOL common stock together as the “APOL common stock”).
	•	Allow University of Phoenix Online common stock to reflect the performance of our online business division of the University of Phoenix, Inc., called University of Phoenix Online.
	•	Allow APOL common stock to reflect the performance of our other businesses, as well as a retained interest in University of Phoenix Online.
	•	Allocate all of Apollo Group, Inc.’s consolidated assets, liabilities, revenues, expenses, and cash flows between APOL and University of Phoenix Online. In the future, we would publish combined financial statements of APOL and financial statements of University of Phoenix Online together with consolidated financial statements of Apollo Group, Inc.
	•	Authorize the board of directors to separately reflect the performance of other business divisions in the future.

Q:  What is “tracking stock?”

A:	“Tracking stock” is a type of common stock that the issuing company intends to reflect, or “track,” the performance of a particular business. As mentioned above, we propose creating a new series of tracking stock, to be designated as University of Phoenix Online common stock.

We cannot assure you that the market value of University of Phoenix Online common stock will, in fact, reflect the performance of University of Phoenix Online, or that the market value of APOL common stock will, in fact, reflect the performance of our other businesses, which includes a retained interest in University of Phoenix Online, as we intend. Holders of APOL common stock and University of Phoenix Online common stock will continue to be common shareholders of Apollo Group, Inc. and, as such, will be subject to all risks associated with an investment in Apollo Group, Inc. and all of its businesses, assets, and liabilities.

Q:	How will you initially issue University of Phoenix Online common stock? How many shares will you initially issue and when?
A:	We currently plan to offer to the public, for cash, shares of University of Phoenix Online common stock, intended to represent approximately                 % of the equity value attributed to University of Phoenix Online, and to use the net proceeds from that offering to expand our online business. We expect the University of Phoenix Online common stock offering to occur sometime in the summer of 2000. However, we could choose to conduct the offering at a later time, or not to make the offering at all, depending on the circumstances at the time.

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Q:	When will you implement the Tracking Stock Proposal? When will you reclassify my common stock into APOL common stock?
A:	Assuming our shareholders approve the Tracking Stock Proposal, we intend to immediately file the amended and restated articles of incorporation implementing the Tracking Stock Proposal and reclassify your common stock before we first issue University of Phoenix Online common stock.
Q:	What happens to my common stock when you implement the Tracking Stock Proposal? Do I need to send in my stock certificates?
A:	Immediately upon the filing of the amended and restated articles implementing the Tracking Stock Proposal, each of your shares will be reclassified into one share of APOL common stock, and your existing stock certificates will automatically represent Class A or Class B APOL common stock as appropriate. Since the reclassification is automatic, you do not need to send in your stock certificates or make any notations reflecting the change.

Q:  Why are you doing this?

A:  Primarily for the following reasons:

	•	The proposal will permit the market to review separate information about University of Phoenix Online and separately value University of Phoenix Online common stock. This should encourage investors and analysts to focus more attention on University of Phoenix Online and result in greater market recognition of the value of University of Phoenix Online to Apollo Group, Inc. as a whole.
	•	The proposal will allow us to issue stock options and other stock-based awards representing University of Phoenix Online common stock to management and employees of University of Phoenix Online, thereby providing more focused incentives to University of Phoenix Online management and employees. The proposal will also allow us to issue stock options and other stock-based awards representing University of Phoenix Online common stock to management and employees of us who, in the judgment of our board of directors, make direct contributions to University of Phoenix Online, thereby similarly providing more focused incentives on behalf of University of Phoenix Online.
	•	The proposal will provide us with greater flexibility to raise capital and respond to strategic opportunities, because it will allow us to issue either APOL common stock or University of Phoenix Online common stock as appropriate under the circumstances.
	•	The proposal will allow us to monetize some of the value of University of Phoenix Online while preserving the financial, tax, operational, strategic, and other benefits of being a single consolidated entity.

Q:	Will APOL common stock be listed on The Nasdaq National Market? How about University of Phoenix Online common stock?
A:	When we reclassify our Class A common stock as Class A APOL common stock, it will continue to trade on The Nasdaq National Market under the symbol “APOL.” We currently intend to apply for listing of University of Phoenix Online common stock on The Nasdaq National Market under the symbol “UOPX.” The Class  B APOL common stock will not be publicly traded.
Q:	What voting rights will I have?
A:	Holders of our current Class A common stock ordinarily do not have any voting rights. Similarly, holders of our new Class A APOL common stock and University of Phoenix Online common stock will not have any voting rights, other than in certain limited circumstances as required by law. Holders of Class B APOL common stock will vote on all matters.

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Q:	What are the tax consequences of the Tracking Stock Proposal?
A:	In the opinion of PricewaterhouseCoopers LLP, our tax advisors, neither you nor Apollo Group, Inc. will recognize any income, gain or loss for federal income tax purposes as a result of the reclassification of our existing common stock into APOL common stock or the issuance of University of Phoenix Online common stock. There are, however, no court decisions bearing directly on similar transactions and the Internal Revenue Service has announced that it will not issue advance rulings on the federal income tax consequences of such transactions. You should consult a tax advisor.
Q:	Do you intend to pay dividends?
A:	We do not expect to pay any dividends on APOL common stock or University of Phoenix Online common stock for the foreseeable future. We currently intend to allocate any future earnings for the development and operation of our businesses.
Q:	Could you issue other series of common stock to accomplish similar objectives with respect to our other businesses?
A:	Although we currently have no intent to do so, the Tracking Stock Proposal will authorize our board of directors to issue shares of one or more series of common stock that would separately track our other businesses.
Q:	When and where will the Special Meeting be held?
A:	We will hold the Special Meeting at 10:00 a.m. (Arizona time), on May   , 2000, at our offices located at 4615 East Elwood Street, Phoenix, Arizona, 85040.
Q:	What does the board of directors recommend?
A:	The board of directors has carefully considered and unanimously approved the Tracking Stock Proposal and the additional proposals described in the Proxy Statement and recommends that you vote for them.

	Q:	What vote is required to approve the Tracking Stock Proposal?

A:	The Tracking Stock Proposal requires the affirmative vote of the holders of a majority of our outstanding Class A and Class B common stock, each voting as a separate class.
Q:	What do I do if I have more questions?
A:	If you have any questions prior to the Special Meeting, please call our Investor Relations Department at (480) 966-5394.

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS OF

      A Special Meeting of shareholders of Apollo Group, Inc. will be held at 10:00 a.m. (Arizona time), on May   , 2000, at our offices located at 4615 East Elwood Street, Phoenix, Arizona, 85040, for the following purposes:

	1.	To act upon a proposal to amend and restate Apollo Group, Inc.’s amended and restated articles of incorporation so that it reads in its entirety as set forth in Annex B to the accompanying Proxy Statement.
	2.	To act upon proposals to adopt a new Apollo Group, Inc. 2000 Stock Incentive Plan and amend and restate the Apollo Group, Inc. 1994 Employee Stock Purchase Plan and the Apollo Group, Inc. Director Stock Plan so that they read in their entirety as set forth in Annexes C, D, and E, respectively, to the accompanying Proxy Statement.
	3.	To transact such other business as may properly come before the meeting.

      The proposals are described in more detail in the accompanying Proxy Statement, which you should read in its entirety before voting.

      Only shareholders of record at the close of business on April   , 2000 will be entitled to notice of and to vote at the meeting and any adjournments or postponements thereof. The Tracking Stock Proposal cannot be completed unless it is approved by the affirmative vote of a majority of the outstanding shares of our Class A and Class B common stock, each voting as a separate class. The proposals to amend our benefit plans cannot be completed unless they are approved by a majority of the votes cast at the Special Meeting of our Class A and Class B common stock, voting as a combined class.

      Our board of directors has unanimously approved the proposals contained in the Proxy Statement and determined that they are fair and in the best interests of Apollo Group, Inc. and its shareholders. Our board of directors unanimously recommends that you vote “FOR” the approval of all proposals contained in the Proxy Statement.

      Your vote is important. The board of directors urges you to sign, date, and return the enclosed proxy card as soon as possible, even if you are currently planning to attend the Special Meeting. No postage is necessary if the proxy is mailed in the U.S. Sending in your proxy will not prevent you from voting in person at the Special Meeting, but will assure that your vote is counted if you are unable to attend. If you do attend the Special Meeting and wish to vote in person, you may withdraw your proxy and vote at the Special Meeting. Properly executed proxies will be executed in the manner you direct. If no direction is specified, properly executed proxies will be voted “for” adoption of the proposed transaction.

	By order of the board of directors,
	John G. Sperling
	Chairman

Phoenix, Arizona

PROXY STATEMENT

APOLLO GROUP, INC.

SPECIAL MEETING OF SHAREHOLDERS

      Our board of directors is furnishing this Proxy Statement in connection with a Special Meeting to be held at 10:00 a.m. (Arizona time), on May   , 2000, at our offices located at 4615 East Elwood Street, Phoenix, Arizona, 85040. The enclosed proxy is solicited by our board of directors. At this Special Meeting we will ask you to consider and approve the Tracking Stock Proposal described in this Proxy Statement.

      The Tracking Stock Proposal will allow us to issue a new series of common stock called University of Phoenix Online common stock (we will refer to this new class of stock as “University of Phoenix Online common stock”). University of Phoenix Online common stock is intended to reflect the performance of our online business division of the University of Phoenix, Inc., called University of Phoenix Online. Before we first issue University of Phoenix Online common stock, we will reclassify our existing common stock and we will refer to this newly reclassified stock as “APOL common stock.” APOL common stock will reflect the performance of our other businesses, as well as a retained interest in University of Phoenix Online. The Tracking Stock Proposal will also allow us to issue one or more additional series of common stock intended to separately reflect the performance of other divisions of the business operations of Apollo Group, Inc. and its subsidiaries (“Apollo Group”). Our reasons for proceeding with the Tracking Stock Proposal are outlined elsewhere in this Proxy Statement. See “Proposal 1 — The Tracking Stock Proposal — Background and Reasons for the Tracking Stock Proposal.”

      After the Special Meeting, we plan to offer to the public, for cash, shares of University of Phoenix Online common stock. We currently estimate that we will sell to the public approximately      % of the equity value attributed to University of Phoenix Online and that we will use the net proceeds from that offering to expand our online business.

      In addition to the Tracking Stock Proposal, we will ask you to consider and approve related proposals to adopt and amend certain of our benefit plans. Our board of directors has carefully considered and unanimously approved the Tracking Stock Proposal and these additional proposals and recommends that you vote for them. We describe the proposals in more detail in this Proxy Statement, which you should read in its entirety before voting.

      Because the Special Meeting is being held for the sole purpose of voting on the Tracking Stock Proposal and the proposals to adopt and amend certain benefit plans, there will not be any presentations by our officers at the Special Meeting.

      See “Risk Factors” beginning on page 17 for certain information relating to an evaluation of the Tracking Stock Proposal.

      The date of this Proxy Statement is April   , 2000. We are first sending this Proxy Statement to shareholders on or about that date.

TABLE OF CONTENTS

PROXY STATEMENT SUMMARY

      This summary highlights key aspects of the Tracking Stock Proposal and the proposals to adopt a new stock incentive plan and to amend certain of our existing benefit plans contained elsewhere in this Proxy Statement. This summary is not a substitute for the more detailed information contained in the rest of this Proxy Statement. For a more comprehensive description of the Tracking Stock Proposal and the proposals to adopt and amend certain benefit plans you should read the rest of this Proxy Statement, including the financial statements contained or incorporated by reference into this Proxy Statement. Capitalized terms used in this summary have the meanings given them elsewhere in this Proxy Statement.

Apollo Group

      Apollo Group, through its subsidiaries, the University of Phoenix, Inc., the Institute for Professional Development, the College for Financial Planning Institutes Corporation, Western International University, Inc., and Apollo Learning Group, Inc., is a leading provider of higher education programs for working adults based on the number of working adults in its programs. The consolidated enrollment in our educational programs would make us the largest private institution of higher education in the U.S. We currently offer our programs and services at 52 campuses and 85 learning centers in 35 states, Puerto Rico and Vancouver, British Columbia. Our combined degree enrollment increased to approximately 87,300 at November 30, 1999 from approximately 36,800 at August 31, 1995.

University of Phoenix Online

      University of Phoenix Online is a leading online provider of accessible, high quality education programs for working adults and their employers. University of Phoenix Online began operations in 1989 by modifying courses developed by University of Phoenix’s physical campuses for delivery via modem to students worldwide. Today, the online courses and programs are available via the Internet 24 hours a day, 7 days a week and can be accessed using basic technology, such as a Pentium-class personal computer, a 28.8K modem, and an Internet service provider. University of Phoenix Online currently offers 11 accredited degree programs in business, education, information technology, and nursing. As of January 31, 2000, University of Phoenix Online had approximately 12,000 degree students and approximately 1,100 faculty members. University of Phoenix Online currently has relationships with approximately 1,600 corporations in the form of employer tuition reimbursement programs.

      From a financial reporting standpoint, we have separated University of Phoenix Online from the rest of our businesses. Our board of directors has adopted cash management and allocation policies with respect to the ongoing relationship between APOL and University of Phoenix Online and the allocation of our business, assets, liabilities, revenues, expenses, and cash flows.

SPECIAL MEETING

      The board of directors has carefully considered and unanimously approved these proposals and recommends that you vote for them.

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GENERAL

      Our board of directors is furnishing this Proxy Statement to solicit proxies in connection with a Special Meeting to be held at 10:00 a.m. (Arizona time), on May   , 2000, at our offices located at 4615 East Elwood Street, Phoenix, Arizona, 85040, and any adjournments or postponements thereof.

      Holders of Class A common stock ordinarily do not have any voting rights. However, because of the nature of the proposed amendments to our restated articles of incorporation, the Arizona Business Corporation Act requires that the proposed amendments be approved by a majority of the outstanding shares of Class A common stock, as well as by a majority of the outstanding shares of Class B common stock, each voting as a separate class.

      Only holders of record of Class A common stock and Class B common stock at the close of business on April   , 2000, will be entitled to notice of and to vote at the Special Meeting. As of April   , 2000, there were outstanding                shares of Class A common stock and                shares of Class B common stock. A quorum will be met at the Special Meeting if a majority of the outstanding shares of common stock are present in person or by proxy. Each holder of Class A common stock and Class B common stock will be entitled to one vote for each share held as of April   , 2000, on all matters brought before the Special Meeting.

      We will vote shares represented by the proxies received and not properly revoked in accordance with the instructions contained therein. A shareholder who has given a proxy may revoke it at any time before it is exercised by filing with Apollo Group’s Secretary a written revocation or a duly executed proxy bearing a later date or by voting in person at the Special Meeting. If no choice is specified on the form of proxy, the shares will be voted “FOR” the approval of each of Proposals 1, 2, 3 and 4 described in this Proxy Statement. If you vote “FOR” the Tracking Stock Proposal at the Special Meeting, you may be forfeiting your right to challenge the implementation of any aspect of the Tracking Stock Proposal in the future.

      Proposal 1 (the “Tracking Stock Proposal” ) requires the affirmative vote of a majority of the outstanding shares of each of the Class A and Class B common stock, each voting as a separate class. Each of Proposals 2, 3, and 4 requires the affirmative vote of a majority of the votes cast at the Special Meeting, of the Class A and Class B common stock, voting as a combined class. Abstentions with respect to any proposal will have the same effect as negative votes on each of the proposals. If a broker, which is the record holder of certain shares, indicates on a form of proxy that it does not have discretionary authority to vote such shares on any proposal, or if shares are voted in other circumstances in which proxy authority is defective or has been withheld with respect to such proposal, these non-voted shares will be counted for quorum purposes but will have the same effect as a negative vote on Proposal 1 and will have no effect on Proposals 2, 3, and 4.

      We will bear the expense of printing and mailing these proxy materials. In addition to soliciting proxies by mail, certain of our directors, officers, and other employees may solicit proxies by personal interview, telephone, or facsimile. We will not pay additional compensation to such persons for such solicitation. We will reimburse brokerage firms and others for their reasonable expense in forwarding solicitation materials to beneficial owners of common stock. We have also retained First Chicago Trust Corporation of New York, a division of Equiserve, to perform various proxy advisory, distribution, and solicitation services at a cost of approximately $          plus disbursements.

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WHERE YOU CAN FIND MORE INFORMATION

      We file reports, proxy statements, and other information with the SEC. Those reports, proxy statements, and other information can be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including ourselves. Our Class A common stock is listed on The Nasdaq National Market under the symbol “APOL.” The information contained on our Web site is not part of this Proxy Statement.

      We have filed a registration statement with the SEC respecting the proposed public offering of University of Phoenix Online common stock. This registration statement has not yet become effective. The registration statement can be obtained from the SEC as indicated above.

      The SEC allows us to “incorporate by reference” the information we file with the SEC. This permits us to disclose important information to you by referring to these filed documents. Any information referred to in this way is considered part of this Proxy Statement, and any information filed with the SEC by us after the date of this Proxy Statement will automatically be deemed to update and supersede this information. We incorporate by reference the following documents that have been filed with the SEC:

	•	Annual Report on Form 10-K for the year ended August 31, 1999; and
	•	Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.

      We are also incorporating by reference additional documents that we file with the SEC between the date of this Proxy Statement and the date of the Special Meeting of our shareholders.

      You can obtain any of the incorporated documents by contacting us or the SEC. We will send you the documents incorporated by reference without charge, excluding exhibits to the information that is incorporated by reference, unless we have specifically incorporated by reference the exhibit in this Proxy Statement.

      Shareholders may obtain documents incorporated by reference in this Proxy Statement by requesting them in writing or by telephone from the appropriate party at the following address:

	Apollo Group, Inc.
	4615 East Elwood Street
	Phoenix, Arizona 85040
	(480) 966-5394
	Attention: Chief Financial Officer

      If you would like to request documents from us, including any documents we may subsequently file with the SEC prior to the Special Meeting, please do so by April   , 2000, so that you will receive them before the Special Meeting.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSALS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED APRIL   , 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.

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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

      This Proxy Statement and the information incorporated by reference include forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or the negative of those words or other comparable terms. Forward-looking statements involve risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include systems failures, technological changes, volatility of securities markets, regulatory environments, and economic conditions and competition in the business areas in which we conduct our operations. For a more detailed discussion of factors that could cause actual results to differ, please see the discussion under “Risk Factors” contained in this Proxy Statement and in the other information contained in our publicly available SEC filings, incorporated by reference into this Proxy Statement.

PROPOSAL 1 — THE TRACKING STOCK PROPOSAL

GENERAL

      At the Special Meeting, we will ask you to consider and approve the Tracking Stock Proposal described in this Proxy Statement. The Tracking Stock Proposal would allow us to amend and restate our articles of incorporation to:

	•	Authorize the issuance of our common stock in multiple series:

           (i)  Class A APOL common stock;

           (ii) Class B APOL common stock;

           (iii)  University of Phoenix Online common stock; and

           (iv)  one or more additional series of undesignated common stock.

	•	Reclassify each outstanding share of Class A common stock into a share of Class A APOL common stock.
	•	Reclassify each outstanding share of Class B common stock into a share of Class B APOL common stock.

      Our currently existing Class A common stock is similar to our Class B common stock with a few exceptions. The principal exception is that holders of the Class B common stock are entitled to vote on any matter, whereas holders of the Class A common stock may only vote in limited circumstances. Following the reclassification, the Class A APOL common stock would be similar to the Class B APOL common stock with the same exceptions. We intend University of Phoenix Online common stock to reflect the performance of our online business division of the University of Phoenix, Inc., called University of Phoenix Online. We intend the APOL common stock to reflect the performance of our other businesses, as well as a retained interest in University of Phoenix Online.

      We have allocated all of our consolidated assets, liabilities, revenues, expenses, and cash flows between APOL and University of Phoenix Online. In the future, we will publish combined financial statements of APOL and financial statements of University of Phoenix Online together with consolidated financial statements of Apollo Group.

      We currently plan to offer to the public, for cash,           shares of University of Phoenix Online common stock intended to represent      % of the equity value attributed to University of Phoenix Online (the “Offer”). This would leave APOL with a retained interest intended to represent      % of the equity attributable to University of Phoenix Online. Assuming we proceed with the Offer, we currently plan to attribute all of the net proceeds of the offering to University of Phoenix Online. University of Phoenix Online would then use those net proceeds to expand its business.

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      We expect the offering to occur sometime in the summer of 2000. However, we could choose to conduct the offering at a later time, or not to make the offering at all, depending on the circumstances at the time. Our board of directors and underwriters for the offering will determine the terms of the offering based upon: prevailing market and other conditions, both generally and for Internet businesses; the financial condition, results of operations, and prospects of University of Phoenix Online; and such other factors as they deem appropriate at the time of the offering.

      We will file amended and restated articles of incorporation implementing the Tracking Stock Proposal and reclassify our Class A and Class B common stock before we first issue University of Phoenix Online common stock.

Background and Reasons for the Tracking Stock Proposal

      We continually review each of our businesses to determine the best way to realize our inherent value. As a result of this review process, we recently began to evaluate various restructuring alternatives, including (i) an offering of direct stock in a corporation that would acquire University of Phoenix Online or (ii) a “tracking stock” offering intended to reflect the performance of University of Phoenix Online.

      Upon management’s recommendation, after their consultation with our financial and legal advisors, our board of directors determined that the issuance of tracking stock would be preferable because, among other things, issuances of tracking stock, unlike the issuance of direct stock, would preserve certain favorable financial, tax, operational, strategic, and other benefits of being a single consolidated entity. On December 17, 1999, our board of directors first considered the Tracking Stock Proposal and authorized our management to begin implementing the proposal. On March 24, 2000, our board of directors unanimously approved the proposals contained in this Proxy Statement, determined that they are in the best interests of us and our shareholders, and resolved to recommend that you vote for them.

      In arriving at its determination and recommendation, our board of directors, considered, among other things, the following:

	•	The proposal will permit the market to review separate information about University of Phoenix Online and separately value University of Phoenix Online common stock. This should encourage investors and analysts to focus more attention on University of Phoenix Online and result in greater market recognition of the value of University of Phoenix Online to us as a whole.
	•	The proposal will allow investors to invest in either or both series of common stock, depending on their particular investment objectives.
	•	The proposal will allow us to issue stock options and other stock-based awards representing University of Phoenix Online common stock to management and employees of University of Phoenix Online, thereby providing more focused incentives to University of Phoenix Online management and employees. The proposal will also allow us to issue stock options and other stock-based awards representing University of Phoenix Online common stock to management and employees of us who, in the judgment of our board of directors, make direct contributions to University of Phoenix Online, thereby similarly providing more focused incentives on behalf of University of Phoenix Online.
	•	The proposal will provide us with greater flexibility to raise capital and respond to strategic opportunities, because it will allow us to issue either APOL common stock or University of Phoenix Online common stock as appropriate under the circumstances.
	•	The proposal will enable us to monetize some of the value of University of Phoenix Online while preserving the financial, tax, operational, strategic, and other benefits of being a single consolidated entity.
	•	The proposal will permit us to accomplish similar objectives with respect to our other businesses in the future.

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      Our board of directors also evaluated the potential negative aspects of the Tracking Stock Proposal, including the following:

	•	The uncertainty as to the amount of net proceeds we may realize in the offering.
	•	The Tracking Stock Proposal will require a complex capital structure and additional reporting requirements with respect to each of APOL and University of Phoenix Online.
	•	The Tracking Stock Proposal will expand our board of directors’ responsibility to oversee the interests of multiple series of common shareholders.
	•	The potential diverging or conflicting interests between the holders of APOL common stock and the holders of University of Phoenix Online common stock and issues that our board of directors may face in resolving any conflicts.
	•	The costs associated with implementing the Tracking Stock Proposal and the ongoing cost of operating APOL and University of Phoenix Online as separate groups will exceed our current operating costs.

      Our board of directors determined that the positive aspects of the Tracking Stock Proposal outweighed the negative aspects and concluded that the Tracking Stock Proposal and the other proposals are in the best interests of us and our shareholders.

      If you vote “FOR” the Tracking Stock Proposal at the Special Meeting, you may be forfeiting your right to challenge the implementation of any aspect of the Tracking Stock Proposal in the future.

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Summary Comparison of Terms of Existing Common Stock with Terms of APOL Common Stock and University of Phoenix Online Common Stock

      The following compares certain terms of our existing common stock to the proposed terms of APOL common stock and University of Phoenix Online common stock. This comparison is not complete and should be read together with the more detailed information contained in the rest of this Proxy Statement. In particular, see “Description of our Capital Stock.”

Tracking Stock Proposal

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RISK FACTORS

      You should carefully consider the risk factors described below, as well as the other information included in this Proxy Statement before you decide how to vote on the proposals. For purposes of this section, each of APOL and University of Phoenix Online is sometimes referred to as a “Group.”

Holders of Class A APOL common stock and University of Phoenix Online common stock will not have any voting rights and will be unable to influence our business.

      Holders of Class A APOL common stock and University of Phoenix Online common stock will not have the right to vote unless a separate class vote is required by Arizona law. Holders of Class B APOL common stock have the sole right to elect our board of directors. As a result, holders of Class A APOL common stock and University of Phoenix Online common stock will not have the ability to influence the management or focus of our business.

We cannot predict how the issuance of University of Phoenix Online common stock will affect the market price of Class A APOL common stock.

      We cannot predict the price at which Class A APOL common stock will trade following the issuance of University of Phoenix Online common stock. The market price of Class A APOL common stock may not equal or exceed the market price of our existing common stock. Some of the terms of APOL common stock and University of Phoenix Online common stock may adversely affect the trading price of Class A APOL common stock or University of Phoenix Online common stock. Examples include:

	•	the right of our board of directors to convert University of Phoenix Online common stock to Class A APOL common stock with a premium in certain cases; and
	•	the discretion of our board of directors in making various determinations relating to a variety of matters affecting the rights of the holders of APOL common stock and University of Phoenix Online common stock, such as the payment of dividends, the allocation of merger proceeds, and a variety of cash management and other allocation matters.

Holders of APOL common stock and University of Phoenix Online common stock will be common shareholders of us and will not have any legal rights relating to specific assets of us.

      We have allocated all of our consolidated assets, liabilities, revenues, expenses, and cash flows between APOL and University of Phoenix Online in order to prepare financial statements. However, that allocation will not change the legal title to any assets or responsibility for any liabilities and will not affect the rights of any of our creditors. In any liquidation, our shareholders would receive a share of our net assets based on the relative trading prices of Class A APOL common stock and University of Phoenix Online common stock rather than on any assessment of the actual value of University of Phoenix Online or APOL. Holders of APOL common stock and University of Phoenix Online common stock will continue to be common shareholders of us as a whole and, as such, will be subject to all risks associated with an investment in us and all of our businesses, assets, and liabilities.

If we encounter financial difficulty, the value of either Class A APOL common stock or University of Phoenix Online common stock may suffer for reasons unrelated to the assets allocated to APOL or University of Phoenix Online.

      Financial results of either APOL or University of Phoenix Online could affect our consolidated results of operations, financial position and borrowing costs. This could affect the results of operations, financial position or borrowing costs of either APOL or University of Phoenix Online or the market price of shares of Class A APOL common stock or University of Phoenix Online common stock. In addition, if we incur losses, this will reduce the amount our assets legally available for dividends on Class A APOL common stock and University of Phoenix Online common stock.

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Our existing shareholders will have a reduced interest in University of Phoenix Online.

      Holders of APOL common stock will participate in the ownership of University of Phoenix Online through APOL’s retained interest in University of Phoenix Online. APOL’s interest in University of Phoenix Online will decrease as a result of the proposed issuance of University of Phoenix Online common stock. After the proposed issuance of University of Phoenix Online common stock, our existing shareholders will no longer share in the gains or losses attributable to the portion of University of Phoenix Online that is represented by the outstanding shares of University of Phoenix Online common stock. The price at which any shares of University of Phoenix Online common stock may be sold in the future may not reflect accurately the value of University of Phoenix Online common stock and thus holders of APOL common stock may not appropriately benefit from such issuances. Our existing shareholders will not have any special rights to subscribe for University of Phoenix Online common stock.

The cost of maintaining separate Groups will likely exceed the costs associated with operating our businesses in a single entity.

      The costs associated with implementing the Tracking Stock Proposal and the ongoing costs of operating APOL and University of Phoenix Online as separate Groups will likely exceed the costs associated with our current operations. In particular, the issuance of University of Phoenix Online common stock will result in a complex capital structure and additional reporting requirements with respect to each Group.

Having multiple series of common stock could create potential conflicts of interest and our board of directors could make decisions that adversely affect holders of either Group.

      If the Tracking Stock Proposal is approved, we will initially have three series of common stock, University of Phoenix Online common stock, which is non-voting; Class A APOL common stock, which is non-voting; and Class B APOL common stock, which is voting. All shares of Class B APOL common stock are held by our management. Holders of Class B APOL common stock elect our board of directors and all holders of Class B APOL common stock are members of our board of directors. Further, if the Tracking Stock Proposal is approved, our amended and restated articles of incorporation will authorize the issuance of one or more additional series of common stock.

      Having multiple series of common stock could give rise to occasions when the interests of holders of one series might diverge or appear to diverge from the interests of holders of another series. In addition, due to the extensive relationships between, and the similarity of the businesses of, APOL and University of Phoenix Online, there will likely be inherent conflicts of interest between the two Groups. Examples include our board of directors’ decisions relating to:

	•	whether to allocate the proceeds of issuances, or the costs of repurchases, of University of Phoenix Online common stock to APOL in respect of its retained interest in University of Phoenix Online or to University of Phoenix Online’s equity;
	•	how to allocate consideration received in connection with a merger involving us between holders of APOL common stock and holders of University of Phoenix Online common stock;
	•	whether and when to convert University of Phoenix Online common stock to Class  A APOL common stock;
	•	whether and when to approve dispositions of assets of either Group;
	•	whether to pay dividends on APOL common stock or University of Phoenix Online common stock;
	•	whether and how to make transfers of funds between the Groups;
	•	future allocations of assets, liabilities, revenues, expenses, and cash flows between the two Groups;
	•	allocations of business opportunities between the two Groups; and

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	•	other operational and financial matters that could be considered detrimental to the holders of APOL common stock or holders of University of Phoenix Online common stock.

      If members of our board of directors own disproportionate interests, in percentage or value terms, in APOL common stock and University of Phoenix Online common stock, it could create, or appear to create, potential conflicts of interest when they are faced with decisions that could have different implications for APOL common stock and University of Phoenix Online common stock.

Our board of directors may change cash management and allocation policies in a manner that adversely affects one Group.

      Our board of directors has adopted policies relating to cash management and allocations between APOL and University of Phoenix Online. Although it has no present intention to do so, the board of directors, may, in its sole discretion, modify, rescind, or add to any of these policies in a manner that is disadvantageous to either APOL or University of Phoenix Online. Our board of directors’ discretion to change these policies, and on cash management matters generally, makes an investment in Class A APOL common stock or University of Phoenix Online common stock riskier than an investment in ordinary common stock.

      Our board of directors will determine, in its sole discretion, whether to transfer cash to or away from either University of Phoenix Online or APOL. Moreover, our board of directors has sole discretion to determine whether a transfer of cash from University of Phoenix Online to APOL will be treated as a revolving credit advance, a long-term loan, or a return of capital and whether a transfer of cash from APOL to University of Phoenix Online will be treated as a revolving credit advance, a long-term loan, or a contribution to capital. The determination of our board of directors as to how to account for a cash transfer will affect each Group’s financial statements.

      Any cash transfers that our board of directors determines to account for as capital contributions or returns of capital will increase or decrease APOL’s retained interest in University of Phoenix Online. Although our board of directors would calculate any change in the retained interest by reference to the then current market value of University of Phoenix Online common stock, the change could come at a time when University of Phoenix Online common stock is considered to be overvalued or undervalued. Also, any increase in APOL’s retained interest in University of Phoenix Online will reduce the percentage of University of Phoenix Online’s business intended to be represented by outstanding University of Phoenix Online common stock.

Principles of Arizona law may protect decisions of our board of directors that have a disparate impact upon holders of APOL common stock and University of Phoenix Online common stock.

      Principles of Arizona law, established in cases involving differing treatment of multiple series of common stock, provide that a board of directors owes an equal duty to all common shareholders regardless of class or series and does not have separate or additional duties to any group of shareholders. We are not aware of any legislative or judicial precedent involving the fiduciary duties of directors of an Arizona corporation with multiple series of common stock with separate rights related to specified operations of the corporation. However, under the principles of Arizona law referred to above and the related principle known as the “business judgment rule,” you may not be able to challenge decisions that have a disparate impact upon holders of APOL common stock and holders of University of Phoenix Online common stock if our board of directors:

	•	is disinterested and adequately informed with respect to those decisions; and
	•	acts in good faith and in the belief that it is acting in the best interests of our common shareholders as a whole.

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Shareholders will not vote on how to allocate consideration received in connection with a merger among holders of APOL common stock and holders of University of Phoenix Online common stock.

      Our proposed amended and restated articles of incorporation do not contain provisions governing how consideration received in connection with a merger or consolidation involving us is to be allocated between holders of APOL common stock and holders of University of Phoenix Online common stock. Neither the holders of APOL common stock nor the holders of University of Phoenix Online common stock will have a separate class vote in any merger or consolidation so long as our board of directors divides the type and amount of consideration between holders of APOL common stock and holders of University of Phoenix Online common stock in a manner it determines, in its sole discretion, to be fair. In any merger or consolidation, the different ways our board of directors may divide the consideration may have materially different results. As a result, the consideration to be received by holders of APOL common stock or holders of University of Phoenix Online common stock in any merger or consolidation may be materially less valuable than the consideration that holders of APOL common stock or holders of University of Phoenix Online common stock would have received if they had a separate class vote on the merger or consolidation.

Our board of directors’ right to convert University of Phoenix Online common stock to Class A APOL common stock may be disadvantageous to holders of APOL common stock or holders of University of Phoenix Online common stock.

      Our board of directors has the right to convert shares of University of Phoenix Online common stock to Class A APOL common stock at any time and pay a premium in certain cases. Because the conversion may be at a premium, and since our board of directors could determine to effect an exchange at a time when either or both of University of Phoenix Online common stock and APOL common stock may be considered to be overvalued or undervalued, any conversion may be disadvantageous to holders of APOL common stock or holders of University of Phoenix Online common stock.

We may dispose of assets allocated to either APOL or University of Phoenix Online without your approval.

      The holders of APOL and University of Phoenix Online common stock will not be entitled to vote upon a sale of all or any portion of the assets of APOL or University of Phoenix Online. If we dispose of all or substantially all of the assets allocated to APOL or the assets allocated to University of Phoenix Online, our board of directors would be required, if the disposition is not an exempt disposition under the terms of our amended and restated articles of incorporation, to choose one of the following three alternatives:

	•	declare and pay a dividend;
	•	redeem shares of the relevant series of common stock; or
	•	convert shares of the relevant series of common stock to outstanding shares of another series with a premium in certain cases.

      Consequently, holders of either APOL or University of Phoenix Online common stock may receive less value for their shares than the value that a third-party buyer might pay for all or substantially all of the assets of such Group separately. If our board of directors elects to effect a conversion of shares in connection with the disposition, they could do so as one of the three alternatives required in connection with the disposition. Any such conversion could be completed at a time when University of Phoenix Online common stock or APOL common stock may be considered to be overvalued or undervalued.

      Our board of directors will decide, in its sole discretion, how to proceed and is not required to select the option that would result in the highest value to holders of APOL common stock or holders of University of Phoenix Online common stock. The decision, however, will be subject to our board of directors’ general fiduciary duties pursuant to the business judgment rule.

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We do not expect to pay dividends on our common stock and our board of directors may pay unequal dividends on APOL common stock and University of Phoenix Online common stock.

      We do not expect to pay any dividends for the foreseeable future. Our board of directors, however, has the right to pay dividends on APOL common stock or University of Phoenix Online common stock, or both, in equal or unequal amounts, notwithstanding:

	•	the performance of either Group;
	•	the amount of prior dividends declared on either APOL common stock or University of Phoenix Online common stock; or
	•	any other factor.

      In addition, net losses of either Group, and any dividends or distributions on, or repurchases of, the common stock of either Group, will reduce our assets legally available for dividends on the common stock of both Groups.

Our board of directors may make operational and financial decisions that affect APOL and University of Phoenix Online differently.

      Our board of directors, in its sole discretion, will make operational and financial decisions and implement policies that affect the businesses of APOL and University of Phoenix Online differently. Examples include:

	•	transfers of funds between APOL and University of Phoenix Online;
	•	the manner of accounting for transfers of funds between APOL and University of Phoenix Online;
	•	allocations of funds for capital expenditures;
	•	the allocation of financing opportunities in public markets;
	•	the allocation of business opportunities, resources and personnel; and
	•	other transactions between APOL and University of Phoenix Online.

      Decisions of our board of directors may favor one Group at the expense of the other. The decision to provide funds for University of Phoenix Online, for example, may adversely affect APOL’s ability to obtain funds sufficient to implement its growth strategies.

Our board of directors has broad discretion regarding allocation matters and may make allocations in a manner that is disadvantageous to holders of APOL common stock or holders of University of Phoenix Online common stock.

      Our board of directors will determine, in its sole discretion, how to allocate issuances of debt or preferred stock between each Group. Moreover, our board of directors will have broad discretion as to how to separate our consolidated assets, liabilities, revenues, expenses and cash flows between each Group. The discretion of our board of directors in these areas makes an investment in APOL common stock and University of Phoenix Online common stock riskier than an investment in ordinary common stock.

      Our board of directors may be required to allocate corporate opportunities between APOL and University of Phoenix Online. In some cases, our board of directors could determine that a corporate opportunity, such as a business that APOL is acquiring, should be shared by APOL and University of Phoenix Online. These decisions could favor either Group at the other’s expense.

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The opinion of our tax advisors regarding the classification of University of Phoenix Online common stock as our common stock is not binding on the Internal Revenue Service and the issuance of University of Phoenix Online common stock could be taxable to us, and the conversion of Class A APOL common stock could be taxable to holders of Class A APOL common stock.

      Although PricewaterhouseCoopers LLP, our tax advisors, has opined that University of Phoenix Online common stock will be treated as our common stock for U.S. federal income tax purposes, the opinion is not binding on the Internal Revenue Service. Because the treatment of tracking stock such as University of Phoenix Online common stock is subject to some uncertainty, it is possible that the Internal Revenue Service could assert successfully that University of Phoenix Online common represents property other than our stock. If treated as property other than our stock, the issuance of University of Phoenix Online common stock could be taxable to us. Further, the conversion of Class A APOL common stock to University of Phoenix Online common stock (or other tracking stock) in connection with any future sale of all or substantially all the assets of APOL, otherwise accorded nonrecognition under the Code, could be taxable to holders of Class A APOL common stock at the time of any such conversion.

A legislative proposal of the Clinton Administration could result in taxation to us or holders of Class A APOL common stock.

      A legislative proposal made by the Clinton Administration in February 2000 would, if enacted, require the recognition of taxable income by shareholders upon the receipt of tracking stock in a distribution made by a corporation with respect to its stock and tracking stock received in exchange for other stock in the issuing corporation, and give the Treasury Department the authority to treat tracking stock as nonstock or as stock of another entity, as appropriate.

      The February 2000 legislative proposal is similar to a proposal made by the Clinton administration in February 1999. Tax legislation enacted by Congress subsequent to the Clinton Administration’s 1999 proposal did not include any provisions corresponding to the proposals. However, we cannot predict whether either of the Clinton Administration proposals will be enacted by Congress and, if enacted, whether they will be in the form proposed. If either of the Clinton Administration proposals or a similar proposal is enacted, then we could be subject to tax on the issuance of University of Phoenix Online common stock issued on or after the date of enactment. Additionally, holders of Class A APOL common stock could be subject to tax on any future conversion of Class A APOL common stock to University of Phoenix Online common stock (or other tracking stock) associated with any future sale of all or substantially all of the assets of APOL after the date of enactment.

We have the right to convert shares of APOL common stock or University of Phoenix Online common stock to shares of common stock of a subsidiary of ours in connection with a spin-off of any Group without the approval of holders of APOL common stock or University of Phoenix Online common stock, and that conversion and related transactions may be taxable to us and to holders of APOL common stock and holders of University of Phoenix Online common stock.

      We will have the right, at any time, to transfer assets of any Group to a subsidiary of ours and, in that event, to convert common stock of that Group to stock of the subsidiary. Depending on the circumstances at the time, the conversion of common stock could, under current law, be taxable for U.S. federal income tax purposes to us and to all persons receiving stock of the subsidiary.

There are many factors which may inhibit or prevent acquisition bids for APOL or University of Phoenix Online.

      If APOL and University of Phoenix Online were separate companies, any third party interested in acquiring one Group without negotiating with management could seek control of that Group by obtaining control of its outstanding voting stock by means of a tender offer or proxy contest. Although we intend that APOL common stock and University of Phoenix Online common stock will reflect the separate performance of each Group, a person interested in acquiring only APOL or University of Phoenix Online

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      The existence of a “tracking” stock presents complexities and could in certain circumstances pose obstacles, financial and otherwise, to an acquiring person. The existence of a “tracking” stock could, under some circumstances, prevent shareholders from profiting from an increase in the market value of their shares as a result of a change in control of us by delaying or preventing such a change in control.

      In addition, some provisions of our proposed amended and restated articles of incorporation, our bylaws, and some provisions of Arizona law, may inhibit changes of control not approved by our board of directors.

The values of APOL common stock and University of Phoenix Online common stock may decline due to future issuances of APOL common stock and University of Phoenix Online common stock.

      Our proposed amended and restated articles of incorporation would permit our board of directors, in its sole discretion, to issue authorized but unissued shares of common stock. Our board of directors may issue APOL common stock or University of Phoenix Online common stock to, among other things:

	•	raise capital;
	•	provide compensation or benefits to employees;
	•	pay stock dividends; or
	•	acquire companies or businesses.
	•	effect conversions of stock authorized under our proposed amended and restated articles of incorporation.

      Under Arizona law, our board of directors would not need the approval of the holders of APOL common stock or holders of University of Phoenix Online common stock for these issuances. Our board of directors does not intend to seek the approval of the holders of APOL common stock or holders of University of Phoenix Online common stock for any such issuances unless:

	•	stock exchange regulations or other applicable law requires approval; or
	•	our board of directors deems it advisable.

We may not offer University of Phoenix Online common stock at all.

      This Proxy Statement describes our current intentions regarding future issuances of University of Phoenix Online common stock. Because such issuances are subject to various conditions and uncertainties, we cannot assure you that any offering will occur.

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DESCRIPTION OF CAPITAL STOCK

      The following description is not complete and should be read with Annex B to this Proxy Statement, which contains the full text of our amended and restated articles of incorporation, which will be filed with the Arizona Corporation Commission if the Tracking Stock Proposal is approved.

      This description uses University of Phoenix Online common stock to illustrate certain provisions of our amended and restated articles of incorporation. Should we decide in the future to issue other similar series of common stock, the provisions described below would generally apply to such series. However, our board of directors will have authority to determine the specific powers, preferences, and relative, participating, optional, or other rights and the qualifications, limitations, and restrictions thereof, if any, of each series of common stock.

      This description refers in several places to “APOL’s retained interest in University of Phoenix Online.” This represents the ownership of APOL in that portion of University of Phoenix Online that is not represented by University of Phoenix Online common stock. The size of this retained interest relative to the interest represented by University of Phoenix Online common stock may change in the future if actions are taken, such as issuances of additional shares of University of Phoenix Online common stock, repurchases of University of Phoenix Online common stock, or transfers of cash or other property between APOL and University of Phoenix Online that change either the total amount of the assets of University of Phoenix Online or the number of shares of University of Phoenix Online common stock that are outstanding. These actions, and the effect that they would have on holders of our common stock, are described further in this section under the caption “APOL’s Retained Interest.” See Annex A to this Proxy Statement, “Illustration of Certain Terms — Part I — APOL’s Retained Interest in University of Phoenix Online” for further discussion of certain terms defined in this section.

General

      Currently, our articles of incorporation provide authorization for the issuance of the following:

	•	400 million shares of Class A nonvoting common stock;
	•	3 million shares of Class B voting common stock; and
	•	1 million shares of preferred stock.

      We are proposing to amend our articles of incorporation to also provide authorization for issuance of the following:

	•	400 million shares of University of Phoenix Online common stock; and
	•	400 million shares of one or more additional series of undesignated common stock.

      Further, if our articles of incorporation are amended, each outstanding share of non-voting Class A common stock will be reclassified as Class A APOL common stock and each outstanding share of Class B voting common stock will be reclassified as Class B APOL common stock. Further, up to  shares of University of Phoenix Online common stock may be offered for sale to the public.

      University of Phoenix Online common stock is intended to reflect the performance of University of Phoenix Online. The Class A APOL common and the Class B APOL common stock (collectively, the APOL common stock) are intended to reflect the performance of the rest of the businesses conducted by us and our subsidiaries, including a retained interest in University of Phoenix Online.

      Our board of directors may decide to issue shares of one or more series of common stock, in addition to University of Phoenix Online common stock and APOL common stock, that would track or reflect the performance of one or more divisions of our business. The assets and liabilities to which such series of stock would relate, as determined by our board of directors, would thereafter constitute an additional “Group” (as such term is defined below).

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Definitions

      The following capitalized terms used in this section and other places in this Proxy Statement are defined below:

	•	All or Substantially All of the Assets — means, with respect to a Disposition by a Group, a portion of assets that represents at least 80% of the Fair Value (determined as of the Disposition Date) of the assets of such Group.
	•	APOL common stock — means the Class A APOL common stock and the Class B APOL common stock.
	•	Available Dividend Amount — means as follows:

	(a)	For APOL, on any day on which dividends are paid on shares of APOL common stock, Available Dividend Amount means the amount that would, immediately prior to the payment of such dividends, be legally available for the payment of dividends on shares of APOL common stock under Arizona law on such day if (i) APOL and each other Group were each a single, separate Arizona corporation, (ii) APOL had outstanding (a) a number of shares of common stock equal to the number of shares of APOL common stock that are then outstanding and (b) a number of shares of preferred stock equal to the number of shares of our preferred stock that have been attributed to APOL and that are then outstanding, (iii) the assumptions about each other Group set forth in the following paragraph were true, and (iv) APOL owned a number of shares of each series of common stock (other than APOL common stock) equal to the Number of Shares Issuable with Respect to APOL’s Retained Interest in each Group to which each such series of common stock relates; and
	(b)	For University of Phoenix Online or any other Group other than APOL, on any day on which dividends are paid on shares of one or more series of common stock of such Group, Available Dividend Amount means the amount that would, immediately prior to the payment of such dividends, be legally available for the payment of dividends on shares of common stock relating to such Group under Arizona law on such day if (i) such Group were a single, separate Arizona corporation and (ii) such Group had outstanding (a) a number of shares of common stock equal to the sum of the number of shares of the series of common stock relating to such Group that are then outstanding and the Number of Shares Issuable with respect to APOL’s Retained Interest in such Group, and (b) a number of shares of preferred stock equal to the number of shares of preferred stock of Apollo Group that have been attributed to such Group, if any, that are then outstanding.

	For purposes of this definition, APOL shall be as defined in our proposed amended and restated articles of incorporation.

	•	Convertible Securities — at any time means any securities of us or of any subsidiary of ours, including warrants and options, outstanding at such time that by their terms are convertible into or exchangeable or exercisable for or evidence the right to acquire any shares of any series of common stock of us, whether convertible, exchangeable, or exercisable at such time or a later time or only upon the occurrence of certain events, but in respect of antidilution provisions of such securities only upon the effectiveness thereof.
	•	Disposition — means a sale, transfer, assignment, or other disposition (whether by merger, consolidation, sale, or contribution of assets or stock or otherwise) of All or Substantially All of the Assets of a Group to one or more persons or entities in one transaction or a series of related transactions.
	•	Effective Date — means the date on which our amended and restated articles of incorporation are first filed with the Arizona Corporation Commission.
	•	Exempt Disposition — includes any of the following:

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	(a)	a Disposition in connection with our dissolution or our liquidation and winding-up and the distribution of assets to our shareholders;
	(b)	a Disposition to any person or entity controlled by us, as determined by our board of directors;
	(c)	a Disposition in connection with a Related Business Transaction;
	(d)	a dividend, out of any Group’s assets, paid to holders of the related series of common stock and a transfer of a corresponding amount to APOL in respect of its retained interest in such Group;
	(e)	a dividend out of APOL’s assets to holders of capital stock of APOL;

	(f)	a Disposition by any Group other than APOL or University of Phoenix Online that is designated an “Exempt Disposition” by our board of directors in the resolution or resolutions authorizing the issuance of the shares of the series of common stock that relates to such Group; and

	(g)	any other Disposition, if (i) at the time of the Disposition there are no shares of any series of common stock of us outstanding other than the series of common stock relating to the Group that consummated such Disposition or (ii) at the time of the Disposition there are no shares of the series of common stock relating to the Group that consummated such Disposition outstanding.

	•	Fair Value — means, (i) in the case of cash, the amount thereof; (ii) in the case of securities of a series that is publicly traded, the Market Value thereof (if such value can be determined); and (iii) in the case of a security that is not publicly traded (or for which such value cannot be determined) or in the case of property other than cash and securities, an amount determined in good faith by our board of directors.
	•	Group — means APOL or University of Phoenix Online, as the case may be. Additionally, if our board of directors authorizes the issuance of a series of common stock other than APOL common stock or University of Phoenix Online common stock, our board of directors will designate the assets and liabilities of us to which such series of common stock relates, which assets and liabilities shall be an additional “Group.”
	•	Group Subsidiaries — means one or more wholly owned subsidiaries of us.
	•	Issuance Date — means with respect to common stock relating to a Group, the date of the first issuance of shares of common stock of such Group.
	•	Market Value — means, with respect to any class or series of capital stock on any trading day, generally the average of the high and low reported sale prices of a share of such class or series on such trading day, subject to certain exceptions described in our proposed amended and restated articles of incorporation.
	•	Net Proceeds — means, with respect to a Disposition of All or Substantially All of the assets of a Group, the positive amount, if any, remaining from the gross proceeds of such Disposition after any payment of, or reasonable provision (as determined in good faith by our board of directors) for, (a) any taxes payable by us or any subsidiary or affiliate of ours in respect of such Disposition or which would have been payable but for the utilization of tax benefits attributable to the Group not the subject of the Disposition, (b) any taxes payable by us in respect of any resulting dividend, redemption, or conversion, (c) any transaction costs, including, without limitation, any legal, investment banking, and accounting fees and expenses, and (d) any liabilities (contingent or otherwise) of, attributed to or related to, such Group, including, without limitation, any liabilities for deferred taxes or any indemnity or guarantee obligations that are outstanding or incurred in connection with the Disposition or otherwise, any liabilities for future purchase price adjustments, and any obligations with respect to outstanding securities (other than common stock) attributed to such Group as determined in good faith by our board of directors.

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	•	Number of Shares Issuable with Respect to APOL’s Retained Interest — means, with respect to APOL’s retained interest in any Group other than APOL, the number of shares that our board of directors designates prior to the time we first issue shares of the series of common stock applicable to such Group as adjusted in accordance with our proposed amended and restated articles of incorporation. In the context of University of Phoenix Online, the Number of Shares Issuable with Respect to APOL’s Retained Interest refers generally to the number of shares of University of Phoenix Online common stock that could be sold or otherwise issued by us for the account of APOL in respect of APOL’s retained interest in University of Phoenix Online. APOL’s retained interest in University of Phoenix Online is not represented by actual shares of University of Phoenix Online common stock.
	•	Outstanding Interest Fraction — as of any time means:

        (a)  with respect to APOL, one (1); and

	(b)	with respect to any other Group, a fraction, expressed as a percentage, the numerator of which is the number of shares of the series of common stock applicable to such Group outstanding as of such time and the denominator of which is the sum of the number of shares of the series of common stock applicable to such Group outstanding at such time and the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group at such time.

	•	Related Business Transaction — means any Disposition of All or Substantially All of the Assets of a Group that results in the receipt, in exchange for such assets, of primarily equity securities (including, without limitation, capital stock, debt securities convertible into or exchangeable for equity securities, or interests in a general or limited partnership or limited liability company, without regard to the voting power or other management or governance rights associated therewith), of any entity which:

	(a)	acquires such properties, assets, stocks, or securities or succeeds, by merger, formation of a joint venture, or otherwise, to the business conducted with such properties or assets or controls such acquiror or successor; and
	(b)	is primarily engaged or proposes to engage primarily in one or more businesses similar or complementary to the businesses conducted by such Group prior to such Disposition, as determined by our board of directors.

	•	Retained Interest Fraction — as of any time means:

        (a)  with respect to APOL, one (1); and

	(b)	with respect to any other Group, a fraction, expressed as a percentage, the numerator of which is the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group at such time and the denominator of which is the sum of the number of shares of common stock applicable to such Group outstanding at such time and the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group at such time.

	•	Tax Event — means generally the receipt by us of an opinion of a tax advisor of our choice experienced in such matters, who is not an officer or employee of us or any of our affiliates, to the effect that, as a result of any amendment to, or change in, the laws, or any regulations thereunder, of the U.S. or any political subdivision or taxing authority thereof or therein (including any announced proposed change by an administrative agency in such regulations) or as a result of any official or administrative pronouncement or action or judicial decision interpreting or applying such laws or regulations, it is more likely than not that for U.S. federal income tax purposes:

	(a)	us, our subsidiaries or affiliates, or any of our successors or its shareholders is or, at any time in the future, will be subject to tax upon the issuance of shares of either APOL common stock or University of Phoenix Online common stock; or

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	(b)	either APOL common stock or University of Phoenix Online common stock is not or, at any time in the future, will not be treated solely as our stock.

	For purposes of rendering such opinion, the tax advisor will assume that any administrative proposals will be adopted as proposed. However, in the event a change in law is proposed, the tax advisor will render an opinion only in the event of enactment.

Description of APOL Common Stock and University of Phoenix Online Common Stock

  Dividends

      Our board of directors will retain the discretion whether or not to pay dividends on any series of common stock. However, it is not expected that dividends will be paid on any series of common stock.

      Dividends on APOL common stock and University of Phoenix Online common stock will further be limited to the lesser of (i) the Available Dividend Amount with respect to such Group and (ii) the amount available for the payment of dividends by us under Arizona law. The Available Dividend Amount with respect to each Group is intended to be similar to the amount that would be legally available for the payment of dividends on the stock of such Group under Arizona law if such Group were a separate company. There can be no assurance that there will be an Available Dividend Amount with respect to any Group.

      Subject to the prior payment of dividends on outstanding shares of preferred stock and the foregoing limitations, our board of directors could, in its sole discretion, declare and pay dividends exclusively on APOL common stock, exclusively on University of Phoenix Online common stock, or on both series, in equal or unequal amounts, notwithstanding the relative amounts of the Available Dividend Amount with respect to APOL and the Available Dividend Amount with respect to University of Phoenix Online, the amount of prior dividends declared on each series, the respective voting or liquidation rights of each series, or any other factor.

      At the time of any dividend or other distribution on the outstanding shares of University of Phoenix Online common stock, APOL would be credited, and University of Phoenix Online would be charged, with an amount equal to the product of:

	•	the Fair Value of such dividend or distribution paid or distributed in respect of the outstanding shares of University of Phoenix Online common stock, multiplied by
	•	a fraction the numerator of which is the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online on the record date for such dividend or distribution and the denominator of which is the total number of shares of University of Phoenix Online common stock outstanding on the record date.

      This latter amount would also be treated as a dividend on University of Phoenix Online common stock and, accordingly, dividends actually paid to holders of University of Phoenix Online common stock would be authorized only if such amounts, combined with the amounts credited to APOL, as determined above, equal or exceed the lesser of: (i) the Available Dividend Amount with respect to University of Phoenix Online; and (ii) the amounts available for the payment of dividends by us.

  Mandatory Dividend, Redemption, or Conversion of Common Stock

      Upon a Disposition, other than an Exempt Disposition, of All or Substantially All of the Assets of a Group, we will be required, on or prior to the 85th trading day after the consummation of such Disposition, provided that the assets are legally available therefor, to do the following:

      If the Group that consummated the Disposition is APOL:

	(i)  declare and pay a dividend, subject to all applicable limitations on the payment of dividends, to holders of APOL common stock (in cash, securities (other than common stock) or other property) in an aggregate amount having a Fair Value (determined as of the date of the Disposition) equal to

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	the Fair Value (determined as of the date of the Disposition) of the Net Proceeds of such Disposition; or
	(ii)  redeem, subject to all applicable limitations on the redemption of stock, from the holders of Class A APOL common stock, in exchange for an aggregate amount equal to the product of (i) a fraction the numerator of which is the number of outstanding shares of Class A APOL common stock as of the redemption date and the denominator of which is the number of outstanding shares of APOL common stock as of the redemption date, multiplied by (ii) the Fair Value (determined as of the date of the Disposition) of the Net Proceeds of such Disposition, all of the outstanding shares of Class A APOL common stock, unless the Disposition involves substantially all (but not all) of the assets relating to APOL, in which case, the number of shares of Class A APOL common stock redeemed would be the number of shares (rounded if necessary to the nearest whole number) having an aggregate Market Value during the 20 consecutive trading day period beginning on (and including) the 16th trading day immediately following the date of the Disposition equal to the aggregate amount described above; or
	(iii)  convert shares of Class A APOL common stock to shares of common stock that does not relate to APOL based on the average Market Value of Class A APOL common stock compared to the average Market Value of such other common stock during the 20 consecutive trading day period beginning on (and including) the 16th trading day immediately following the date of the Disposition. Additionally, a premium may be payable in connection with any such conversion depending on the date of the Disposition. The premium will be 10% if the conversion occurs before the second anniversary of the issuance of University of Phoenix Online common stock. However, no premium will be payable if the conversion occurs after the occurrence of a Tax Event or if the Disposition occurs on or after the second anniversary of the issuance of University of Phoenix Online common stock.

      If the Group that consummated the Disposition is University of Phoenix Online or any other Group (other than APOL) then, except as otherwise provided by our board of directors with respect to any Group other than APOL or University of Phoenix Online:

	(i)  declare and pay a dividend, subject to all applicable limitations on the payment of dividends, to holders of common stock relating to the Group that consummated the Disposition (in cash, securities (other than common stock) or other property) in an aggregate amount having a Fair Value (determined as of the date of the Disposition) equal to the product of (i) the Outstanding Interest Fraction relating to the Group that consummated the Disposition (determined as of the record date for such dividend) and (ii) the Fair Value (determined as of the date of the Disposition) of the Net Proceeds of such Disposition; or
	(ii)  redeem, subject to all applicable limitations on the redemption of stock, from the holders of common stock relating to the Group that consummated the Disposition, in exchange for an aggregate amount equal to the product of (i) the Outstanding Interest Fraction relating to the Group that consummated the Disposition (determined as of the date of the redemption) and (ii) the Fair Value (determined as of the date of the Disposition) of the Net Proceeds of such Disposition, all of the outstanding shares of common stock relating to the Group that consummated the Disposition, unless the Disposition involves substantially all (but not all) of the assets relating to the Group that consummated the Disposition, in which case, the number of shares of common stock relating to the Group that consummated the Disposition redeemed would be the number of shares (rounded if necessary to the nearest whole number) having an aggregate Market Value during the 20 consecutive trading day period beginning on (and including) the 16th trading day immediately following the date of the Disposition equal to the aggregate amount described above; or
	(iii)  convert shares of common stock relating to the Group that consummated the Disposition to shares of Class A APOL common stock based on the average Market Value of common stock relating to the Group that consummated the Disposition compared to the average Market Value of Class A APOL common stock during the 20 consecutive trading day period beginning on (and including) the 16th trading day immediately following the date of the Disposition. Additionally, a

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premium may be payable in connection with any such conversion. In connection with University of Phoenix Online common stock, the premium will be 10% if the date of the Disposition occurs before the second anniversary of the Issuance Date; however, no premium will be payable if the date of the Disposition occurs after the occurrence of a Tax Event or if the disposition occurs on or after the second anniversary of the Issuance Date. The premium with respect to common stock relating to any other Group (other than APOL) will be as determined by our board of directors.

      See Annex A to this Proxy Statement “Illustration of Certain Terms — Part II — Mandatory Dividend, Redemption, or Conversion of Common Stock” for an illustration of the three options available to us in connection with a hypothetical Disposition of the assets allocated to University of Phoenix Online.

      At any time within one year of completing any dividend or partial redemption of the kind referred to in paragraphs (i) or (ii) above, we will have the right to convert shares of common stock of the Group that consummated the Disposition (or shares of Class A APOL common stock if APOL is the Group that consummated the Disposition) in a manner consistent with the conversion described in paragraph (iii) above. In determining whether to effect any such conversion following such a dividend or partial redemption, we would, in addition to other matters, consider:

	•	whether the remaining assets attributable to the Group continue to constitute a viable business;
	•	the number of shares of common stock of the Group remaining outstanding;
	•	the per share market price of common stock of the Group; and
	•	the ongoing cost of continuing to have a separate series of common stock of the Group outstanding.

      There could be substantial benefits or detriments to the holders of common stock relating to the Group that consummated the Disposition depending on the payment alternative selected by our board of directors following the Disposition and also depending on, among other factors: (1) the relative amount and type of consideration received in any such Disposition; (2) the tax basis of the assets disposed of; (3) the tax basis of the holders in their shares of stock; and (4) the Market Value of the applicable common stock. For example, if All or Substantially All of the Assets of University of Phoenix Online are sold or otherwise disposed of and the tax basis of such assets is low, the payment of a dividend with respect to, or the redemption of, University of Phoenix Online common stock would result in the holders of University of Phoenix Online common stock bearing all of the corporate taxes on that Disposition while the conversion of University of Phoenix Online common stock to Class A APOL common stock may result in that tax cost being shared by all of the holders of APOL common stock to the extent that the Market Value of University of Phoenix Online common stock did not adjust to fully account for such taxes. Also, depending on the Market Value of University of Phoenix Online common stock and Class A APOL common stock at the applicable time following the Disposition, our board of directors’ determination to pay a dividend on, or redeem shares of, University of Phoenix Online common stock as compared to converting shares of University of Phoenix Online common stock to shares of Class A APOL common stock could result in more or less value to holders of University of Phoenix Online common stock.

  Conversions of Stock at Our Option

      Conversions of University of Phoenix Online Common Stock Generally. Assuming that assets are available therefor, our board of directors will have the right, at any time to convert outstanding shares of University of Phoenix Online common stock to shares of Class A APOL common stock based on the average Market Value of University of Phoenix Online common stock compared to the average Market Value of Class A APOL common stock during the 20 consecutive trading day period ending on (and including) the 5th trading day preceding the date of notice of such conversion. Additionally, a premium may be payable depending on the date of the conversion. The premium will be 25% if the conversion occurs during the first year after the Issuance Date; 20% if the conversion occurs during the second year after the Issuance Date; 15% if the conversion occurs during the third year after the Issuance Date; and 10% if the conversion occurs thereafter. However, no premium will be payable if the conversion occurs at

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      See Annex A to this Proxy Statement “Illustration of Certain Terms — Part III — Optional Conversion of University of Phoenix Online Common Stock” for an illustration demonstrating the calculation of the number of shares issuable upon a conversion of University of Phoenix Online common stock to shares of Class A APOL common stock at our option.

      Except as otherwise provided by our board of directors, we will also have the right to convert shares of common stock relating to any other Group (other than APOL) to shares of Class A APOL common stock. The terms governing such conversions, including the payment of any applicable premium, will be as determined by our board of directors.

      These conversion rights allow our board of directors the flexibility to recapitalize the multiple series of our common stock into one series of common stock that would, after such recapitalization, represent an equity interest in all the businesses of us and our subsidiaries. The optional conversion rights could be exercised at any time, if, for example, our board of directors determined, that under the facts and circumstances then existing, an equity structure consisting of multiple series of common stock was no longer in the best interests of our shareholders. Such conversion could be effected, however, at a time that is disadvantageous to holders of one of the series of common stock. See “Risk Factors.”

      The conversion rights incorporated into University of Phoenix Online common stock were designed to strike an appropriate balance between (a) providing us with sufficient future flexibility and (b) providing investors in University of Phoenix Online common stock with some degree of certainty that their stock would not be Class A APOL common stock in the near future without a premium. The terms that have been adopted regarding conversions of University of Phoenix Online common stock are similar to the terms of recent issuances of tracking stock and were derived by our board of directors in consultation with its financial and legal advisors.

      Conversion of Common Stock to Stock of an Apollo Group Subsidiary. At any time at which all of the assets and liabilities of APOL or University of Phoenix Online and no other assets or liabilities of ours or of a subsidiary of ours are held directly or indirectly by one or more Group Subsidiaries, our board of directors will have the right, assuming that the assets are available therefor, to convert all of the outstanding shares of common stock relating to such Group to the number of shares of common stock of each of such Group Subsidiaries as is equal to the product of (i) the Outstanding Interest Fraction with respect to such Group, multiplied by (ii) the number of shares of common stock of each such Group Subsidiary as will be outstanding immediately following such conversion. The remaining shares of common stock of such Group Subsidiaries will either be retained by us or other Group Subsidiaries, or distributed by us to holders of APOL common stock, or a combination of the foregoing.

      If the series of common stock being converted is APOL common stock and the Number of Shares Issuable with Respect to APOL’s Retained Interest in any Group other than APOL on the date of conversion is greater than zero, we will also issue a number of shares of common stock that relates to such Group on the date of the conversion equal to the then current Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group which will be delivered to the holders of APOL common stock or to one of the Group Subsidiaries.

      Except as otherwise provided by our board of directors, similar conversion rights will apply if all of the assets and liabilities of any other Group are held by one or more Group Subsidiaries.

      These conversion rights are intended to give us increased flexibility with respect to spinning off the assets of one or more Groups to one or more wholly owned subsidiaries of ours and converting the common stock of such Groups to common stock of such wholly owned subsidiaries.

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  Effects On Convertible Securities

      The following provisions with respect to Convertible Securities only apply to the extent that the terms of such Convertible Securities do not provide for adjustments in the event of a conversion or exchange of a series of common stock described above.

      After any conversion date on which all outstanding shares of any series of common stock were converted, any share of such series of common stock that is to be issued on conversion, exchange, or exercise of any Convertible Securities will, immediately upon such conversion, exchange, or exercise and without any notice or any other action on the part of, us or our board of directors or the holder of such Convertible Security, in the event the shares of such series of common stock outstanding on such conversion date were converted into shares of the series of common stock relating to the other Group, or another series of our common stock, pursuant to the provisions generally described under “Mandatory Dividend, Redemption, or Conversion of Common Stock” and “Conversions of Stock at Our Option,” be converted into the amount of cash and/or the number of shares of the kind of capital stock and/or other securities or property of us that the number of shares of such series of common stock that were to be issued upon such conversion, exchange, or exercise would have received had such shares been outstanding on such conversion date otherwise would be issued upon such conversion, exchange, or exercise.

  General Conversion Provisions

      In the event of any conversion as described above under “Mandatory Dividend, Redemption or Conversion of Common Stock,” and “Conversions of Stock at Our Option,” we will cause to be given to each holder of shares of common stock to be so converted and to each holder of Convertible Securities that are convertible into or exchangeable or exercisable for shares of such common stock, unless alternate provision for such notice to the holders of such Convertible Securities is made pursuant to the terms of such Convertible Securities, a notice setting forth:

	(1)  a statement that all (or, in the case of a conversion following a Disposition, if applicable, a specified number) of outstanding shares of common stock will be converted;
	(2)  the conversion date, which, in the case of a conversion after a Disposition, will not be more than 85 trading days following the consummation of such Disposition;
	(3)  the per share number of shares of common stock to be received with respect to each share of common stock to be converted, including details as to the calculation thereof;
	(4)  the place or places where certificates for shares of common stock to be converted, properly endorsed or assigned for transfer, unless we waive such requirement, are to be surrendered for delivery of certificates for shares of common stock to be received;
	(5)  the number of outstanding shares of common stock of the series to be received and the number of shares of common stock into or for which outstanding Convertible Securities are then convertible, exchangeable, or exercisable;
	(6)  a statement to the effect that, except as otherwise provided below, dividends on such shares of common stock relating to a Group will cease to be paid as of such conversion date; and
	(7)  in the case of notice to be given to holders of Convertible Securities, a statement to the effect that a holder of such Convertible Securities will be entitled to receive shares of common stock upon such conversion only if such holder properly converts, exchanges, or exercises such Convertible Securities on or prior to the conversion date referred to in clause (2) of this paragraph and a statement as to what, if anything, such holder will be entitled to receive pursuant to the terms of such Convertible Securities.

      Such notice will be sent by first-class mail, postage prepaid, to such holder at such holder’s address as the same appears on our transfer books or by such other methods as may be determined from time to time by our board of directors, (a) not more than 40 trading days following a Disposition and not less than 10

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      Neither the failure to mail any notice described above to any particular holder of shares of common stock or of any Convertible Securities nor any defect therein would affect the sufficiency thereof with respect to any other holder of outstanding shares of relevant common stock or of outstanding Convertible Securities, or the validity of any such conversion.

      We will not be required to issue or deliver fractional shares of any capital stock or of any other securities to any holder of University of Phoenix Online common stock upon any conversion or other distribution described above. If more than one share of common stock is held at the same time by the same holder, we may aggregate the number of shares of any capital stock that is issuable or any other securities or property that are distributable to such holder upon any such conversion or other distribution, including any fractions of shares. If the number of shares of any capital stock or the amount of securities remaining to be issued or distributed to any holder of common stock is a fraction, we will, if such fractional shares are not issued or distributed to such holder, pay a cash adjustment in respect of such fractional share in an amount equal to the Fair Value of such fractional share on the fifth trading day prior to the date such payment is to be made, without interest.

      No adjustments in respect of dividends will be made upon the conversion of any shares of common stock. However, if such shares are converted by us after the record date for determining holders of common stock entitled to any dividend or distribution thereon, such dividend or distribution will be payable to the holders of such shares at the close of business on such record date notwithstanding such conversion, in each case without interest.

      Before any holder of common stock will be entitled to receive certificates representing shares of any capital stock, cash, and/or other securities or property to be distributed to such holder with respect to any conversion of shares of common stock, such holder is required to surrender at such place as we specify, certificates for shares of common stock, properly endorsed or assigned for transfer, unless we waive such requirement. As soon as practicable after our receipt of certificates for such shares of common stock, we will deliver to the person for whose account such shares were so surrendered, or to the nominee or nominees of such person, certificates representing the number of whole shares of the kind of capital stock, cash, and/or other securities or property to which such person was entitled, together with any fractional payment referred to below, in each case without interest.

      From and after any conversion of shares of common stock, all rights of a holder of shares of common stock that were converted will cease, except for the right, upon surrender of the certificates representing such shares of common stock, to receive certificates representing shares of the kind and amount of capital stock, cash, and/or other securities or property for which such shares were converted, together with any fractional payment or rights to dividends as provided above, in each case without interest. No holder of a certificate that immediately prior to the conversion represented shares of common stock will be entitled to receive any dividend or other distribution with respect to shares of any kind of capital stock into or in exchange for which shares of such common stock were converted until surrender of such holder’s certificate in exchange for a certificate or certificates representing shares of such kind of capital stock. Upon such surrender, there will be paid to the holder the amount of any dividends or other distributions, without interest, which theretofore became payable with respect to a record date occurring after the conversion, but which were not paid by reason of the foregoing, with respect to the number of whole shares of the kind of capital stock represented by the certificate or certificates issued upon such surrender. From and after a conversion, we will, however, be entitled to treat the certificates for common stock that have not yet been surrendered for conversion as evidencing the ownership of the number of whole shares of the kind of capital stock for which the shares of common stock represented by such certificates should have been converted, notwithstanding the failure to surrender such certificates.

      We will pay any and all documentary, stamp, or similar issue or transfer taxes that may be payable in respect of the issuance or delivery of any shares of capital stock and/or other securities on conversion of

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  Voting Rights

      Holders of Class A APOL common stock and University of Phoenix Online common stock are not entitled to vote, unless a separate class vote is required by applicable law, in which case, each share is entitled to one vote.

      Holders of Class B APOL common stock vote on all matters as to which common shareholders generally are entitled to vote. On all such matters for which no separate vote is required, each outstanding share of Class B APOL common stock entitles the holder to one vote.

      The Arizona general corporation law requires a separate vote of holders of shares of common stock of any series on any amendment to the articles of incorporation if the amendment would alter or change the powers, preferences, or special rights of the shares of such series.

  Liquidation

      In the event of our dissolution or liquidation and winding-up, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of ours and full preferential amounts (including any accumulated and unpaid dividends) to which holders of preferred stock are entitled (regardless of the Group to which such shares of preferred stock were attributed), unless otherwise provided in respect of a series of preferred stock by the resolution of our board of directors fixing the liquidation rights and preferences of such series of preferred stock), the holders of all of our common stock will be entitled to receive our net assets, if any, remaining for distribution to holders of common stock on a per share basis in proportion to the liquidation units per share of each series. Each share of APOL common stock will have one liquidation unit and each share of common stock relating to any Group other than APOL will have a number of liquidation units, which may be a fraction of one liquidation unit, equal to the average Market Value of one share of such common stock during the 20 consecutive trading day period ending on, and including, the 5th trading day before the date of the first public announcement of (i) our voluntary liquidation, dissolution, or winding-up or (ii) the institution of any proceeding for our involuntary liquidation, dissolution, or winding-up, divided by the average Market Value of one share of APOL common stock during such 20 trading day period. Thus, the liquidation rights of the holders of the respective series of our common stock may not bear any relationship to the relative market values of our series of stock.

      In the event of our dissolution or liquidation and winding-up, no holder of APOL common stock, University of Phoenix Online common stock, or common stock relating to any other Group, will have any special right to receive specific assets.

      If we subdivide (by stock split, reclassification, or otherwise) or combine (by reverse stock split, reclassification, or otherwise) the outstanding shares of APOL common stock or common stock of any other Group other than APOL, or declare a dividend in shares of APOL common stock or common stock of any other Group other than APOL to holders of such series of common stock, the number of liquidation units of APOL common stock or the number of liquidation units of common stock of any other Group other than APOL, as applicable, will be appropriately adjusted as determined by our board of directors (if necessary) so as to avoid any dilution in the aggregate liquidation rights of either series of common stock.

      Neither our merger or consolidation into or with any other corporation, nor the merger or consolidation of any other corporation into or with University of Phoenix Online, nor any sale, transfer, or

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      Like other tracking and related stock, the liquidation provisions for University of Phoenix Online common stock and APOL common stock do not provide shareholders with proceeds based directly on the value of the underlying assets and liabilities of each Group. However, because the market value of each series of stock may represent the best indirect proxy for the value of each Group, the value realized by each series of shareholders upon our liquidation may approximate the value such holders would realize if liquidation were based on the market value of the underlying assets. These liquidation provisions were adopted for a variety of reasons including (a) providing consistency with other tracking stock transactions, (b) easing the administrative burden of allocating proceeds upon liquidation, and (c) helping to ensure that the series of tracking stock are treated as our capital stock for tax purposes under current law.

  APOL’s Retained Interest

      In this Proxy Statement, the proportional interest in any other Group (other than APOL) intended to be represented at any time by the outstanding shares of the series of common stock that relates to such Group is represented by the Outstanding Interest Fraction and the remaining proportional interest in such Group intended to be represented at any time by APOL’s retained interest in such Group is represented by the Retained Interest Fraction.

      At any time, the Outstanding Interest Fraction in respect of any Group equals the number of shares of the series of common stock that relates to such Group outstanding divided by the sum of the number of shares of such series of common stock outstanding and the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group.

      The Outstanding Interest Fraction in any Group can also be expressed as follows:

Number of Shares of such Series of Common Stock Outstanding

Number of Shares of such Series of Common Stock Outstanding +

      At any time, the Retained Interest Fraction in respect of any Group equals the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group divided by the sum of the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group and the number of shares of the series of common stock that relates to such Group outstanding.

      The Retained Interest Fraction in respect of any Group can also be expressed as follows:

Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group

Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group +

      Attribution of Issuances of Common Stock. Whenever we issue shares of any series of common stock other than APOL common stock, our board of directors will determine, in its sole discretion, whether to attribute that issuance (and the proceeds thereof) to APOL in respect of its retained interest in such Group (in a manner similar to a secondary offering of common stock of a subsidiary owned by a corporate parent) or to such Group (in a manner similar to a primary offering of common stock). If we issue any shares of any series of common stock other than APOL common stock and our board of directors attributes that issuance (and the proceeds thereof) to APOL in respect of APOL’s retained interest in such Group, then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group would be decreased by the number of shares so issued;

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	•	the number of outstanding shares of common stock of such other Group would be increased by the same amount;
	•	the Retained Interest Fraction would be decreased; and
	•	the Outstanding Interest Fraction would be correspondingly increased.

      If our board of directors instead attributes that issuance (and the proceeds thereof) to another Group then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group would remain unchanged;
	•	the number of outstanding shares of common stock relating to such Group would be increased by the number of shares so issued;
	•	the Retained Interest Fraction would be decreased; and
	•	the Outstanding Interest Fraction would be correspondingly increased.

      The sum of the Retained Interest Fraction and the Outstanding Interest Fraction will always equal 100%.

      Assuming that the Tracking Stock Proposal is adopted, we intend to offer to the public, for cash, shares of University of Phoenix Online common stock. Our board of directors has designated           as the initial Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online. Assuming we complete the sale of all           shares, our board of directors will attribute all of the net proceeds to the equity of University of Phoenix Online. The issuance will have no effect on the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online. Thus, assuming all shares of University of Phoenix Online common stock offered are sold:

	•	there would be           shares of University of Phoenix Online common stock outstanding;
	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would remain the same;
	•	the Outstanding Interest Fraction would be      % (determined by dividing        by        ); and
	•	the Retained Interest Fraction would be      % (determined by dividing        by        ).

      Issuances of University of Phoenix Online Common Stock as Distributions. Our board of directors has the right to issue shares of University of Phoenix Online common stock as a distribution on APOL common stock, although it does not currently intend to do so. If it did so, our board of directors would generally attribute that distribution to APOL in respect of APOL’s retained interest in University of Phoenix Online. As a result:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be decreased by the number of shares so distributed;
	•	the number of outstanding shares of University of Phoenix Online common stock would be increased by the same amount;
	•	APOL’s Retained Interest Fraction in University of Phoenix Online would be decreased; and
	•	the Outstanding Interest Fraction would be correspondingly increased.

      If instead our board of directors issued shares of University of Phoenix Online common stock as a distribution on University of Phoenix Online common stock, it would generally attribute that distribution to

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	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be increased by the same percentage as the number of outstanding shares of University of Phoenix Online common stock is increased; and
	•	APOL’s Retained Interest Fraction and Outstanding Interest Fraction in respect of University of Phoenix Online would remain unchanged.

      Repurchases Of University of Phoenix Online Common Stock. If we decide to repurchase shares of University of Phoenix Online common stock, our board of directors would determine whether to attribute that repurchase (and the cost thereof) to APOL (in a manner analogous to a purchase of common stock of a subsidiary by a corporate parent) or to University of Phoenix Online (in a manner similar to an issuer repurchase). If we repurchase shares of University of Phoenix Online common stock and our board of directors attributes that repurchase (and the cost thereof) to APOL, then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be increased by the number of shares so purchased;
	•	the number of outstanding shares of University of Phoenix Online common stock would be decreased by the same amount;
	•	APOL’s Retained Interest Fraction in respect of University of Phoenix Online would be increased; and
	•	the Outstanding Interest Fraction in respect of University of Phoenix Online would be correspondingly decreased.

      If our board of directors instead attributes that repurchase (and the cost thereof) to University of Phoenix Online, then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix would remain unchanged;
	•	the number of outstanding shares of University of Phoenix Online common stock would be decreased by the number of shares so repurchased;
	•	APOL’s Retained Interest Fraction in respect of University of Phoenix Online would be increased; and
	•	the Outstanding Interest Fraction in respect of University of Phoenix Online would be correspondingly decreased.

      Transfers of Cash or Other Property Between APOL and University of Phoenix Online. Our board of directors may, in its sole discretion, determine to transfer cash or other property previously allocated to University of Phoenix Online to APOL in return for a decrease in APOL’s retained interest in University of Phoenix Online (in a manner similar to a return of capital) or to transfer cash or other property of APOL to University of Phoenix Online in return for an increase in APOL’s retained interest in University of Phoenix Online (in a manner similar to a capital contribution). If our board of directors determines to transfer our cash or other property to APOL in return for a decrease in APOL’s retained interest in University of Phoenix Online, then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be decreased by an amount equal to the Fair Value of such cash or other property divided by the Market Value of a share of University of Phoenix Online common stock on the day of transfer;
	•	the number of outstanding shares of University of Phoenix Online common stock would remain unchanged;

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	•	APOL’s Retained Interest Fraction in respect of University of Phoenix Online would be decreased; and
	•	the Outstanding Interest Fraction in respect of University of Phoenix Online would be correspondingly increased.

      If instead our board of directors determines to transfer cash or other property of APOL to University of Phoenix Online in return for an increase in APOL’s retained interest in University of Phoenix Online, then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be increased by an amount equal to the Fair Value of such cash or other property divided by the Market Value of a share of University of Phoenix Online common stock on the day of transfer;
	•	the number of outstanding shares of University of Phoenix Online common stock would remain unchanged;
	•	APOL’s Retained Interest Fraction in respect of University of Phoenix Online would be increased; and
	•	the Outstanding Interest Fraction in respect of University of Phoenix Online would be correspondingly decreased.

      Our board of directors may not attribute issuances of University of Phoenix Online common stock to APOL, transfer cash or other property to APOL in return for a decrease in APOL’s retained interest in University of Phoenix Online, or take any other action if, by doing so, it would cause the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online to decrease below zero.

      For illustrations showing how to calculate the Retained Interest Fraction, the Outstanding Interest Fraction, the Number of Shares Issuable with Respect to APOL’s Interest in University of Phoenix Online, and the number of notional shares of University of Phoenix Online common stock deemed outstanding after giving effect to certain hypothetical dividends, issuances, repurchases and transfers, see Annex A to this Proxy Statement “Illustration of Certain Terms — Part I.”

Preferred Stock

      Our amended and restated articles of incorporation, like our current articles of incorporation, provide that our board of directors has the authority, without further action by our shareholders, to issue from time to time up to 1 million shares of preferred stock in one or more series or series and to fix the number of shares, designations, voting powers, preferences, optional, and other rights and the restrictions or qualifications thereof.

Determinations By The Board

      Our proposed amended and restated articles of incorporation, like our current articles of incorporation, provide that subject to applicable law, any determinations made by the board of directors in good faith under the articles are final and binding on all of our shareholders.

Preemptive Rights

      Holders of APOL common stock and University of Phoenix Online common stock will not have any preemptive rights to subscribe for any additional shares of capital stock or securities that we may issue in the future.

Limitations on Potential Unsolicited Acquisitions; Anti-Takeover Considerations

      If APOL, University of Phoenix Online, or any other any Group were a separate independent company, any person interested in acquiring the Group without negotiating with management could seek control of that Group by obtaining control of its outstanding voting stock by means of a tender offer or proxy contest. Although the common stock relating to each Group is intended to reflect the separate

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      The existence of a “tracking” stock could present complexities and could in certain circumstances pose obstacles, financial and otherwise, to an acquiring person. The existence of a “tracking” stock could, under certain circumstances, prevent shareholders from profiting from an increase in the market value of their shares as a result of a change in control of University of Phoenix Online by delaying or preventing such a change in control.

      Because voting power is controlled by the Class B APOL common stock which is controlled by our current management, an attempt to obtain control of University of Phoenix Online by means of a merger, tender offer, proxy contest or otherwise, is rendered more difficult and protects the continuity of our management.

Certain Effects of Arizona Law

  Business Combinations

      Under Arizona law, any person who acquires 10% or more of the voting power of the common stock of a corporation is considered an “interested shareholder.” For a period of three years after an acquisition, certain business combinations between us and the interested shareholder are prohibited, unless prior to the acquisition of the common stock by the interested shareholder, a committee of “disinterested” directors approves the acquisition of the common stock or the business combination. After the three-year period, only the following three types of business combinations between us and the interested shareholder are permitted:

	•	a business combination approved by our board of directors before the acquisition of common stock by the interested shareholder;
	•	a business combination approved by holders of a majority of the common stock not owned by the interested shareholder; and
	•	a business combination which meets certain conditions relating to price and form of consideration.

  Control Share Acquisitions

      Under Arizona law, a party acquiring any series of our common stock may lose the right to vote some or all of those shares if the acquisition results in that party holding greater than 20%, 33%, or 50% of the outstanding common stock of that series. An acquiring party can avoid losing the right to vote these shares if the right to vote is approved by a majority of the disinterested shareholders. If approval of the right to vote shares is obtained at one of the specified levels, additional shareholder approvals are required when a shareholder seeks to acquire the power to vote shares at the next level.

      Unless otherwise provided in our proposed amended and restated articles of incorporation or bylaws, we may call for redemption of all but not less than all of the acquiring party’s common stock at a redemption price equal to the market value of the shares at the time the call for redemption is given if either:

	•	the acquiring person fails to deliver certain written information to us by the tenth day after crossing any of the specified levels above; or
	•	the shareholders vote not to accord voting rights to such shares.

  Limitation on Share Repurchases

      Under Arizona law, we may not purchase or agree to purchase any shares from a beneficial owner of more than 5% of the voting power of our common stock for more than the “average market price” of the shares if the shares have been owned by the beneficial owner for less than three years unless either:

	•	the purchase or agreement to purchase is approved by shareholders holding a majority of the disinterested voting common stock; or

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	•	we make an offer, of at least equal value per share, to all holders of its voting common stock, and to all holders of any series into which its voting common stock may be converted.

Indemnification and Limitation of Liability

      Our proposed amended and restated articles of incorporation, like our current articles of incorporation, limit the personal liability of directors to us and to our shareholders, for monetary damages for breach of their fiduciary duty as a director except to the extent such limitation of liability is not permitted under Arizona law. Arizona law provides that the liability of a director may not be eliminated or limited for: (1) transactions in which a director receives a financial benefit to which the director is not entitled; (2) an intentional infliction of harm on the corporation or the shareholders; (3) liability for unlawful distributions in violation of Arizona law or the articles of incorporation; or (4) an intentional violation of criminal law. In addition, our bylaws provide that we may indemnify any and all of its directors and officers, or former directors and officers, to the fullest extent permitted by law or by the amended and restated articles of incorporation against claims and liabilities to which such persons may become subject. Arizona law generally provides that indemnification is permissible only when the director or officer acted in good faith and in a manner reasonably believed to be in the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. Subject to that standard of care, indemnification is mandatory under Arizona law for “outside directors” as defined under Arizona law. Indemnification of directors is precluded in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or in connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in the director’s official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director.

Transfer Agent and Registrar

      First Chicago Trust Corporation of New York, a division of Equiserve, is the registrar and transfer agent for Class A APOL common stock and University of Phoenix Online common stock.

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TAX CONSIDERATIONS

      The following discussion is a summary of certain U.S. federal income tax consequences of the Tracking Stock Proposal to us and to holders of APOL common stock. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Department regulations, published positions of the Internal Revenue Service, and court decisions now in effect, all of which are subject to change, possibly with retroactive effect. In particular, Congress could enact legislation affecting the treatment of stock with characteristics similar to University of Phoenix Online common stock. See the discussion of the “Clinton Administration Proposals” below. Additionally, the Treasury Department could issue regulations or other guidance that change current law, including, without limitation, regulations issued under the broad grant of authority under Section 337(d) of the Internal Revenue Code, that affect the treatment of tracking stock, including University of Phoenix Online common stock.

      You should consult with your own tax advisors with regard to the application of the federal income tax laws to your particular situation, as well as to the applicability of any state, local, or foreign tax laws to which you may be subject.

  Treatment of Tracking Stock Proposal

      In the opinion of PricewaterhouseCoopers LLP (our “Tax Advisors”), University of Phoenix Online common stock will be treated as common stock of Apollo Group for U.S. federal income tax purposes. Accordingly, in the opinion of our Tax Advisors, for federal income tax purposes, neither us nor holders of APOL common stock will recognize any income, gain or loss as a result of the Tracking Stock Proposal.

  No Internal Revenue Service Ruling

      No ruling will be sought from the Internal Revenue Service. The Internal Revenue Service has announced that it will not issue any advance rulings on the classification of an instrument that has certain voting and liquidation rights in an issuing corporation but whose dividend rights are determined by reference to the earnings of a segregated portion of the issuing corporation’s assets, including assets held by a subsidiary. In addition, there are no court decisions or other authorities bearing directly on the classification of instruments with characteristics similar to those of University of Phoenix Online common stock. Therefore, the treatment of tracking stock such as University of Phoenix Online common stock is subject to some uncertainty under current law. It is possible that the Internal Revenue Service could assert successfully that the issuance of University of Phoenix Online common stock as well as a subsequent exchange of University of Phoenix Online common stock could be taxable to us. Additionally, the conversion of Class A APOL common stock to University of Phoenix Online common stock (or other tracking stock) in connection with any future sale of all or substantially all the assets of APOL, otherwise accorded nonrecognition under the Code, could be taxable to holders of Class A APOL common stock. Once again, you should consult your own tax advisor.

  Clinton Administration Proposals

      The Clinton administration’s budget proposals released on February 7, 2000, would, if enacted, require the recognition of taxable income by shareholders upon the receipt of tracking stock in a distribution made by a corporation with respect to its stock and tracking stock received in exchange for other stock, and give the Treasury Department the authority to treat tracking stock as nonstock or as stock of another entity, as appropriate. The Treasury Department’s explanation expresses the view that the use of tracking stock “is outside the contemplation of” various provisions of the Code and that “no inference regarding the tax treatment of [such stock] under current law is intended by [the] proposal.” As proposed, the provisions would be effective for tracking stock issued on or after the date of enactment by Congress.

      The February 7, 2000 proposal is similar to a proposal made by the Clinton administration in February 1999. Tax legislation enacted by Congress subsequent to the Clinton Administration’s 1999 proposal did not include any provisions corresponding to the proposals. However, we cannot predict whether either of the Clinton Administration proposals will be enacted by Congress and, if enacted, whether they will be in the form proposed.

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      If either of the Clinton Administration proposals or a similar proposal is enacted, then we could be subject to tax on the issuance of University of Phoenix Online common stock issued on or after the date of enactment. Additionally, holders of Class A APOL common stock could be subject to tax on any future conversion of Class A APOL common stock to University of Phoenix Online common stock (or other tracking stock) in connection with any sale of all or substantially all of the assets of APOL on or after the date of enactment.

  Conversions of Stock

      Our board of directors has the right, at any time, to convert outstanding shares relating to any Group to stock of a subsidiary of ours. See for example “Description of Capital Stock — Conversions of Stock at Apollo Group’s Option — Conversion of University of Phoenix Online Common Stock to Stock of an Apollo Group Subsidiary.” Depending on the circumstances at the time, an exchange of stock incident to such a conversion could, under current law, be taxable to us and to holders of common stock whose shares are converted.

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CASH MANAGEMENT AND ALLOCATION POLICIES

      The financial statements of APOL and University of Phoenix Online reflect the application of certain cash management and allocation policies adopted by our board of directors. Our board of directors may, in its sole discretion, modify, rescind, or add to any of these policies, although it has no present intention to do so. The decision of our board of directors to modify, rescind, or add to any of these policies would, however, be subject to its general fiduciary duties. These policies are summarized below.

Treasury Activities

      We manage most treasury activities on a centralized, consolidated basis. These activities include the investment of surplus cash and the issuance and repurchase of common stock. Each of APOL and University of Phoenix Online generally remit cash receipts (other than receipts of foreign operations or operations that are not wholly owned) to us and we generally fund the cash disbursements (other than disbursements of foreign operations or operations that are not wholly owned) of each of APOL and University of Phoenix Online on a daily basis.

      After the date on which University of Phoenix Online common stock is first issued, the following additional policies will apply:

	(1)  Our board of directors will attribute each future issuance of external debt or preferred stock (and the proceeds thereof) to APOL, unless it determines otherwise. Our board of directors may, but is not required to, attribute an incurrence or issuance of debt or preferred stock (and the proceeds thereof) to University of Phoenix Online to the extent that we incur or issue the debt or preferred stock for the benefit of University of Phoenix Online.
	(2)  Our board of directors will attribute each future issuance of APOL common stock (and the proceeds thereof) to APOL. Our board of directors may attribute any future issuance of University of Phoenix Online common stock (and the proceeds thereof) to APOL’s retained interest in University of Phoenix Online (in a manner similar to a secondary offering of common stock of a subsidiary owned by a corporate parent) or to University of Phoenix Online (in a manner similar to a primary offering of common stock). For illustrations of the impact of issuances of University of Phoenix Online common stock and attribution of such issuances either to APOL or University of Phoenix Online, see Annex A to this Proxy Statement “Illustration of Certain Terms — Part I — Additional Offerings of University of Phoenix Online Common Stock.”
	(3)  Dividends on APOL common stock will generally be charged against APOL and dividends on University of Phoenix Online common stock will generally be charged against University of Phoenix Online. In addition, at the time of any dividend on University of Phoenix Online common stock (excluding dividends payable in shares of University of Phoenix Online common stock), our board of directors will, unless the dividend is charged against APOL, credit to APOL, and charge against University of Phoenix Online, a corresponding amount in respect of APOL’s retained interest in University of Phoenix Online. Specifically, the corresponding amount will equal the aggregate amount of the dividend multiplied by a fraction (a) the numerator of which will be the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online and (b) the denominator of which will be the number of shares of University of Phoenix Online common stock outstanding. For illustrations of the effect of dividends on APOL common stock or University of Phoenix Online common stock payable in the form of shares of University of Phoenix Online common stock, see Annex A to this Proxy Statement, “Illustration of Certain Terms — Part I — University of Phoenix Online Stock Dividends.”
	(4)  Repurchases of APOL common stock will generally be attributed to APOL. Repurchases of University of Phoenix Online common stock may be attributed to APOL (in a manner similar to a purchase of common stock of a corporate subsidiary by a corporate parent) or University of Phoenix Online (in a manner similar to an issuer repurchase), as determined by our board of directors. For illustrations of the impact of repurchases of University of Phoenix Online common stock and

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	attribution of such repurchases either to APOL or to University of Phoenix Online, see Annex A to this Proxy Statement, “Illustration of Certain Terms — Part I — Repurchases of University of Phoenix Online Common Stock.”
	(5)  Whenever University of Phoenix Online holds cash, University of Phoenix Online generally will transfer that cash to APOL. Conversely, whenever University of Phoenix Online has a cash need, APOL generally will fund that cash need. However, our board of directors will determine, in its sole discretion, whether to provide any particular funds to either APOL or University of Phoenix Online, but will not be obligated to do so.
	(6)  Cash transfers between APOL and University of Phoenix Online (other than transfers in return for assets or services rendered or transfers in respect of APOL’s retained interest in University of Phoenix Online that correspond to dividends paid on University of Phoenix Online common stock) will generally be accounted for as a revolving credit advance unless:

	•	Our board of directors determines that a given transfer (or type of transfer) should be accounted for as a long-term loan;
	•	Our board of directors determines that a given transfer (or type of transfer) should be accounted for as a capital contribution increasing APOL’s retained interest in University of Phoenix Online; or
	•	Our board of directors determines that a given transfer (or type of transfer) should be accounted for as a return of capital reducing APOL’s retained interest in University of Phoenix Online.

	There are no specific criteria to determine when our board of directors will account for a cash transfer as a long-term loan, a capital contribution, or a return of capital rather than a revolving credit advance. Our board of directors would make such a determination in the exercise of its business judgment at the time of the transfer. Factors that our board of directors will consider include:

	•	the relative current and projected capital structure of each Group;
	•	the relative levels of internally generated funds of each Group;
	•	the financing needs and objectives of the recipient Group;
	•	the investment objectives of the transferor Group; and
	•	the availability, cost, and time associated with alternative financing sources, and prevailing interest rates and general economic conditions.

	(7)  Any cash transfer accounted for as a revolving credit advance generally will not bear interest unless our board of directors determines to the contrary. Any cash transfer accounted for as a long-term loan will have such interest rate, amortization, maturity, redemption, and other terms that generally reflect the then-prevailing terms on which we could borrow such funds, as determined by our board of directors, unless it determines otherwise.
	(8)  Any cash transfer from APOL to University of Phoenix Online, or for the account of University of Phoenix Online, accounted for as a capital contribution will correspondingly increase the divisional equity of University of Phoenix Online and APOL’s retained interest in University of Phoenix Online. As a result, the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online will increase by the amount of such capital contribution divided by the Market Value of University of Phoenix Online common stock on the date of transfer. See Annex A to this Proxy Statement, “Illustration of Certain Terms — Part I — Capital Transfers of Cash or other Assets between APOL and University of Phoenix Online.”
	(9)  Any cash transfer from University of Phoenix Online to APOL, or for APOL’s account, accounted for as a return of capital will correspondingly decrease the divisional equity of University of Phoenix Online and APOL’s retained interest in University of Phoenix Online. As a result, the

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Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online will decrease by the amount of such return of capital divided by the Market Value of University of Phoenix Online common stock on the date of transfer. See Annex A to this Proxy Statement, “Illustration of Certain Terms — Part I — Capital Transfers of Cash or other Assets between APOL and University of Phoenix Online.”

Corporate Expenses

      Our board of directors allocates the cost of certain corporate services (including legal, accounting, corporate office and centralized student services) between University of Phoenix Online and APOL. Amounts allocated to University of Phoenix Online are based primarily on the relationship of University of Phoenix Online’s revenues to those of Apollo Group and certain of its subsidiaries. The amounts allocated to APOL represent Apollo Group’s consolidated amounts less the amounts allocated to University of Phoenix Online. Our management believes that these allocations are reasonable.

Income Taxes

      APOL’s and University of Phoenix Online’s results are included in our consolidated federal income tax return. State income taxes are generally based on the apportioned taxable income or loss of us and our subsidiaries.

      In order to prepare separate company financial statements, we allocate our consolidated income tax provision between University of Phoenix Online and APOL. University of Phoenix Online’s provision for income tax is calculated on a separate company basis with the related current and deferred tax assets and liabilities settled through the divisional equity (deficit) account at the end of each period. APOL’s combined provision for income taxes represents Apollo Group’s consolidated provision for income taxes less University of Phoenix Online’s provision for income taxes.

License Fee

      We charge University of Phoenix Online a license fee equal to 4% of its net revenues for the use of curriculum, trademarks, and copyrights owned by us and our subsidiaries.

Corporate Opportunities

      Our board of directors will allocate any business opportunities and operations, any acquired assets and businesses, and any assumed liabilities between APOL and University of Phoenix Online, in whole or in part, as it considers to be in the best interests of us and our shareholders as a whole. Any such allocation will involve the consideration of a number of factors deemed relevant, including, without limitation:

	•	whether the business opportunity or operation, the acquired asset or business, or the assumed liability is principally within the then existing scope of business of APOL or University of Phoenix Online; and
	•	whether APOL or University of Phoenix Online is better positioned to undertake or have allocated to it such business opportunity or operation, acquired asset or business, or assumed liability.

      Any such allocation will be made by our board of directors in accordance with its business judgment or in accordance with such procedures (if any) adopted by it to insure that such decisions will be made in the best interests of us and our shareholders as a whole.

      Approval of Proposal 1 will require the affirmative vote of the holders of a majority of the outstanding shares of existing Class A and Class B common stock, each voting as a separate class.

      The Board of Directors recommends a vote FOR the Tracking Stock Proposal.

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PROPOSALS 2, 3, AND 4 — ADOPTION AND AMENDMENTS TO CERTAIN PLANS

General

      At the Special Meeting, we will also ask you to consider and approve a proposal to adopt the following plan:

	•	Apollo Group, Inc. 2000 Stock Incentive Plan.

      In addition, we will ask you to consider and approve proposals to amend:

	•	Apollo Group, Inc. 1994 Employee Stock Purchase Plan, and
	•	Apollo Group, Inc. Director Stock Option Plan.

      The adoption and amendments would permit grants of awards under each such plan to be made with respect to either Class A APOL or University of Phoenix Online common stock. The amendments would also increase the number of shares authorized for issuance, regardless of series, and make certain other changes as described in more detail below.

Description of the Apollo Group, Inc. 2000 Stock Incentive Plan (Proposal 2)

      Description of 2000 Stock Incentive Plan. This summary of the material features of the Apollo Group, Inc. 2000 Stock Incentive Plan (the “Incentive Plan”) is not complete and should be read with the full proposed text of the Incentive Plan, a copy of which is included at the end of this Proxy Statement as Annex C.

      Our board of directors has approved, and recommends that the shareholders approve, the adoption of the Incentive Plan for directors, employees, officers and executives of, and consultants and advisors to us or an approved subsidiary of ours. The Incentive Plan authorizes grants of Incentive Stock Options (“ISOs”), Non-qualified Stock Options (“NQSOs”), Stock Appreciation Rights (“SARs”), Restricted Stock, Performance Shares, and Performance-Based Awards.

      Our board of directors believes that using long-term incentives under the Incentive Plan will be beneficial to us as a means to promote our success and enhance our value by linking the personal interests of our directors, employees, officers, executives, consultants and advisors to our shareholders and by providing such individuals with an incentive for outstanding performance. These incentives also provide us flexibility in our ability to attract and retain the services of individuals upon whose judgment, interest, and special effort our business is largely dependent. The Incentive Plan, if approved by shareholders, will have an effective date of March 24, 2000.

      Administration. The Incentive Plan will be administered by either our board of directors or a committee appointed by our board of directors consisting of at least two non-employee directors who also qualify as outside directors under Section 162(m) of the Code. If our board of directors does not appoint a committee, then references to the Committee shall be to our board of directors. It is anticipated that the Incentive Plan will be administered by our Compensation Committee.

      This Committee will have exclusive authority to administer the Incentive Plan, including the power to determine eligibility, the types and sizes of awards, whether the grant will be in shares of Class A APOL common stock or in shares of University of Phoenix Online common stock, or both, the price and timing of awards and the acceleration or waiver of any vesting restriction, provided that the Committee will not have the authority to waive any performance restrictions with respect to any performance-based awards.

      Eligibility. In general, persons eligible to participate in the Incentive Plan include all directors, employees, officers, and executives of, and consultants and advisors to us and our subsidiaries as determined by the Committee.

      Limitation On Awards and Shares of Stock Available. Under the Incentive Plan, up to 14,000,000 shares of Class A APOL common stock or University of Phoenix Online common stock, in the aggregate,

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      Description of the Available Awards and Federal Tax Consequences. Under the Incentive Plan, grants of options and other stock-based awards may be made with respect to either Class A APOL common stock or University of Phoenix Online common stock, or both.

  Incentive Stock Options

      An ISO is a stock option that satisfies the requirements specified in Section 422 of the Code. Under the Code, ISOs may only be granted to employees. In order for an option to qualify as an ISO, the price payable to exercise the option must equal or exceed the fair market value of the stock at the date of the grant, the option must lapse no later than 10 years from the date of the grant, and the stock subject to ISOs that are first exercisable by an employee in any calendar year must not have a value of more than $100,000 as of the date of grant. Certain other requirements must also be met.

      An optionee will not be treated as receiving taxable income upon either the grant of an ISO or upon the exercise of an ISO. However, the difference between the exercise price and the fair market value on the date of exercise will be an item of tax preference at the time of exercise in determining liability for the alternative minimum tax, assuming that the common stock is either transferable or is not subject to a substantial risk of forfeiture under Section 83 of the Code. If at the time of exercise, the common stock is both nontransferable and is subject to a substantial risk of forfeiture, the difference between the exercise price and the fair market value of the common stock (determined at the time the common stock becomes either transferable or not subject to a substantial risk of forfeiture) is a tax preference item in the year in which the common stock becomes either transferable or not subject to a substantial risk of forfeiture.

      If common stock acquired by the exercise of an ISO is not sold or otherwise disposed of within two years from the date of its grant and is held for at least one year after the date such common stock is transferred to the optionee, any gain or loss resulting from its disposition will be treated as long-term capital gain or loss. If such common stock is disposed of before the expiration of the above-mentioned holding periods, a “disqualifying disposition” will occur. If a disqualifying disposition occurs, the optionee will realize ordinary income in the year of the disposition in an amount equal to the difference between the fair market value of the common stock on the date of exercise and the exercise price, or the selling price of the common stock and the exercise price, whichever is less. The balance of the optionee’s gain on a disqualifying disposition, if any, will be taxed as capital gain.

      In the event an optionee exercises an ISO using common stock acquired by a previous exercise of an ISO, unless the stock exchange occurs after the required holding periods, such exchange shall be deemed a disqualifying disposition of the stock exchanged.

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      We will not be entitled to any tax deduction as a result of the grant or exercise of an ISO, or on a later disposition of the common stock received, except that in the event of a disqualifying disposition, we will be entitled to a deduction equal to the amount of ordinary income realized by the optionee.

  Non-Qualified Stock Options

      An NQSO is any stock option other than an Incentive Stock Option. Such options are referred to as “non-qualified” because they do not meet the requirements of, and are not eligible for, the favorable tax treatment provided by Section 422 of the Code.

      No taxable income will be realized by an optionee upon the grant of a NQSO, nor are we entitled to a tax deduction by reason of such grant. Upon the exercise of a NQSO, the optionee will realize ordinary income in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the exercise price and we will be entitled to a corresponding tax deduction.

      Upon a subsequent sale or other disposition of common stock acquired through exercise of a NQSO, the optionee will realize capital gain or loss to the extent of any intervening appreciation or depreciation. Such a resale by the optionee will have no tax consequence to us.

  Stock Appreciation Rights

      A SAR is the right granted to an employee to receive the appreciation in the value of a share of common stock over a certain period of time. Under the Incentive Plan, we may pay that amount in cash, in common stock, or in a combination of both.

      A recipient who receives a SAR award is not subject to tax at the time of the grant and we are not entitled to a tax deduction by reason of such grant. At the time such award is exercised, the recipient must include in income the appreciation inherent in the SARs (i.e., the difference between the fair market value of the common stock on the date of grant and the fair market value of the common stock on the date the SAR is exercised). We are entitled to a corresponding tax deduction in the amount equal to the income includable by the recipient in the year in which the recipient recognizes taxable income with respect to the SAR, provided that it withholds taxes from the associate in the amount recognized upon exercise of the SARs.

  Performance Shares

      Under the Incentive Plan, the Committee may grant performance share units to eligible individuals. Typically, each performance share unit will be deemed to be the equivalent of one share of stock. A recipient of a Performance Share Award will not realize taxable income at the time of grant, and we will not be entitled to a deduction by reason of such grant. Instead, a recipient of Performance Shares will recognize ordinary income equal to the fair market value of the Shares at the time the performance goals related to the Performance Shares are attained and paid to the recipient. We are entitled to a tax deduction equal to the amount of income recognized by the recipient in the year in which the performance goals are achieved.

  Restricted Stock Awards

      Under the Restricted Stock feature of the Incentive Plan, an eligible individual may be granted a specified number of shares of common stock. However, vested rights to such stock are subject to certain restrictions or are conditioned on the attainment of certain performance goals. If the recipient violates any of the restrictions during the period specified by the Committee or the performance standards fail to be satisfied, the Stock is forfeited.

      A recipient of a Restricted Stock Award will recognize ordinary income equal to the fair market value of the Stock at the time the restrictions lapse. We are entitled to a tax deduction equal to the amount of income recognized by the recipient in the year in which the restrictions lapse.

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      Instead of postponing the income tax consequences of a Restricted Stock Award, the recipient may elect to include the fair market value of the common stock in income in the year the award is granted. This election is made under Section 83(b) of the Code. This Section 83(b) election is made by filing a written notice with the Internal Revenue Service office with which the recipient files his or her Federal income tax return. The notice must be filed within 30 days of the date of grant and must meet certain technical requirements.

      The tax treatment of the subsequent disposition of Restricted Stock will depend upon whether the recipient has made a Section 83(b) election to include the value of the common stock in income when awarded. If the recipient makes a Section 83(b) election, any disposition thereafter will result in a capital gain or loss equal to the difference between the selling price of the common stock and the fair market value of the common stock on the date of grant. The character of such capital gain or loss will depend upon the period the Restricted common stock is held. If no Section 83(b) election is made, any disposition thereafter will result in a capital gain or loss equal to the difference between the selling price of the common stock and the fair market value of the common stock on the date the restrictions lapsed.

  Performance-Based Awards

      Grants of performance-based awards under the Incentive Plan enable the Committee to treat restricted stock and performance share awards granted under the Incentive Plan as “performance-based compensation” under Section 162(m) of the Code and preserve the deductibility of these awards for federal income tax purposes. Because Section 162(m) of the Code only applies to those employees who are “covered employees,” as defined in Section 162(m) of the Code, only covered employees are eligible to receive performance-based awards. Covered employees include the our Chief Executive Officer and the four other most highly compensated officers.

      Participants for any given performance period are only entitled to receive payment for a performance-based award for such period to the extent that pre-established performance goals set by the Committee for the period are satisfied. These pre-established performance goals must be based on one or more of the following performance criteria: pre- or after- tax net earnings, sales growth, operating income, operating cash flow, return on net assets, return on shareholders’ equity, return on assets, return on capital, stock price growth, shareholder returns, gross or net profit margin, earnings per share, price per share, and market share. These performance criteria may be measured in absolute terms or as compared to any incremental increase or as compared to results of a peer group. With regard to a particular performance period, the Committee shall have the discretion to select the length of the performance period, the type of performance-based awards to be granted, and the goals that will be used to measure the performance for the period. In determining the actual size of an individual performance-based award for a performance period, the Committee may reduce or eliminate (but not increase) the award. Generally, a Participant will have to be employed on the last day of the performance period in order to be eligible for a performance-based award for that period.

  Recent Tax Changes

      Section 162(m) of the Code, generally limits to $1 million the deduction that can be claimed by any publicly-held corporation for compensation paid to any covered employee in any taxable year. Performance-based compensation is outside the scope of the $1 million limitation, and hence, generally can be deducted by a publicly-held corporation without regard to amount; provided that, among other requirements, such compensation is approved by shareholders. Among the items of performance-based compensation that can be deducted without regard to amount (assuming shareholder approval and other applicable requirements are satisfied) is compensation associated with the exercise price of a stock option so long as the option has an exercise price equal to or greater than the fair market value of the underlying stock at the time of the option grant. All options granted under the Incentive Plan that are intended to qualify as performance-based compensation will have an exercise price at least equal to the fair market value of the underlying stock on the date of grant.

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      Amendment and Termination. The Committee, subject to approval of our board of directors, may terminate, amend, or modify the Incentive Plan at any time, provided, however, that shareholder approval is required for any amendment to the extent necessary or desirable to comply with any applicable law, regulation, or stock exchange rule.

      Change of Control of APOL. In the event of a change of control of us: (i) all options and other share-based awards related to APOL stock granted under the Incentive Plan will become immediately exercisable; (ii) any restriction periods and restrictions imposed on such restricted stock will lapse; and (iii) the target goals under all such performance-based awards will be deemed to have been met. Under the Incentive Plan, a change of control occurs upon any of the following events: (a) any person (other than an affiliate or employee benefit plan) becomes the beneficial owner of 50% or more of our Class A APOL common stock; (b) during any two-year period, the persons who are on our board of directors at the beginning of such period and any new person appointed by two-thirds of such directors cease to constitute a majority of the persons serving on our board of directors; or (c) our shareholders approve any plan or proposal for our liquidation or dissolution; (d) a merger or consolidation of us with another corporation where we are not the surviving entity other than a merger in which our shareholders before the merger have the same proportionate ownership after the merger, or (e) any sale, lease, or other transfer of 80% or more of our assets.

      Change of Control of University of Phoenix Online. In the event of a change of control of University of Phoenix Online: (i) all options and other share-based awards related to University of Phoenix Online common stock granted under the Incentive Plan will become immediately exercisable; (ii) any restriction periods and restrictions imposed on such restricted stock will lapse; and (iii) the target goals under all such performance-based awards will be deemed to have been met. Under the Incentive Plan, a change of control of University of Phoenix Online occurs upon any of the following events: (a) a change of control of us; (b) any person (other than APOL, an affiliate or employee benefit plan) becomes the beneficial owner of 50% or more of University of Phoenix Online common stock; or (c) any sale, lease, or other transfer of 80% or more of the assets of University of Phoenix Online. For purposes of clause (b) above, in determining whether any person becomes the beneficial owner of 50% or more of University of Phoenix Online common stock, the number of shares representing APOL’s retained interest in University of Phoenix Online shall be deemed outstanding shares of University of Phoenix Online common stock.

      Effect On Outstanding Awards Under Prior Long-Term Incentive Plan. The approval of the adoption of the Incentive Plan will not result in any adjustment to the outstanding awards under the existing Apollo Group, Inc. Long-Term Incentive Plan.

      Vote Required. Adoption of the Incentive Plan requires approval by the holders of a majority of the outstanding shares of common stock present or represented by proxy at the Special Meeting.

Description of Amendments to the Apollo Group, Inc. 1994 Employee Stock Purchase Plan (Proposal 3)

      Summary of Amendments. This summary of the material features of the 1994 Employee Stock Purchase Plan (“Employee Plan”) and amendments to the Employee Plan is not complete and should be read with the full proposed text of the amended Employee Plan which is included at the end of this Proxy Statement as Annex D.

      Amendments to the Employee Plan which the Board has adopted and for which we are seeking shareholder approval will (1) provide that Employee Plan participants may purchase either Class A APOL common stock or University of Phoenix Online common stock, or both, in the same manner as currently permitted with respect to existing Class A APOL common stock, and (2) increase the number of shares of stock, regardless of series, available for issuance.

      Eligibility. Any employee of ours is eligible to participate in the Employee Plan, except those employees who, (1) have been employed for less than one year; (2) are “highly compensated employees” under Section 414(q) of the Code and were participants in the Apollo Group, Inc. Long-Term Incentive

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      Description of Employee Plan. Shares of stock are purchased by participants directly from us. Under the current Employee Plan, participants may purchase shares of our existing Class A common stock. Under the Employee Plan as amended, participants may purchase shares of Class A APOL common stock or University of Phoenix Online common stock, or both, in the same manner as currently permitted with respect to existing stock.

      An eligible employee may enroll for any three-month offering period, commencing January 1, April 1, July 1, and October 1 of each year, by filing an enrollment form with us before the offering period begins. After initial enrollment in the Plan, the employee will be automatically reenrolled in the Employee Plan for subsequent offering periods unless he or she files a notice of withdrawal before the offering period begins, terminates employment, or otherwise become ineligible to participate.

      Upon enrollment in the Employee Plan, the employee must elect a rate at which he or she will make payroll contributions to purchase stock. An employee generally may elect to make contributions in an amount not less than one percent nor more than ten percent of such employee’s earnings (or such higher or lower rates as our board of directors may specify), although an employee’s contributions will be adjusted downward or refunded to the extent necessary to ensure that he or she will not purchase during any offering period Stock that has a fair market value, as of the beginning of the offering period, in excess of $6,250 (representing an annual limitation of $25,000). All employee contributions will be made by means of direct payroll deduction. The contribution rate elected by a participant will continue in effect until modified by the participant.

      An employee’s contributions will be credited to the employee’s account maintained by us. As described above, we will sell shares at a price equal to the lesser of 85% of the fair market value of Stock at the beginning of the three-month offering period or 85% of fair market value of Stock at the end of the offering period.

      Under either method, shares of our stock will be purchased on a given purchase date in the aggregate for all accounts under the Employee Plan. Shares of stock purchased will be credited to the accounts maintained by the custodian for each participant based upon the average cost of all shares purchased. No interest will be credited on payroll contributions pending investment in stock. Dividends paid on stock credited to participants’ accounts will be automatically reinvested in additional shares through purchases directly from us. To the extent Class A APOL common stock or University of Phoenix Online common stock has voting rights, participants will have the exclusive right to vote or direct the voting of shares of stock credited to their accounts, and will be permitted to withdraw, transfer, or sell their shares without restriction. Participants’ rights under the Employee Plan are nontransferable except pursuant to the laws of descent and distribution.

      A participant’s enrollment in the Employee Plan may be terminated at any time, effective for payroll periods or offering periods beginning after the filing of a notice of termination of enrollment. Enrollment will also terminate upon termination of a participant’s employment by us or our subsidiaries. Upon termination of enrollment, cash amounts resulting from previous payroll contributions will be repaid to the participant. The custodian will continue to hold stock for the account of such a participant until the participant sells or withdraws the stock, but in no event more than one year after the participant ceases to be employed by us or our subsidiaries. A participant may eliminate contributions for future payroll periods without terminating enrollment. In that case, previous payroll contributions held in the participant’s cash account will be used to purchase stock at the next purchase date.

      We pay costs and expenses to administer the Employee Plan and to maintain accounts, and pay brokerage fees and commissions for purchases. We do not pay brokerage fees and expenses relating to sales by participants, and participants may be charged reasonable fees by the custodian for withdrawing share certificates and other specified services. The custodian is responsible for furnishing account statements to participants.

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      Our board of directors may amend or terminate the Employee Plan without shareholder approval, except shareholder approval must be obtained within one year after the effectiveness of such action if required by law or regulation or under the rules of any automated quotation system (such as The Nasdaq National Market) or securities exchange on which the stock is then quoted or listed, or if shareholder approval is necessary for the Employee Plan to continue to meet the requirements of Section 423 of the Code. The Employee Plan will continue until terminated by action of the Board, although as noted above the number of shares authorized under the Employee Plan is limited.

      On             , 2000, the last reported sale price of our Class A common stock on The Nasdaq National Market was $     per share.

      Number of Shares Reserved For Purchase. The maximum number of shares of stock that may be purchased under the current Employee Plan is 3,374,997, subject to appropriate adjustment in the case of any extraordinary dividend or other distribution, recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, or other similar corporate transaction or event affecting the Common Stock. Shares of stock purchased from us are either authorized but unissued shares or treasury shares. Under the amended and restated Employee Plan, up to 3,375,000 shares of Class A APOL common stock and up to 2,000,000 shares of University of Phoenix Online common stock may be available for purchase.

      Federal Income Tax Consequences. We believe that under current law the following Federal income tax consequences generally result under the Employee Plan. Rights to purchase shares under the Employee Plan are intended to constitute “options” issued pursuant to an “employee stock purchase plan” within the meaning of Section 423 of the Code:

	(1)  No taxable income results to the participants upon the grant of a right to purchase or upon the purchase of shares for his or her account under the Employee Plan (although the amount of a participant’s payroll contributions under the Employee Plan will be taxable as ordinary income to the participant).
	(2)  If the participant disposes of shares less than two years after the first day of an offering period with respect to which he or she purchased the shares, the participant will realize ordinary income in an amount equal to the fair market value of the shares on the date of purchase minus the amount of the participant’s payroll deductions used to purchase the shares.
	(3)  If the participant holds the shares for at least two years after the first day of an offering period with respect to which he or she purchased the shares, then at the time the participant disposes of the shares he or she will realize ordinary income in an amount equal to the lesser of (i) the fair market value of the shares on the first day of the offering period minus the amount of the participant’s payroll deductions used to purchase the shares, and (ii) the fair market value of the shares on the date of disposition minus the amount of the participant’s payroll deductions used to purchase the shares.
	(4)  In addition, the participant will realize a long-term or short-term capital gain or loss, as the case may be, in an amount equal to the difference between the amount realized upon any sale of the Stock and the participant’s basis in the Stock (i.e., the purchase price plus the amount, if any, taxed to the participant as ordinary income, as described in (2) and (3) above).
	(5)  If the two-year statutory holding period is satisfied, we are not entitled to a deduction for federal income tax purposes with respect to any discount in the sale price of stock applicable to such participant. If the statutory holding period is not satisfied, we generally should be entitled to a tax deduction in an amount equal to the amount taxed to the participant as ordinary income.

      The foregoing provides only a general description of the application of federal income tax laws to the Employee Plan. The summary does not address the effects of other federal taxes or taxes imposed under state, local, or foreign tax laws. Because of the complexities of the tax laws, participants are encouraged to consult a tax advisor as to their individual circumstances.

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      Vote Required. The amendments to the Employee Plan require approval by the holders of a majority of the outstanding shares of common stock present or represented by proxy at the Special Meeting.

Description of Amendments to Director Stock Plan (Proposal 4)

      Summary of Amendments. This summary of the material features of the Director Stock Plan (“Director Plan”) and amendments to the Director Plan is not complete and should be read with the full proposed text of the amended Director Plan which is included at the end of this Proxy Statement as Annex E.

      Amendments to the Director Plan which the Board has adopted and for which we are seeking shareholder approval will (1) provide that grants of options under the Director Plan may be made with respect to either Class A APOL common stock or University of Phoenix Online common stock, or both, in the same manner as currently permitted with respect to existing common stock, (2) clarify that our board of directors may administer the Director Plan, and (3) increase the number of shares of stock, regardless of series, available for issuance under the Director Plan. In addition, the amendments provide that after University of Phoenix Online common stock is first issued and the existing Class A common stock is reclassified as Class A APOL common stock, (1) the 20,250 options that each non-employee director receives on September 1 of each year through 2003 shall be composed of options to purchase shares of Class A APOL common stock, and (2) each non-employee director who is a director on the date of the initial offering of University of Phoenix Online common stock shall receive a grant of options to purchase 10,000 shares of University of Phoenix Online common stock on the date of such offering at the initial public offering price.

      Administration. The Director Plan may be administered by either our board of directors or a committee appointed by our board of directors. The amendment clarifies that our board of directors may retain the power to administer the Director Plan. Our board of directors, or the committee if appointed, has exclusive authority to administer the Director Plan consistent with its provisions, but does not have the power to determine eligibility, or the number, price, vesting period or timing of awards granted under the Director Plan.

      Eligibility. Only non-employee directors are eligible to participate in the Director Plan.

      Description of Director Plan. Under the current Director Plan, each non-employee director automatically receives a grant of options to purchase 20,250 shares of existing Class A common stock on each September 1 of each year 1994 through 2003. Under the amended Director Plan, each non-employee director will automatically receive options to purchase shares of Class A APOL common stock and options to purchase shares of University of Phoenix Online common stock in such proportion as determined by the committee administering the Director Plan. In addition, under the Director Plan, each non-employee director who is on the Board on the date of the initial public offering of University of Phoenix Online common stock will receive a grant of stock options to purchase 10,000 shares of University of Phoenix Online common stock on the date of such offering at the initial public offering price, which will vest and become exercisable six months and one day after the date University of Phoenix Online common stock options are granted.

      Under the current Director Plan, the terms of the options provide that the option price will be equal to 100% of the fair market value (as defined in the Director Plan), the option will not be exercisable for a period more than 10 years following the date of grant, and the option will vest and become exercisable six months and one day after the date of grant. If the optionee ceases to be a non-employee director, the option will expire, except that (1) if the termination results from any reason other than death or disability, any options that are not fully vested on the date of termination are immediately forfeited, and (2) if the termination results from death or disability, the option will remain exercisable for one year or to the expiration date, whichever is shorter.

      Change of Control of APOL. In the event of a change of control of us, all options related to APOL common stock granted under the Director Plan will become immediately exercisable. Under the Director

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      Change of Control of University of Phoenix Online. In the event of a change of control of University of Phoenix Online, all options related to University of Phoenix Online common stock granted under the Director Plan will become immediately exercisable. Under the Director Plan, a change of control of University of Phoenix Online occurs upon any of the following events: (a) a change of control of us; (b) any person (other than APOL, an affiliate, or employee benefit plan) becomes the beneficial owner of 50% or more of University of Phoenix Online common stock; or (c) any sale, lease, or other transfer of 80% or more of the assets of University of Phoenix Online. For purposes of clause (b) above, in determining whether any person becomes the beneficial owner of 50% or more of University Of Phoenix Online common stock, the number of shares representing APOL’s retained interest in University of Phoenix Online shall be deemed outstanding shares of University of Phoenix Online common stock.

      Number of Shares Reserved For Issuance. Under the current Director Plan, up to 675,000 shares of existing Class A common stock were originally available for grants of options to non-employee directors. Under the amended Director Plan, up to 925,000 shares of Class A APOL common stock and up to 100,000 shares of University of Phoenix Online common stock may be available for grants of awards. Shares subject to an award that expires unexercised, is forfeited or terminated, or settled in cash instead of common stock, and shares tendered to pay for the exercise of an option, will thereafter again be available for grant under the Director Plan.

      Effect On Outstanding Options. The approval of the amendments to the Director Plan will not result in any adjustment to the outstanding options under the Director Plan.

      Federal Income Tax Consequences. The following is a brief description of the federal income tax consequences generally arising with respect to options granted under the Director Plan.

      The grant of an option will create no tax consequences for the non-employee director or us. Upon exercising an option, the non-employee director generally must recognize ordinary income equal to the difference between the exercise price and fair market value of the shares acquired on the date of exercise, and we generally will be entitled to a tax deduction equal to the amount recognized as ordinary income by the participant. The disposition of shares acquired upon the exercise of an option generally will result in capital gain or loss measured by the difference between the sale price and the participant’s tax basis in such shares (the tax basis generally being the exercise price plus any amount recognized as ordinary income in connection with the exercise of the option).

      Vote Required. The amendments to the Director Plan require approval by the holders of a majority of the outstanding shares of common stock present or represented by proxy at the Special Meeting.

      The Board of Directors recommends a vote FOR each of Proposals 2, 3 and 4.

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EXECUTIVE COMPENSATION

Director Compensation

      In 1999, our non-employee directors received a $18,000 annual retainer, $1,500 for each board meeting attended, and $750 for each committee meeting attended. Mr. DeConcini has elected not to receive any director compensation because of his position with the U.S. Department of the Treasury. In addition, non-employee directors are reimbursed for out-of-pocket expenses. Ms. Govenar was retained by us as a consultant and received a consulting fee of $100,000 and $62,000 in 1999 and 1998, respectively.

Apollo Group Director Stock Plan

      In August 1994, our board of directors adopted the Apollo Group, Inc. Director Stock Plan (the “Director Plan”) to attract and retain our independent directors. The aggregate number of shares of Class A common stock subject to the Director Plan may not exceed 675,000, subject to adjustment. Options granted under the Director Plan are fully vested six months and one day after the date of grant and are exercisable in full thereafter until the date that is ten years after the date of grant. The exercise price per share under the Director Plan is equal to the fair market value of such shares upon the date of grant. In addition, on September 1 of each year, non-employee Directors receive an annual grant of options to purchase 20,250 shares of Class A common stock. Mr. DeConcini has elected not to receive this annual grant because of his position with the U.S. Department of the Treasury.

Executive Compensation

      The following table discloses the annual and long-term compensation earned for services rendered in all capacities by our Chairman of the Board and Chief Executive Officer and the four other most highly compensated executive officers for 1999, 1998, and 1997:

Summary Compensation Table

			Annual Compensation
															Other Annual
Name and Principal															Compensation
Position			Year				Salary($)				Bonus($)				($)(1)
John G. Sperling				1999			$	400,000			$	—			$	64,141
	Chairman of the Board and			1998				387,500				—				72,373
	Chief Executive Officer			1997				387,500				290,625				62,463
Todd S. Nelson				1999				350,000				262,500				—
	President			1998				247,917				200,000				—
				1997				175,000				131,250				—
Jorge Klor de Alva				1999				275,000				206,250				—
	Senior Vice President			1998				218,750				175,000				—
	and President of the			1997				175,000				131,250				—
	University of Phoenix, Inc.
Jerry F. Noble				1999				250,000				161,752				—
	Senior Vice President			1998				225,000				168,750				—
	and President of the			1997				225,000				84,375				—
	Institute for Professional Development
Kenda B. Gonzales				1999				174,359				90,000				—
	Chief Financial Officer			1998				—				—				—
				1997				—				—				—

[Additional columns below]

[Continued from above table, first column(s) repeated]

			Long-Term Compensation Awards
			Restricted				Securities
Name and Principal			Stock				Underlying				LTIP				All Other
Position			Awards($)				Options(#)				Payouts($)				Compensation($)
John G. Sperling			$	—				125,000			$	—			$	—
	Chairman of the Board and			—				—				—				—
	Chief Executive Officer			—				—				—				—
Todd S. Nelson				—				100,000				—				—
	President			—				—				—				—
				—				—				—				—
Jorge Klor de Alva				—				75,000				—				3,072	(2)
	Senior Vice President			—				—				—				1,850	(2)
	and President of the			—				112,500				—				—
	University of Phoenix, Inc.
Jerry F. Noble				—				50,000				—				3,072	(2)
	Senior Vice President			—				—				—				3,073	(2)
	and President of the			—				—				—				2,980	(2)
	Institute for Professional Development
Kenda B. Gonzales				—				42,000				—				—
	Chief Financial Officer			—				—				—				—
				—				—				—				—

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(2)	Amounts shown consist of contributions made by us to Apollo Group’s Savings and Investment Plan paid in fiscal years 1999, 1998 and 1997.

      The following table discloses options granted by us to our Chairman of the Board and Chief Executive Officer and the four other most highly compensated executive officers for 1999:

Option Grants In the Last Fiscal Year

Aggregated Option Exercises in Fiscal Year 1999 and Option Values at August 31, 1999

      The following table discloses the number of shares received from the exercise of our options, the value received therefrom and the number and value of in-the-money and out-of-the-money options held by our Chairman of the Board and Chief Executive Officer and the four other most highly compensated officers for 1999:

Employment and Deferred Compensation Agreements

      In December 1993, we entered into an employment agreement and deferred compensation agreement with Dr. John G. Sperling, our Chairman of the Board and Chief Executive Officer. The term of the employment agreement was for four years, and expired on December 31, 1997. The employment agreement has automatically renewed for two additional one-year periods through December 31, 1999, and will automatically renew for additional one-year periods thereafter. Under the terms of the employment agreement, Dr. Sperling received an annual salary for 1997 and 1998 of $387,500. Effective for 1999, Dr. Sperling’s salary was increased to $400,000. This salary is subject to annual review by the Compensation Committee. We may terminate the Employment Agreement only for cause, and Dr. Sperling may terminate the employment agreement at any time upon 30 days written notice.

      The deferred compensation agreement provides that upon his termination of employment with us and until his death, Dr. Sperling shall receive monthly payments equal to one-twelfth of his highest annual base salary paid by us during any one of the three calendar years preceding the calendar year in which Dr. Sperling’s employment is terminated. In addition, upon Dr. Sperling’s death, his designated beneficiary

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      We do not have employment agreements with any of our other executive officers.

Section 16(a)  Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% of a registered series of our equity securities, to file with the Securities and Exchange Commission (“SEC”) initial reports of ownership and reports of changes in ownership. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that during the fiscal year ended August 31, 1999, its officers and directors complied with all Section 16(a) filing requirements with the following exception: Jerry F. Noble filed a late Form 4 for July 1999, related to transactions involving the selling of 35,900 and 8,000 shares of Class A Common Stock on July 2, 1999, and July 27, 1999, respectively.

Committees of the Board of Directors

      The board of directors has two principal committees: (1) an Audit Committee comprised of Thomas C. Weir (Chairperson), Dino J. DeConcini, and John R. Norton III and (2) a Compensation Committee comprised of Thomas C. Weir (Chairperson) and John R. Norton III.

Meetings of the Board of Directors and its Committees

      During the year ended August 31, 1999, our board of directors met on four occasions. All of the directors attended 75% or more of the board of directors meetings and meetings of each of the committees on which they served.

Compensation Committee

      The Compensation Committee of our board of directors, which met three times during 1999, reviews all aspects of our compensation of executive officers and determines or makes recommendations on such matters to the full board of directors. The report of the compensation committee for 1999 is set forth below.

Audit Committee

      The Audit Committee, which met on five occasions in 1999, represents the board of directors in evaluating the quality of our financial reporting process and internal financial controls through consultations with our independent accountants, internal management and the board of directors.

Other Committees

      We do not maintain a standing nominating committee or other committee performing similar functions.

Board Compensation Committee Report on Executive Compensation

      Our Compensation Committee (the “Committee”) is composed entirely of independent outside members of our board of directors. The Committee reviews and approves each of the elements of our executive compensation program related to John G. Sperling, Todd S. Nelson, J. Jorge Klor de Alva, Peter V. Sperling, and Jerry F. Noble (“Senior Executives”) and periodically assesses the effectiveness and competitiveness of the program in total. In addition, the Committee administers the key provisions of the executive compensation program and reviews with our board of directors in detail all aspects of

56

  Overview and Philosophy

      Our compensation program for Senior Executives is primarily comprised of base salary, annual bonus, and long-term incentives in the form of stock option grants. Senior Executives also participate in various other benefit plans, including medical and retirement plans, generally available to all of our employees.

      Our philosophy is to pay base salaries to Senior Executives that enable us to attract, motivate and retain highly qualified executives. The annual bonus program is designed to reward for performance based on financial results. Stock option grants are intended to provide substantial rewards to executives based on stock price appreciation and improved overall financial performance. The vesting of the options can be accelerated if certain profit and stock price goals are achieved.

  Base Salary

      Each of our Senior Executives receives a base salary, which when aggregated with their maximum bonus amount, is intended to be competitive with similarly situated executives in comparable industries. Our targets base pay at the level required to attract and retain highly qualified executives. In determining salaries, the Compensation Committee also takes into account position within us, individual experience and performance, and specific needs particular to us.

  Annual Bonus Program

      In addition to a base salary, Senior Executives were eligible to receive a bonus of up to seventy-five percent (75%) of their respective base salaries. All annual bonuses are tied to our financial performance.

      At the beginning of each fiscal year, the Compensation Committee establishes an after-tax net income goal for us and operating profit goals for our subsidiaries. The annual bonuses are calculated differently for (i) Senior Executives who also serve as executive officers of either the University of Phoenix, Inc. or the Institute for Professional Development (collectively, the “Division Executives”) and (ii) Senior Executives who do not serve as executive officers of either the University of Phoenix, Inc. or the Institute for Professional Development (collectively, the “Company Executives”).

      The annual bonuses for our Executives are tied solely to our after-tax net income goal. If that goal is achieved, our Executives earn a bonus equal to fifty percent (50%) of their respective annual maximum bonus. If the after-tax net income goal is exceeded, our Executives earn a larger percentage of their annual bonus depending on the amount by which the after-tax net income goal is exceeded up to a maximum annual bonus equal to seventy-five percent (75%) of their respective base salaries.

      The annual bonuses for the Division Executives are earned (1) fifty percent (50%) if their division operating profit goal is achieved, (2) an additional twenty-five percent (25%) if our after-tax income goal is achieved and (3) up to another twenty-five percent (25%) depending on the amount by which the after-tax net income goal is exceeded up to a maximum annual bonus equal to seventy-five percent (75%) of their respective base salaries.

  Options

      We believe that it is important for Senior Executives to have an equity stake in us and, toward this end, we make option grants to key Senior Executives from time to time under the Apollo Group, Inc. Long-Term Incentive Plan. In making option awards, the Compensation Committee reviews our financial performance during the past fiscal year, the awards granted to our other executives and the individual officer’s specific role.

57

  Other Benefits

      Senior Executives are eligible to participate in benefit programs designed for all of our full-time employees and also received certain perquisites primarily including company cars and company paid tax consulting. These programs include medical, disability and life insurance, and a qualified retirement program allowed under Section 401(k) of the Code.

  Chief Executive Officer Compensation

      Dr. John G. Sperling is the founder, Chief Executive Officer and Chairman of our board of directors. In December 1993, we entered into an employment agreement (the “Employment Agreement”) and deferred compensation agreement (the “Deferred Compensation Agreement”) with Dr. Sperling. The Employment Agreement terminated on December 31, 1997. The Employment Agreement has automatically renewed for two additional one-year periods through December 31, 1999, and will automatically renew for additional one-year periods thereafter. The Deferred Compensation Agreement provides that upon Dr. Sperling’s termination of employment with us and until his death, Dr. Sperling shall receive monthly payments equal to 1/12 of his highest annual base salary paid by us during any one of the three calendar years preceding the calendar year in which Dr. Sperling’s employment is terminated. In addition, upon Dr. Sperling’s death, his designated beneficiary shall be paid an amount equal to three times his highest annual base salary in 36 equal monthly installments with the first installment due on the first day of the month following the month of Dr. Sperling’s death.

      During fiscal year 1999, Dr. Sperling received an annual base salary of $400,000. In addition, because the after-tax net income goal for us was exceeded, Dr. Sperling was eligible for a bonus for 1999. Dr. Sperling has elected to forego this bonus in exchange for options that will be granted in Fiscal 2000. All options are granted at fair market value and expire ten years after the grant date.

      Under Dr. Sperling’s leadership, our tuition and other net revenues increased 29.6% to $498.8 million in 1999 from $384.9 million in 1998. In addition, diluted earnings per share increased to $.75 in 1999 from $.59 in 1998.

Compensation and Management Committee Interlocks and Insider Participation

      No member of the our Compensation Committee during the fiscal year ended August 31, 1999 was an officer or employee of us or University of Phoenix Online. The members of our Compensation Committee are Thomas C. Weir and John R. Norton III.

58

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information regarding the beneficial ownership of our common stock as of September 30, 1999. Except as otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law or as otherwise noted below.

(10)	Includes 28,125 shares that Dr. Klor de Alva has the right to acquire within 60 days of the date of the table set forth above.
(11)	Includes 93,500 shares that Mr. Weir has the right to acquire within 60 days of the date of the table set forth above.
(12)	Includes 37,500 shares that Ms. Govenar has the right to acquire within 60  days of the date of the table set forth above.
(13)	Includes 40,500 shares that Mr. Norton has the right to acquire within 60 days of the date of the table set forth above.
(14)	Includes 27,438 shares that Mr. DeConcini has the right to acquire within 60  days of the date of the table set forth above.
(15)	Includes 608,099 shares that all Directors and Executive Officers as a group have the right to acquire within 60 days of the date of the table set forth above.
(16)	Includes 243,080 shares held by the John G. Sperling Revocable Trust dated January 31, 1995.
(17)	Includes 232,067 shares held by the Peter V. Sperling Revocable Trust dated January 31, 1995.

59

ANNEX A

ILLUSTRATION OF CERTAIN TERMS

Part I — APOL’s Retained Interest in University of Phoenix Online

      The illustrations in this Part I show how to calculate:

	•	APOL’s retained interest in University of Phoenix Online;
	•	the Outstanding Interest Fraction;
	•	the Retained Interest Fraction;
	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online; and
	•	the number of shares of University of Phoenix Online common stock outstanding,

      in each case, after giving effect to certain hypothetical dividends, issuances, repurchases and transfers.

      In these illustrations, the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online is initially assumed to be 100. Unless otherwise specified, each illustration below should be read independently as if none of the other transactions referred to had occurred. Actual calculations may be slightly different due to rounding.

General Concepts

      The Outstanding Interest Fraction. At any given time, the percentage interest in University of Phoenix Online intended to be represented by the outstanding shares of University of Phoenix Online common stock is equal to:

Number of Shares of University of Phoenix Online Common Stock Outstanding

      The Retained Interest Fraction. At any given time, the percentage interest in University of Phoenix Online intended to be represented by APOL’s retained interest in University of Phoenix Online is equal to:

Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online

      The sum of the Outstanding Interest Fraction and the Retained Interest Fraction in University of Phoenix Online will always equal 100%. In our example, before the first issuance, the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online is 100, the Retained Interest Fraction is 100% and the Outstanding Fraction is 0%.

A-1

The Offering

      The following illustration reflects an assumed issuance by us of 15 shares of University of Phoenix Online common stock in the offering following approval of the Tracking Stock Proposal. Assume the issuance is attributed to University of Phoenix Online as an increase in its equity, with the net proceeds credited solely to University of Phoenix Online.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) would remain unchanged.

      As a result, the issued and outstanding shares (15) would represent an Outstanding Interest Fraction of approximately 13%, calculated as follows:

15

      The Retained Interest Fraction would accordingly be approximately 87%.

      In this case, in the event of any dividend or other distribution paid on the outstanding shares of University of Phoenix Online common stock (other than a dividend or other distribution payable in shares of University of Phoenix Online common stock), APOL would be credited, and University of Phoenix Online would be charged, with an amount equal to 667% (representing the ratio of the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) to the total number of shares of University of Phoenix Online common stock issued and outstanding following the offering (15)) of the aggregate amount of such dividend or distribution.

Additional Offerings of University of Phoenix Online Common Stock

      The following illustrations reflect an assumed issuance of an additional 15 shares of University of Phoenix Online common stock after the assumed initial issuance of 15 shares attributed to University of Phoenix Online as an increase in its equity.

      Additional Offerings for the Account of APOL. Assume the issuance is attributed to APOL in respect of APOL’s retained interest in University of Phoenix Online, with the net proceeds credited solely to APOL.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would decrease by the number of shares of University of Phoenix Online common stock issued for the account of APOL.

A-2

      As a result, the total issued and outstanding shares of University of Phoenix Online common stock (30) would in the aggregate represent an Outstanding Interest Fraction of approximately 26%, calculated as follows:

      The Retained Interest Fraction would accordingly be reduced to approximately 74%.

      In this case, in the event of any dividend or other distribution paid on University of Phoenix Online common stock (other than a dividend or other distribution payable in shares of University of Phoenix Online common stock), APOL would be credited, and University of Phoenix Online would be charged, with an amount equal to 283% (representing the ratio of the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (85) to the total number of shares of University of Phoenix Online common stock issued and outstanding following the additional offering (30)) of the aggregate amount of such dividend or distribution.

      Additional Offering for the Account of University of Phoenix Online. Assume the issuance is attributed to University of Phoenix Online as an increase in the equity of University of Phoenix Online, with the net proceeds credited solely to University of Phoenix Online.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) would remain unchanged.

      As a result, the total issued and outstanding shares (30) would in the aggregate represent an Outstanding Interest Fraction of approximately 23%, calculated as follows:

30

      The Retained Interest Fraction would accordingly be reduced to approximately 77%.

      In this case, in the event of any dividend or other distribution paid on University of Phoenix Online common stock (other than a dividend or other distribution payable in shares of University of Phoenix Online common stock), APOL would be credited, and University of Phoenix Online would be charged, with an amount equal to 333% (representing the ratio of the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) to the total number of shares of University of Phoenix Online common stock issued and outstanding following the additional offering (30)) of the aggregate amount of such dividend or distribution.

      Offerings of Convertible Securities. If we were to issue any securities convertible into or exercisable for shares of University of Phoenix Online common stock, the Outstanding Interest Fraction and the Retained Interest Fraction would be unchanged at the time of such issuance. If any shares of University of Phoenix Online common stock were subsequently issued upon conversion or exercise of such securities, however, the Outstanding Interest Fraction and the Retained Interest Fraction would be affected as shown above under “Additional Offerings for the Account of APOL,” if such securities were attributed to APOL, or under “Additional Offerings for the Account of University of Phoenix Online,” if such securities were attributed to University of Phoenix Online.

A-3

Repurchases of University of Phoenix Online Common Stock.

      The following illustrations reflect an assumed repurchase by us of 5 shares of University of Phoenix Online common stock after the assumed initial issuance of 15 shares of University of Phoenix Online common stock attributed to University of Phoenix Online as an increase in the equity of University of Phoenix Online.

      Repurchases for the Account of APOL. Assume the repurchase is attributed to APOL as an increase in its retained interest in University of Phoenix Online, with the cost charged solely against APOL.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be increased by the number of any shares of University of Phoenix Online common stock repurchased for the account of APOL.

      As a result, the total issued and outstanding shares (10) would in the aggregate represent an Outstanding Interest Fraction of approximately 9%, calculated as follows:

10

      The Retained Interest Fraction would accordingly be increased to approximately 91%.

      Repurchases for Account of University of Phoenix Online without Participation by APOL. Assume the repurchase is attributed to University of Phoenix Online, with the cost being charged solely against University of Phoenix Online. Further assume that our board of directors does not determine to transfer assets from University of Phoenix Online to APOL.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) would remain unchanged.

      As a result, the total issued and outstanding shares (10) would in the aggregate represent an Outstanding Interest Fraction of approximately 9%, calculated as follows:

10

      The Retained Interest Fraction would accordingly be increased to approximately 91%.

A-4

      Repurchase for Account of University of Phoenix Online with Participation by APOL. Assume the repurchase is attributed to University of Phoenix Online, with the cost being charged solely against University of Phoenix Online. Further, assume that the repurchase is made in connection with a tender offer for 5, or 33%, of the then outstanding shares at a price of $20 per share, and that our board of directors determines to transfer cash or other assets from University of Phoenix Online to APOL to hold the Outstanding Interest Fraction and Retained Interest Fraction constant.

      In order to hold constant the Outstanding Interest Fraction and the Retained Interest Fraction, our board of directors could determine that the Market Value of a share of University of Phoenix Online common stock in this context is $20 and transfer from University of Phoenix Online to APOL an amount of cash or other assets equal to 667% (representing the ratio of the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) to the total number of shares of University of Phoenix Online common stock issued and outstanding (15), in each case immediately prior to the repurchase) of the aggregate amount of the cash paid in the tender offer to holders of outstanding shares of University of Phoenix Online common stock ($100), or $667.

      In that case, the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) would decrease by the amount of cash so transferred ($667) divided by the Market Value per share of University of Phoenix Online common stock ($20).

      As a result, the total issued and outstanding shares (10) would in the aggregate continue to represent an Outstanding Interest Fraction of approximately 13%, calculated as follows:

10

      The Retained Interest Fraction would accordingly continue to be approximately 87%.

      Assuming that our board of directors transferred only half of the $667 amount, or $333.50, from University of Phoenix Online to APOL, the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) would decrease by the amount of cash so transferred ($333.50) divided by the Market Value per share of University of Phoenix Online common stock ($20).

A-5

      As a result, the total shares issued and outstanding shares (10) would in the aggregate represent an Outstanding Interest Fraction of approximately 11%, calculated as follows:

10

      The Retained Interest Fraction would accordingly be increased to approximately 89%.

University of Phoenix Online Stock Dividends

      The following illustrations reflect assumed dividends of University of Phoenix Online common stock on outstanding shares of APOL common stock and outstanding shares of University of Phoenix Online common stock, respectively, after the assumed initial issuance of 15 shares of University of Phoenix Online common stock attributable to University of Phoenix Online as an increase in its equity.

      University of Phoenix Online Stock Dividend on APOL Common Stock. Assume 1,000 shares of APOL common stock are outstanding and that our board of directors declares a dividend of 1/20 of a share of University of Phoenix Online common stock on each outstanding share of APOL common stock (payable equally on the Class A APOL and Class B APOL common stock).

      Any dividend of shares of University of Phoenix Online common stock to the holders of shares of APOL common stock would be treated as a reduction in the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online.

      As a result, the total issued and outstanding shares (65) would in the aggregate represent an Outstanding Interest Fraction of approximately 57%, calculated as follows:

65

      The Retained Interest Fraction would accordingly be reduced to approximately 43%. Note, however, that after the dividend, the holders of shares of APOL common stock would also hold 50 shares of University of Phoenix Online common stock, which would be intended to represent the 43% interest in the value attributable to University of Phoenix Online.

      University of Phoenix Online Stock Dividend on University of Phoenix Online Common Stock. Assume our board of directors declares a dividend of 1/5 of a share of University of Phoenix Online common stock on each outstanding share of University of Phoenix Online common stock.

A-6

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would reflect the stock dividend payable in shares of University of Phoenix Online common stock to holders of shares of University of Phoenix Online common stock. That is, the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be increased by a number equal to 667% (representing the ratio of the Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online (100) to the number of shares of University of Phoenix Online common stock issued and outstanding (15), in each case immediately prior to such dividend) of the aggregate number of shares issued in connection with such dividend (3), or 20.

      As a result, the total issued and outstanding shares (18) would in the aggregate continue to represent an Outstanding Interest Fraction of approximately 13%, calculated as follows:

18

      The Retained Interest Fraction would accordingly continue to be about 87%.

Capital Transfers of Cash or Other Assets Between APOL and University of Phoenix Online

      Capital Contribution of Cash or Other Assets from APOL to University of Phoenix Online. The following illustration reflects the assumed contribution by APOL to University of Phoenix Online, after the assumed initial issuance of 15 shares of University of Phoenix Online common stock attributable to University of Phoenix Online as an increase in the equity of University of Phoenix Online, of $40 of assets allocated from APOL at a time when the Market Value of University of Phoenix Online common stock is $20 per share.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest in University of Phoenix Online would be increased to reflect the contribution to University of Phoenix Online of the assets theretofore allocated to APOL by a number equal to the value of the assets contributed ($40) divided by the Market Value of University of Phoenix Online common stock at that time ($20), or 2 shares.

      As a result, the total issued and outstanding shares (15) would in the aggregate represent an Outstanding Interest Fraction of approximately 13%, calculated as follows:

15

      The Retained Interest Fraction would accordingly be increased to approximately 87%.

A-7

      Return of Capital Transfer of Cash or Other Assets from University of Phoenix Online to APOL. The following illustration reflects the assumed transfer by University of Phoenix Online to APOL, after the assumed initial issuance of 15 shares of University of Phoenix Online common stock attributable to University of Phoenix Online as an increase in its equity, of $40 of assets allocated to University of Phoenix Online on a date on which the Market Value of University of Phoenix Online common stock is $20 per share.

      The Number of Shares Issuable with Respect to APOL’s Retained Interest would be decreased to reflect the transfer to APOL of assets theretofore allocated to University of Phoenix Online by a number equal to the value of the assets transferred ($40) divided by the market value of University of Phoenix Online common stock at that time ($20), or 2 shares.

      As a result, the total issued and outstanding shares (15) would in the aggregate represent an Outstanding Interest Fraction of approximately 13%, calculated as follows:

15

      The Retained Interest Fraction would accordingly be decreased to approximately 87%.

A-8

Part II — Mandatory Dividend, Redemption, or Conversion of University of Phoenix Online

      As described above at “Description of Capital Stock — Mandatory Dividend, Redemption, or Conversion of Common Stock,” our board of directors would, in the event of a Disposition, other than an Exempt Disposition, of All or Substantially All of the assets of University of Phoenix Online, have three options available to it: (1) it could pay a dividend to holders of University of Phoenix Online common stock, (2) it could redeem a specified portion of the outstanding shares of University of Phoenix Online common stock, or (3) it could convert shares of University of Phoenix Online common stock to Class A APOL common stock. The following illustration demonstrates more fully the three options in the event of a hypothetical Disposition of substantially all of the assets of University of Phoenix Online.

      If:

	•	100 shares of University of Phoenix Online common stock were outstanding;
	•	the Net Proceeds of the Disposition of substantially all, but not all, of the assets of University of Phoenix Online were $18,000;
	•	the average Market Values of University of Phoenix Online common stock and Class A APOL common stock over the applicable 20-day period were $20 and $40, respectively;
	•	the Outstanding Interest Fraction with respect to University of Phoenix Online was 10%; and
	•	the Disposition occurred more than two years after the Issuance Date,

      then our board of directors could do any of the following:

	(1)  pay a dividend to holders of University of Phoenix Online common stock equal to:

Net Proceeds x Outstanding Interest Fraction     =

Number of Outstanding Shares of

	(2)  redeem for $20 per share a number of shares of University of Phoenix Online common stock equal to:

Net Proceeds x Outstanding Interest Fraction     =

Average Market Value of

A-9

	(3)  convert each outstanding share of University of Phoenix Online common stock into a number of shares of APOL Class A common stock equal to:

Average Market Value of

Average Market Value of APOL

A-10

Part III — Optional Conversion of University of Phoenix Online Common Stock

      As described above at “Description of Capital Stock” — “Conversions of Stock at Our Option” — “Conversion of University of Phoenix Online Common Stock Generally,” our board of directors has the right, at any time, to convert each share of University of Phoenix Online common stock outstanding to shares of Class A APOL common stock. The following illustration demonstrates the calculation of the number of shares issuable upon a hypothetical conversion of University of Phoenix Online common stock to shares of Class A APOL common stock at our option.

      If

	•	the conversion occurs 18 months after the Issuance Date (and hence the applicable premium were 20%);
	•	No Tax Event has occurred; and
	•	the average Market Values of University of Phoenix Online common stock and the Class A APOL common stock over the applicable 20-day period were $20 and $40, respectively;

then each share of University of Phoenix Online common stock could be converted into 0.60000 shares of Class A APOL common stock based on the following calculation:

A-11

ANNEX B

AMENDED AND RESTATED

ARTICLE I

NAME

      The name of the corporation is Apollo Group, Inc. (the “Corporation”).

ARTICLE II

ADDRESS OF REGISTERED OFFICE;

      The name and address of the statutory agent of the corporation is CT CORPORATION SYSTEM, 3225 North Central Avenue, Phoenix, Arizona 85012. The address of the place of business of the Corporation is 4615 East Elwood Street Phoenix, Arizona 85040.

ARTICLE III

PURPOSE

      The purposes for which the Corporation is organized include the transaction of any or all lawful business for which corporations may be incorporated under Chapter 1 of Title 10, Arizona Revised Statutes, at any time. The character of business that the Corporation conducts in the State of Arizona is that of holding stock or other ownership interests of corporations or other entities.

ARTICLE IV

CAPITAL STOCK

1.  Authorization.

      The Corporation shall have the authority to issue two classes of shares of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares of Common Stock that the Corporation shall have the authority to issue is 1,203,000,000 shares, without par value, and the total number of shares of Preferred Stock that the Corporation shall have the authority to issue is 1,000,000 shares, without par value.

      The Board of Directors is empowered to authorize shares of Common Stock in one or more series as may from time to time be determined by the Board of Directors by resolution or resolutions, each of said series to be distinctly designated. The powers, preferences, and relative, participating, optional, or other rights and the qualifications, limitations, and restrictions thereof, if any, of each such series may differ from those of any or all other series of Common Stock, and the Board of Directors is empowered to fix or alter, by resolution or resolutions, the designation, number, powers, preferences, and relative, participating, optional, or other rights, if any, and the qualifications, limitations, and restrictions thereof, if any, of each

B-1

	(a)	One series of Common Stock shall be designated as “Class A APOL Common Stock.” The total number of shares of Class A APOL Common Stock that the Corporation shall have the authority to issue is 400,000,000;
	(b)	A second series of Common Stock shall be designated as “Class B APOL Common Stock.” The total number of shares of Class B APOL Common Stock that the Corporation shall have the authority to issue is 3,000,000; and
	(c)	A third series of Common Stock shall be designated as “University of Phoenix Online Common Stock.” The total number of shares of University of Phoenix Online Common Stock that the Corporation shall have the authority to issue shall be 400,000,000.

      The Board of Directors is empowered to authorize shares of Preferred Stock in one or more series as may from time to time be determined by the Board of Directors by resolution or resolutions, each of said series to be distinctly designated. The powers, preferences, and relative, participating, optional, or other rights and the qualifications, limitations, and restrictions thereof, if any, of each such series may differ from those of any or all other series of Preferred Stock, and the Board of Directors is empowered to fix or alter, by resolution or resolutions, the designation, number, powers, preferences, and relative, participating, optional, or other rights, if any, and the qualifications, limitations, and restrictions thereof, if any, of each such series, and to increase or decrease the number of shares of each such series to the extent permitted by law.

      Unless otherwise specified, the Class A APOL Common Stock and the Class B APOL Common Stock shall hereinafter, collectively, be called “APOL Common Stock.” Unless otherwise specified, the preferred stock of the Corporation shall hereinafter collectively be called the “Preferred Stock.” Unless otherwise specified, the capitalized terms used in this Article IV shall have the meanings set forth in subsection 2.7 of this Article IV. For purposes of this Article IV, references to the “Board of Directors” shall refer to the Board of Directors of the Corporation, as established in accordance with Article V of the Articles of Incorporation of the Corporation and references to “the Articles of Incorporation of the Corporation” shall refer to these Amended and Restated Articles of Incorporation as the same may be amended from time to time.

2.  Common Stock.

      As of the Effective Date, (a) each share of Class A Common Stock outstanding immediately prior thereto or reserved for issuance shall thereupon automatically be reclassified without any action by the holder thereof as a share of Class A APOL Common Stock (and outstanding certificates that had theretofore represented shares of Class A Common Stock shall thereupon represent an equivalent number of shares of Class A APOL Common Stock despite the absence of any indication thereon to that effect), and (b) each share of Class B Common Stock outstanding immediately prior thereto or reserved for issuance shall thereupon automatically be reclassified without any action by the holder thereof as a share of Class B APOL Common Stock (and outstanding certificates that had theretofore represented shares of Class B Common Stock shall thereupon represent an equivalent number of shares of Class B APOL Common Stock despite the absence of any indication thereon to that effect).

      The Board of Directors shall have the authority to designate, prior to the time of the first issuance of University of Phoenix Online Common Stock or Common Stock relating to any other Group (other than University of Phoenix Online and APOL), the number which, immediately prior to such first issuance, will constitute the Number of Shares Issuable with Respect to APOL’s Retained Interest in such Group and any other terms which are consistent with applicable law and the provisions of this Article IV.

      The voting powers, preferences, and relative, participating, optional or other special rights of the Common Stock, and the qualifications and restrictions thereon, shall be as follows in this section 2 of this Article IV.

B-2

  2.1  Dividends.

      Subject to any preferences and relative, participating, optional, or other rights of any outstanding class of Preferred Stock and any qualifications or restrictions on the Common Stock or any series thereof created thereby, dividends may be declared and paid upon any series of Common Stock, upon the terms, with respect to each such series, and subject to the limitations provided for in this subsection 2.1 of this Article IV, as the Board of Directors may determine.

     2.1.1  Limitation on Dividends.

      Dividends on any series of Common Stock may be declared and paid only out of the lesser of (a) the funds of the Corporation legally available therefor and (b) the Available Dividend Amount for the Group to which such series of Common Stock relates.

     2.1.2  Discrimination in Dividends Between Classes of Common Stock.

      The Board of Directors, subject to the provisions of subsection 2.1.1 of this Article IV, may at any time declare and pay dividends exclusively on a single series of Common Stock, or on one or more series of Common Stock, in equal or unequal amounts, notwithstanding the relative amounts of the Available Dividend Amount with respect to any Group, the amount of dividends previously declared on any series, the respective voting or liquidation rights of any series, or any other factor.

     2.1.3 Share Distributions.

      Except as set forth in paragraph (a) of subsection 2.4.1 of this Article IV, the Board of Directors may declare and pay dividends or distributions of shares of any series of Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of Common Stock) on shares of a series of Common Stock or on shares of a series of Preferred Stock only as follows:

	(a)	dividends or distributions of shares of a series of Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of a series of Common Stock) on shares of the same series of Common Stock or any shares of Preferred Stock attributed to the same Group to which such series of Common Stock relates; and
	(b)	dividends or distributions of shares of a series of Common Stock other than APOL Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of Common Stock other than APOL Common Stock) on shares of APOL Common Stock or on shares of Preferred Stock attributed to the APOL Group.

      For purposes of this subsection 2.1.3, any Convertible Securities that are convertible into or exchangeable or exercisable for any other Convertible Securities that are themselves convertible into or exchangeable or exercisable for any series of Common Stock (or other securities that are so convertible, exchangeable, or exercisable) shall be deemed to have been converted, exchanged, or exercised in full for such securities.

  2.2  Voting Rights.

      At every meeting of shareholders, the holders of Class B APOL Common Stock shall vote on all matters as to which holders of common stock generally are entitled to vote. Holders of Class A APOL Common Stock and holders of University of Phoenix Online Common Stock shall not be entitled to vote, unless a separate class vote shall be required by applicable law.

      On all such matters for which no separate vote is required, each outstanding share of Class B APOL Common Stock shall entitle the holder to one vote. With respect to any matter as to which the holders of University of Phoenix Online Common Stock or APOL Common Stock are entitled to vote as a separate class, each share of that series of Common Stock shall, for purposes of such separate class vote, be entitled to one vote on such matter.

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  2.3  Liquidation Rights.

      In the event of the voluntary or involuntary dissolution of the Corporation or the liquidation and winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and the full preferential amounts (including any accumulated and unpaid dividends) to which the holders of Preferred Stock are entitled (regardless of the Group to which such shares of Preferred Stock were attributed in accordance with this Article IV), unless otherwise provided in respect of a class or series of Preferred Stock by the resolution of the Board of Directors fixing the liquidation rights and preferences of such class or series of Preferred Stock, the holders of the outstanding shares of Common Stock shall be entitled to receive the remaining assets of the Corporation on a per share basis in proportion to the respective liquidation units per shares of such series. Each share of APOL Common Stock shall have one liquidation unit and each share of each other series of Common Stock shall have a number of liquidation units (which may be a fraction of one liquidation unit) equal to the quotient of (a) the average Market Value of one share of such series of Common Stock during the 20 consecutive Trading Day period ending on, and including, the 5th Trading Day before the date of the first public announcement of a voluntary liquidation, dissolution, or winding-up of the Corporation or the institution of any proceeding for the involuntary liquidation, dissolution or winding-up of the Corporation, divided by (b) the average Market Value of one share of APOL Common Stock during such 20 Trading Day period. Neither the merger nor consolidation of the Corporation with any other entity, nor a sale, transfer, or lease of all or any part of the assets of the Corporation, shall, alone, be deemed a liquidation, dissolution, or winding-up for purposes of this section 2.3.

      If the Corporation shall in any manner subdivide (by stock split, reclassification, or otherwise) or combine (by reverse stock split, reclassification, or otherwise) the outstanding shares of any series of Common Stock, or declare a dividend in shares of such outstanding series to holders of such series, the per share liquidation units of such series of Common Stock specified in the preceding paragraph of this section 2.3, as adjusted from time to time, shall be appropriately adjusted as determined by the Board of Directors (if necessary) so as to avoid dilution in the aggregate of the relative liquidation rights of the shares of any series of Common Stock.

  2.4  Redemptions and Conversions of Stock; Related Matters.

      In the event of a Disposition (other than an Exempt Disposition), the Corporation shall, on or prior to the 85th Trading Day after the Disposition Date, provided that the assets of the Corporation are legally available therefor, either:

      (1)  if the Disposition relates to assets of APOL:

	(a)	declare and pay a dividend to holders of Class A APOL Common Stock (in cash, securities (other than Common Stock), or other property, or a combination thereof), subject to the limitations on dividends set forth under subsection 2.1 of this Article IV, in an aggregate amount having a Fair Value (determined as of the Disposition Date) equal to the Net Proceeds of such Disposition; or
	(b)	redeem from holders of Class A APOL Common Stock, in exchange for cash, securities (other than Common Stock), or other property (or a combination thereof), for an aggregate amount equal to the product of (i) a fraction the numerator of which is the number of shares of Class A APOL Common Stock outstanding on the date of the redemption and the denominator of which is the number of shares of APOL Common Stock outstanding on the date of the redemption, multiplied by (ii) the Fair Value (determined as of the Disposition Date) of the Net Proceeds of such Disposition (collectively, the “APOL Redemption Proceeds Amount”), all of the outstanding shares of Class A APOL Common Stock (unless such Disposition involves substantially all (but not all) of the assets attributed to APOL, in

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