FORM S-3

Apollo Group, Inc.

4615 E. Elwood Street,

(Address, including zip code, and telephone number, including area code, of

Todd S. Nelson

(Name, address, including zip code, and telephone number,

Copies of all communications, including all communications sent to the agent for service, should be sent to:

     Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

     If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  [   ]

     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  [   ]

     If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  [   ]

     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  [   ]

     If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box.  [   ]

CALCULATION OF REGISTRATION FEE

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MARCH 28, 2000

                           Shares

[Logo of Apollo Group, Inc.]

University of Phoenix Online Common Stock

         Prior to this offering, there has been no public market for the University of Phoenix Online common stock. The initial public offering price of the University of Phoenix Online common stock is expected to be between $     and $     per share. Apollo Group, Inc. will apply to list the University of Phoenix Online common stock on The Nasdaq Stock Market’s National Market under the symbol “UOPX.”

      Apollo Group is selling        shares of its University of Phoenix Online common stock. University of Phoenix Online common stock is intended to track the performance of University of Phoenix Online, a division of the University of Phoenix, Inc., a wholly owned subsidiary of Apollo Group.

      The underwriters have an option to purchase a maximum of      additional shares to cover over-allotments of shares.

      Investing in the University of Phoenix Online common stock involves risks. See “Risk Factors” on page 10.

      Delivery of the shares of University of Phoenix Online common stock will be made on or about                   , 2000.

      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Credit Suisse First Boston

	Banc of America Securities LLC

	Chase H&Q

The date of this prospectus is                , 2000.

TABLE OF CONTENTS

      You should rely only on the information contained in this document or to which Apollo Group has referred you. Apollo Group has not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

      This prospectus is part of a registration statement that Apollo Group filed with the Securities and Exchange Commission. You should read this prospectus together with the additional information described under the heading “Where You Can Find More Information.” You should be aware that information contained on University of Phoenix Online’s Web site is not part of this prospectus.

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PROSPECTUS SUMMARY

      Because this is only a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus, including “Risk Factors” and the financial statements and the related notes, before deciding to invest in University of Phoenix Online common stock. References in this prospectus to “we,” “our,” and “us” refer to University of Phoenix Online, a division of the University of Phoenix, Inc., a wholly owned subsidiary of Apollo Group, Inc. References to “Apollo Group” refer to Apollo Group, Inc. References to “APOL” refer to the assets, liabilities, and business of Apollo Group other than University of Phoenix Online common stock sold to the public. APOL includes University of Phoenix’s physical campuses in addition to a retained interest in University of Phoenix Online.

Our Business

      We are a leading online provider of accessible, high quality education programs for working adults and their employers. We began operations in 1989 by modifying courses developed by University of Phoenix’s physical campuses for delivery via modem to students worldwide. Today, our 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. We currently offer 11 accredited degree programs in business, education, information technology, and nursing. As of January 31, 2000, we had approximately 12,000 degree students and approximately 1,100 faculty members. We currently have relationships with approximately 1,600 corporations in the form of employer tuition reimbursement programs.

      We have designed our online courses and programs to meet the unique needs of working adult students. We believe that one of the greatest advantages offered by our programs is that students can log on to their online classes wherever there is Internet accessibility. This enables us to offer our courses and programs to a vast number of potential students who may have been previously constrained by lack of convenient access to physical facilities, do not have the flexibility to meet the fixed time requirements imposed by ground-based programs, or simply prefer the online educational format. Our degree programs can be completed without any residency requirements, except for our Doctor of Management degree program, which requires an annual two-week residency in Phoenix, Arizona. Courses are taken sequentially, thereby allowing students who might face a personal or work-related schedule conflict to suspend their attendance for one or two courses and then resume their studies with the next course in their scheduled program. This instructional model provides working adult students enhanced flexibility for balancing learning with their professional and personal responsibilities.

      We believe that our ability to combine the 25 years of experience of University of Phoenix’s physical campuses in providing higher education programs for working adults with our ten years of experience in delivering these programs online provides us with a competitive advantage over both traditional universities and colleges and other technology based education and training companies. In offering our students an effective online education program and responsive customer service, we benefit from our relationship with University of Phoenix’s physical campuses in a number of ways, including access to:

	•	accredited degree programs in areas relevant to working adults. We share the accreditation of University of Phoenix’s physical campuses and our students may participate in the federal student financial aid programs authorized by Title IV of the Higher Education Act of 1965. For the year ended August 31, 1999, we derived 34% of our net revenues from students who participate in federal financial aid programs;
	•	expertise in developing and implementing a standardized curriculum, including joint development of the curriculum with content experts selected from over 6,500 University of Phoenix faculty;
	•	proven methods for recruiting and training faculty and monitoring academic quality to ensure student satisfaction and increase retention;
	•	shared resources, including University of Phoenix’s Learning Resources Services, which includes an electronic library, and faculty members who teach both online and physical classes; and
	•	a widely recognized brand in adult learning, with students and graduates working throughout corporate America.

      We recognize that our students want to be treated as important consumers of educational programs and services and have requirements that are very different from conventional, full-time students aged 18 to 24. In particular, our students are looking for an education that has an immediate, practical value in their workplace. Consequently, all of our programs emphasize this feature, and our curriculum is designed to integrate academic

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      We consider the employers of our students to be our secondary customers. Not only do we seek the involvement of major employers of our students in developing the curriculum of our programs, but the breadth of experience among our faculty enables us to respond to requests by corporations and other organizations to customize and deliver educational programs for their employees.

      Our enrolled degree student base, as well as our net revenues, have grown rapidly. On January 31, 2000, we had approximately 12,000 degree students, an increase from approximately 8,800 on January 31, 1999. Our revenues have increased to $69.6 million for the fiscal year ended August 31, 1999 from $45.1 million for the fiscal year ended August 31, 1998.

      Our office is at 3157 E. Elwood Street, Phoenix, Arizona 85034. Our telephone number is (602) 387-7000. Our Web site address is http://online.uophx.edu. Apollo Group’s principal executive office is at 4615 E. Elwood Street, Phoenix, Arizona 85040. Apollo Group’s telephone number is (480) 966-5394.

Market Opportunity

      The adult education market is a significant and growing component of the post-secondary education market, which is estimated by the U.S. Department of Education to be a more than $200 billion industry. The widespread use and acceptance of the Internet is revolutionizing the delivery of education and training, creating new market opportunities for us. IDC, an international data research firm, estimates that the number of students enrolled in distance learning will increase to 2.2 million in 2002 from 0.7 million in 1998.

      We believe that our extensive educational content and experience in delivering this content over the Internet provides us with a competitive advantage. Traditional universities that have limited experience in tailoring their programs to the Internet and recently formed technology-based education companies are knowledgeable in only a few of the many aspects that are critical to providing a compelling online educational service.

Our Strategy

      Our objective is to be the leading online provider of accessible, high quality education for working adults and the preferred provider of workplace training to their employers. In addition, we intend to leverage our expertise in developing, hosting, and marketing online education and training programs by offering our services to corporations and other complementary education and training companies. We will implement the following strategic initiatives to accomplish this objective:

	•	increase enrollments and retention through marketing, partnerships, and other initiatives;
	•	expand program offerings;
	•	increase and strengthen corporate partnerships and offer corporate training programs;
	•	expand internationally; and
	•	generate new revenue streams by offering complementary and ancillary educational services.

Apollo Group

      Apollo Group, through its subsidiaries, the University of Phoenix, Inc. (which includes both the physical campuses and University of Phoenix Online), 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 enrolled in its programs. The consolidated enrollment in its educational programs would make it the largest private institution of higher education in the U.S. Apollo Group currently offers its programs and services at 52 campuses and 85 learning centers in 35 states, Puerto Rico, and Vancouver, British Columbia. Apollo Group’s combined degree enrollment increased to approximately 87,300 at November 30, 1999 from approximately 36,800 at August 31, 1995.

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University of Phoenix Online Common Stock

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The Offering

      The shares of University of Phoenix Online common stock outstanding after this offering exclude:

	•	9,000,000 shares that have been reserved for issuance under Apollo Group’s stock incentive plan;
	•	2,000,000 shares that have been reserved for issuance under Apollo Group’s employee stock purchase plan; and
	•	100,000 shares that have been reserved for issuance under Apollo Group’s director stock plan.

      Except as otherwise indicated, the information in this prospectus is based on the following assumptions:

	•	the University of Phoenix Online common stock being offered will be sold at $     per share, which is the mid-point of the range set forth on the cover page of this prospectus; and
	•	no exercise of the underwriters’ over-allotment option.

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Summary Financial Information of University of Phoenix Online

      You should read the following summary financial information together with our financial statements and the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of University of Phoenix Online” contained elsewhere in this prospectus.

      The “as adjusted” column above reflects the issuance and sale of shares of University of Phoenix Online common stock in this offering, at an assumed initial public offering price of $     per share after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS

      An investment in University of Phoenix Online common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before you decide to buy University of Phoenix Online common stock. Our business, financial condition, or results of operations could be materially adversely affected by any of these risks. The trading price of University of Phoenix Online common stock could decline due to any of these risks, and you may lose part or all of your investment.

Risks Related to Our Business

We expect to generate operating losses and negative cash flow for the foreseeable future.

      While we have been profitable in the past, we expect to generate operating losses and negative cash flow for the foreseeable future as we intend to invest heavily to attract more students. We will incur additional expenses for hiring new faculty, enrollment counselors, academic counselors, and financial counselors, expanding our product offering, and increasing our brand awareness. Accordingly, we will need to generate significant additional revenues to resume profitability.

Our inability to adequately manage our anticipated growth could have a material adverse effect on the quality and management of our programs and our ability to integrate new personnel.

      We have increased the number of our degree students to approximately 12,000 as of January 31, 2000 from approximately 8,800 as of January 31, 1999. We intend to continue increasing the number of our degree students and more resources will be required to support this anticipated growth, including additional faculty, enrollment counselors, academic counselors, and financial counselors. This growth has placed, and future growth is expected to place, a significant strain on our financial and operational resources. We must continue to improve our financial and management controls, reporting systems, and procedures, and continue to expand, train, and develop our faculty, enrollment counselors, academic counselors, and financial counselors to effectively manage our anticipated future growth. However, we cannot assure you that we will be able to continue to do so.

Our financial performance depends in part on our ability to continue to develop our brand awareness among adult students and we may not be successful in doing so.

      The continued development of awareness of our brand name among working adult students is critical to the continued acceptance and growth of our programs and our successful financial performance. The following are some of the factors that could prevent us from successfully continuing to develop our brand:

	•	the emergence of more successful competitors;
	•	customer dissatisfaction with our programs and services;
	•	performance problems with our online systems; or
	•	our failure to sufficiently market our brand.

If we are unable to continue to develop awareness of our brand name, it could limit our enrollments and negatively impact our ability to increase our number of students and revenues.

We cannot predict future revenue and fluctuations in our operating results could adversely affect the trading price of University of Phoenix Online common stock.

      Our operating results are likely to fluctuate, which could adversely affect the trading price of University of Phoenix Online common stock. The online education market is a relatively new and emerging market and we may not be able to accurately forecast revenues. Due to these factors, and other factors such as

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We cannot adjust expenses for any particular quarter in response to revenue shortfalls.

      Most of our expenses do not vary directly with revenue and are difficult to adjust in the short term. As a result, if revenue for a particular quarter is below our expectations, we could not proportionately reduce operating expenses for that quarter. Any revenue shortfall would therefore have a disproportionate effect on our expected operating results for that quarter.

Our success depends in part on our ability to expand the content of our existing programs and develop new programs in a cost-effective manner and on a timely basis.

      Our success depends in part on our ability to expand the content of our programs, develop new programs in a cost-effective manner, and meet our students’ needs in a timely manner. The expansion of our existing programs and the development of new programs may not be accepted by our students or the online education market. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as our students require or as quickly as our competitors.

We intend to market our programs in international markets, which could subject us to a variety of risks we have not previously encountered and negatively impact our profitability and liquidity.

      To date, we have marketed our programs to a limited number of international students and we intend to increase these efforts substantially in the future. We may be unable to adequately manage risks associated with our planned international expansion, which could adversely affect our ability to successfully operate in our targeted international markets and negatively impact our profitability and liquidity. These international risks include the following:

	•	uncertainty of product acceptance by students in international markets;
	•	difficulties in staffing and managing multinational operations;
	•	unforeseen changes in regulatory requirements;
	•	restrictions on the repatriation of funds;
	•	currency fluctuations; and
	•	potentially adverse tax consequences.

Capacity constraints or system disruptions to our computer networks could damage our reputation and limit our ability to attract and retain students.

      The performance and reliability of our program infrastructure is critical to our reputation and ability to attract and retain students. Any system error or failure, or a sudden and significant increase in traffic, may result in the unavailability of our computer networks. Individual, sustained, or repeated occurrences could significantly damage our reputation and result in a loss of potential or existing students. We cannot assure you that we will be able to expand our program infrastructure on a timely basis sufficient to meet demand for our programs.

      Our computer systems and operations are vulnerable to interruption or malfunction due to events beyond our control, including natural disasters and telecommunications failures. We presently have a limited amount of redundant facilities, our formal disaster recovery plan has never been tested, and our business interruption insurance may not be sufficient to compensate for losses that may occur. Any interruption to our computer systems or operations could have a material adverse effect on our ability to attract and retain students.

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Our computer networks may be vulnerable to security risks that could disrupt our operations and require us to expend significant resources.

      Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses, and other security problems. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in our operations. Due to the sensitive nature of the information contained on our networks, such as students’ grades, our networks may be targeted by hackers. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches. Although we intend to continue to implement industry-standard security measures, these measures may be inadequate.

We rely on proprietary rights and intellectual property that may not be adequately protected under current laws.

      Our success depends in part on our ability to protect the proprietary rights and trade secrets we have developed relating to various aspects of our administrative and educational delivery systems. We rely on a combination of copyright, service mark, and trade secret laws and confidentiality agreements with third parties to protect our proprietary rights.

      We cannot assure you that these measures will be adequate, that we will be able to secure registrations for all of our marks in the U.S. or internationally, or that third parties will not infringe upon or misappropriate our proprietary rights. Despite our efforts to protect these rights, unauthorized third parties may attempt to duplicate or copy aspects of our curriculum, online library, quality management, and other content that we believe is proprietary. The laws of many international markets cannot protect our proprietary rights as well as the laws of the U.S. Copyright, service mark, and trade secret protection may not be available in every country where we offer our programs. Our management’s attention may be diverted and we may need to use funds to protect our proprietary rights from any infringement, misappropriation, or litigation.

      We may encounter disputes from time to time over rights and obligations concerning intellectual property and we may not prevail in these disputes. We have not been notified that our services infringe the proprietary rights of third parties, but third parties may claim that our current or future services are infringing their proprietary rights.

We may incur liability for the unauthorized duplication or distribution of class materials posted online for class discussions.

      In some instances, our instructors may post various articles or other third-party content on the class discussion board. We may incur liability for the unauthorized duplication or distribution of this material posted online for class discussions. We cannot assure you that a third party will not raise a claim against us for the unauthorized duplication of this material. Any of these claims could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether the claims have merit. Our general liability insurance may not cover or be adequate for potential claims of this type and we may be required to alter the content of our classes or pay financial damages.

We may make acquisitions or investments in the future that could disrupt our business and adversely affect our profitability and liquidity.

      We have no present agreement or understanding relating to any acquisitions or investments, but we may make acquisitions or investments in new or complementary businesses in the future. We cannot assure you that we will be able to successfully assimilate personnel, operations, products, services, or technologies of any acquisitions or investments we make in the future with our current operations. This could disrupt our business and materially and adversely affect our profitability and liquidity by distracting our management and employees and increasing our expenses. In addition, we may incur debt or issue dilutive equity securities to fund any future acquisitions.

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We cannot predict our future capital needs, and we may not be able to secure additional financing.

      We may need to raise additional funds in the future to fund our operations, to expand our markets and product offerings, or to respond to competitive pressures or perceived opportunities. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available when required or on acceptable terms, we may be forced to cease our operations, and even if we are able to continue our operations, our ability to increase our students and revenues may be adversely affected.

We depend on licensed technology from third parties and our failure to maintain these arrangements could disrupt our operations.

      We rely on technology licensed from third parties for use in operating and managing our computer networks. We cannot assure you that these technology licenses will continue to be available on commercially reasonable terms, that the technology will operate as intended, or that the technology or appropriate licenses will be available at all. Our failure to maintain relationships with these third-party license providers could disrupt our operations.

Our future growth depends on the continued growth of the Internet.

      Our business relies on the Internet for its success. If Internet use does not continue to grow, or if the Internet does not develop as an effective online educational delivery system, we may not grow as planned.

      A number of factors could inhibit the growth and acceptance of the Internet, including:

	•	inadequate Internet infrastructure;
	•	security and privacy concerns;
	•	the lack of compelling content; and
	•	the unavailability of cost-effective, high-speed service.

We may be unsuccessful in promoting and developing new revenue streams.

      We intend to generate new revenue streams by offering the following services:

	•	customizing content of education and training programs to an online format and hosting these programs for other companies;
	•	providing a marketing platform for online providers of complementary education and training programs;
	•	selling ancillary services; and
	•	providing targeted advertising opportunities.

      If we do not adequately promote and develop these services, we may not attract and retain business partnerships for use of these programs. We are currently investing in the development of these services and we may not succeed in establishing programs that meet the needs of our business partners. If we are not successful, we may not grow as planned.

We intend to generate additional revenue by selling advertisements on our Web site and due to our lack of experience in generating advertising revenue and lack of advertising sales personnel this business plan may not be successful.

      To date, we have derived no revenue from advertising. We do not have experience in generating advertising revenue and we do not currently have an advertising sales force. Our ability to successfully generate revenue through advertising may require us to locate third-party experts or specialists who would develop or assist us in developing our advertising business plan. If we are unable to locate these experts or specialists, we may fail to develop an advertising business plan, which could constrain our revenue growth.

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If our agreements with various portals and e-commerce Web sites do not perform as expected, it could affect our ability to increase or maintain our enrollments.

      We rely on agreements with various portals and e-commerce Web sites to attract potential students to our Web site. These relationships include arrangements relating to the positioning of our brand name on Web browsers and agreements with Internet service providers and portals. We also rely on other Web site operators that provide links to our Web site. We cannot assure you that the services of those companies that provide access or links to our Web site will achieve market acceptance or commercial success. Accordingly, there can be no assurance that our existing relationships will result in sustained business relationships, new enrollments, or increased revenues. We believe that our relationships with portals and e-commerce Web sites are important to our ability to attract potential students and advertisers. The failure of one or more of these relationships could significantly reduce leads to our Web site, reduce our enrollments, and limit our revenues.

Risks Related to Our Industry

The market for online learning is in an early stage and may not continue to develop.

      The market for online learning is in an early stage of development and it currently represents only a small percentage of the overall higher education and training market. The use of online education and training may not increase as we anticipate and our programs may not be accepted by working adult students. Also, some educators are opposed to online education and have the capacity to negatively influence the market for our programs. Some critics have also expressed concerns regarding the perceived loss of control over the educational process that can result from the outsourcing of online campuses and courses. We may be unable to continue to increase our number of students and revenues if the higher education and training market does not more generally accept online learning.

We operate in a highly competitive market with rapid technology changes and we may not have the resources needed to compete successfully.

      Online education is a highly fragmented and competitive market that is subject to rapid technological change. Competitors vary in size and organization from traditional colleges and universities, many of which have some form of online education programs, to for-profit schools, corporate universities, and software companies providing online education and training software. We expect the online education and training market to be subject to rapid changes in technologies. Our success will depend on our ability to adapt to these changing technologies. We may not have the resources necessary to compete with the rapidly changing technologies being developed by our competitors.

Changes in the extensive regulations to which we are subject could increase our cost of doing business or affect our ability to grow.

      We are subject to extensive private, federal, and state regulation as a division of University of Phoenix. New or revised interpretations of the regulations by any of the regulatory entities that determine University of Phoenix’s accreditation, state licensure, or Title IV eligibility could increase our cost of doing business or affect our ability to continue increasing our number of students and revenue.

We depend on University of Phoenix’s accreditation and the failure to maintain accreditation would significantly reduce demand for our programs.

      We are covered by the regional accreditation of University of Phoenix. As a result, we depend on University of Phoenix to remain in good standing with the North Central Association of Colleges and Schools, its regional accrediting association. The loss of accreditation would significantly reduce demand for our programs by:

	•	prohibiting us from offering degrees and credits to students that are recognized and accepted by employers, other higher education institutions and governmental entities; and

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	•	rendering us ineligible to participate in federal financial aid programs.

We depend on University of Phoenix’s state authorization to operate and the failure to maintain that authorization could prevent us from operating our business.

      We are covered by University of Phoenix’s authorization to operate which was issued by the Arizona State Board for Private Postsecondary Education. As a result, we depend on University of Phoenix to remain in good standing with the Arizona State Board for Private Postsecondary Education. The loss of state approval to operate could prohibit us from offering our programs to students and render us ineligible to participate in Title IV programs.

We depend on University of Phoenix’s participation in the federal student financial aid programs and the failure to maintain compliance with the program requirements could significantly reduce demand for our programs.

      The Higher Education Act of 1965 and the related regulations adopted by the U.S. Department of Education impose numerous requirements with which institutions participating in the Title IV programs must comply. Many of the regulations do not explicitly address or account for online education programs and it is not always clear how to apply the regulations to online programs. Moreover, we cannot predict what future regulations the U.S. Department of Education might promulgate that would directly or indirectly affect online education programs. The failure to comply with any of the Title IV requirements could result in adverse action by the U.S. Department of Education against University of Phoenix, including the termination of University of Phoenix’s Title IV eligibility, the imposition of fines, or the imposition of liabilities by the U.S. Department of Education. If University of Phoenix loses Title IV eligibility it could significantly reduce demand for our programs.

State regulations for distance education are currently uncertain and may require us to expend significant resources and significantly limit our ability to expand our business.

      State regulations for distance education providers are uncertain. We may have to devote significant time and financial resources in order to comply with various state laws and regulations if states determine to regulate online education. We may not have sufficient resources to comply with any new laws and regulations that may be enacted, which could preclude us from operating in one or more states and could significantly limit our ability to expand our business.

Government regulations relating to the Internet could increase our cost of doing business or affect our ability to grow.

      The increasing popularity and use of the Internet and other online services for the delivery of education may lead to the adoption of new laws and regulations in the U.S. or elsewhere. These new laws could relate to issues such as online privacy, copyright and trademark, sales taxes, and fair business practices or the requirement that online education institutions qualify to do business as a foreign corporation or be licensed as a school in one or more jurisdictions. Any new laws or regulations related to doing business over the Internet could increase our cost of doing business or affect our ability to increase our number of students and revenue.

Risks Related to this Offering

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

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

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Holders of University of Phoenix Online common stock will also be common shareholders of Apollo Group and will be subject to risks associated with an investment in Apollo Group.

      We cannot assure you that the market value of University of Phoenix Online common stock will in fact reflect our performance as we intend. Apollo Group has allocated all of its consolidated assets, liabilities, revenues, expenses, and cash flows between us and APOL 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 Apollo Group’s creditors. Holders of University of Phoenix Online common stock will continue to be common shareholders of Apollo Group as a whole and, as such, will be subject to all risks associated with an investment in Apollo Group and all of its businesses, assets, and liabilities.

      Further, holders of University of Phoenix Online common stock will not have any legal rights related to any of our specific assets. In any liquidation, Apollo Group’s shareholders will receive a share of Apollo Group’s net assets based on the relative trading prices of University of Phoenix Online common stock and APOL common stock rather than on any assessment of the actual value of us or APOL.

The value of University of Phoenix Online common stock may be adversely affected by Apollo Group’s performance.

      Apollo Group’s financial results could affect our results of operations, financial position, or borrowing costs or the market price of University of Phoenix Online common stock. In addition, net losses of Apollo Group, any dividends or distributions on APOL common stock, and any repurchases of APOL common stock will reduce the assets of Apollo Group legally available for dividends on University of Phoenix Online common stock. Accordingly, you should read our financial information included at the end of this prospectus together with financial information for Apollo Group we have included by reference to Apollo Group’s most recent filings with the Securities and Exchange Commission.

Having multiple series of common stock could create potential conflicts of interest and Apollo Group’s board of directors could make decisions that adversely affect holders of University of Phoenix Online common stock.

      Apollo Group has 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 the management of Apollo Group. Holders of Class B APOL common stock elect Apollo Group’s board of directors and all holders of Class B APOL common stock are members of Apollo Group’s board of directors. Further, Apollo Group’s amended and restated articles of incorporation authorize Apollo Group to issue one or more additional series of Apollo Group 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 us, there will likely be inherent conflicts of interest. Examples include Apollo Group’s 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 us or to our equity;
	•	how to allocate consideration received in connection with a merger involving Apollo Group between holders of University of Phoenix Online common stock and holders of APOL 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 us or APOL;
	•	whether to pay dividends on University of Phoenix Online common stock and APOL common stock;
	•	whether and how to make transfers of funds between us and APOL;

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	•	future allocations of assets, liabilities, revenues, expenses, and cash flows between APOL and us;
	•	allocations of business opportunities between APOL and us; and
	•	other operational and financial matters that could be considered detrimental to us.

      If members of Apollo Group’s board of directors own disproportionate interests, in percentage or value terms, in University of Phoenix Online common stock and APOL 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 University of Phoenix Online common stock and APOL common stock.

Principles of Arizona law may protect decisions of Apollo Group’s board of directors that may adversely affect holders of University of Phoenix Online common stock.

      Principles of Arizona law, established in cases involving differing treatment of multiple classes of common stock, provide that a board of directors owes an equal duty to all common shareholders regardless of class 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 classes 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 favor holders of APOL common stock as compared to holders of University of Phoenix Online common stock if Apollo Group’s 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 Apollo Group’s common shareholders as a whole.

Arrangements between us and Apollo Group are not the result of arm’s-length negotiations.

      Apollo Group’s board of directors adopted cash management and allocation policies between us and APOL. These policies were not the result of arm’s-length negotiations. The terms of these policies might not be as favorable to us as if we had negotiated these policies with an unrelated third party. These policies relate to the following:

	•	treasury activities, including the investment of surplus cash and the issuance and repurchase of common stock;
	•	the allocation of cost of corporate services between us and APOL;
	•	the allocation of federal income taxes; and
	•	a license fee equal to 4% of our net revenue for the non-exclusive use of the curriculum, trademarks, and copyrights owned by Apollo Group and its subsidiaries.

Apollo Group’s board of directors has sole discretion to allocate proceeds of issuances or costs of repurchases of University of Phoenix Online common stock to either us or APOL.

      Proceeds from issuing University of Phoenix Online common stock may not necessarily be allocated to our equity. Apollo Group’s board of directors will determine in its sole discretion whether to allocate the proceeds of issuances or the costs of repurchases of University of Phoenix Online common stock to our equity or to APOL in respect of its retained interest in us.

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

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

Apollo Group’s board of directors’ right to convert University of Phoenix Online common stock to Class A APOL or other applicable common stock may adversely affect the holders of University of Phoenix Online common stock.

      Apollo Group’s board of directors has the right to convert outstanding shares of University of Phoenix Online common stock to Class A APOL common stock at any time. Any conversion may be disadvantageous to holders of University of Phoenix Online common stock, since Apollo Group’s board of directors could determine to effect a conversion at a time when either or both of University of Phoenix Online common stock or APOL common stock may be considered overvalued or undervalued. In addition, any conversion would preclude holders of University of Phoenix Online common stock from retaining their investment in a security that is intended to separately reflect our performance.

Apollo Group’s board of directors may dispose of our assets or APOL’s assets without the approval of the holders of University of Phoenix Online common stock.

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

	•	declare and pay a dividend;
	•	redeem shares of University of Phoenix Online common stock; or
	•	convert shares of University of Phoenix Online common stock to shares of Class  A APOL common stock.

      Consequently, holders of 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 our assets separately. If Apollo Group’s 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.

      Apollo Group’s 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 University of Phoenix Online common stock. The decision, however, will be subject to Apollo Group’s board of directors’ general fiduciary duties pursuant to the business judgment rule.

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Apollo Group does not expect to pay dividends on University of Phoenix Online common stock and Apollo Group’s board of directors may pay lower dividends on University of Phoenix Online common stock than on APOL common stock.

      Apollo Group does not expect to pay any dividends on University of Phoenix Online common stock. Apollo Group’s board of directors, however, has the right to pay dividends on University of Phoenix Online common stock or APOL common stock, or both, in equal or unequal amounts, notwithstanding:

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

      In addition, net losses of APOL, and any dividends or distributions on, or repurchases of, APOL common stock, will reduce the assets of Apollo Group legally available for dividends on University of Phoenix Online common stock.

Apollo Group’s board of directors may make operational and financial decisions that favor APOL at our expense.

      Apollo Group’s board of directors, in its sole discretion, will make operational and financial decisions and implement policies that affect our business and APOL’s business differently. Examples include:

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

      Decisions of Apollo Group’s board of directors may favor APOL at our expense. The decision to provide funds for APOL, for example, may adversely affect our ability to obtain funds sufficient to implement our growth strategies.

Apollo Group’s board of directors may change cash management and allocation policies in a manner that adversely affects us.

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

      Apollo Group’s board of directors will determine, in its sole discretion, whether to transfer cash to us or away from us. Moreover, Apollo Group’s board of directors has sole discretion to determine whether a transfer of cash from us 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 us will be treated as a revolving credit advance, a long-term loan, or a contribution to capital. The determination of Apollo Group’s board of directors as to how to account for a cash transfer will affect the amount of interest expense and interest income, if any, and divisional equity as reflected in our financial statements.

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      Our liquidity will be negatively affected if APOL is unable to repay advances owed to us. We expect to advance or loan funds to APOL from time to time on a short term basis at no interest and our financial results will be negatively impacted as a result.

      Any cash transfers that Apollo Group’s board of directors determines to account for as capital contributions or returns of capital will increase or decrease APOL’s retained interest in us. Although Apollo Group’s 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 us will reduce the percentage of our business intended to be represented by outstanding University of Phoenix Online common stock.

Apollo Group’s board of directors has broad discretion regarding allocation matters and may make allocations in a manner that is disadvantageous to us.

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

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

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

      Although PricewaterhouseCoopers LLP, our tax advisors, has opined that University of Phoenix Online common stock will be treated as common stock of Apollo Group 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 stock represents property other than stock of Apollo Group. If treated as property other than stock of Apollo Group, the issuance of University of Phoenix Online common stock could be taxable to Apollo Group. Further, some exchanges of University of Phoenix Online common stock, including conversions of University of Phoenix Online common stock to Class A APOL common stock, otherwise accorded nonrecognition treatment under the Code, could be taxable to holders of University of Phoenix Online common stock. Prospective holders of University of Phoenix Online common stock are urged to consult with their own tax advisors as to all tax matters regarding the ownership and disposition of University of Phoenix Online common stock.

A legislative proposal of the Clinton Administration could result in taxation to Apollo Group or holders of University of Phoenix Online 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.

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      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 Apollo Group could be subject to tax on the issuance of University of Phoenix Online common stock issued on or after the date of enactment and holders of University of Phoenix Online common stock could be subject to tax on some exchanges of University of Phoenix Online common stock issued on or after the date of enactment, including exchanges incident to conversions of University of Phoenix Online common stock to Class A APOL common stock.

Changes in the federal income tax treatment of tracking stock could eliminate the applicable premium otherwise payable in connection with conversions of University of Phoenix Online common stock.

      Apollo Group has the right to convert shares of University of Phoenix Online common stock into shares of Class A APOL common stock, although it must pay a premium in some cases. However, if specified changes in the federal income tax treatment of tracking stock occur, no premium would be paid. The enactment of the Clinton Administration legislative proposal regarding tracking stock described above is an example of a change in the federal income tax treatment of tracking stock that would result in the elimination of the premium paid upon any conversion of University of Phoenix Online common stock.

Apollo Group’s board of directors may convert shares of University of Phoenix Online common stock to shares of common stock of a subsidiary of Apollo Group in connection with a spin-off of the subsidiary without the approval of the holders of University of Phoenix Online common stock, and that conversion may be taxable to holders of University of Phoenix Online common stock and Apollo Group.

      Apollo Group has the right, at any time, to convert all of the shares of University of Phoenix Online common stock to shares of common stock of a subsidiary of Apollo Group so long as all of our assets and liabilities are held directly or indirectly by the subsidiary. In this event, holders of University of Phoenix Online common stock would acquire a portion of the stock ownership of the subsidiary. The balance of the stock ownership of the subsidiary would be held by Apollo Group or its subsidiaries, or would be distributed to holders of APOL common stock. Depending on the circumstances at the time, the conversion of University of Phoenix Online common stock to stock of a subsidiary of Apollo Group could, under current law, be taxable for U.S. federal income tax purposes to holders of University of Phoenix Online common stock and Apollo Group.

We cannot assure you that a market will develop for University of Phoenix Online common stock or what its market price will be.

      There is currently no public trading market for University of Phoenix Online common stock and we cannot assure you that one will develop or be sustained after this offering. We cannot predict the prices at which University of Phoenix Online common stock will trade. The initial public offering price for University of Phoenix Online common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which University of Phoenix Online common stock will trade after this offering or to any other established criteria of our value.

      Some terms of University of Phoenix Online common stock and APOL common stock may adversely affect the trading price of University of Phoenix Online common stock. These terms include:

	•	the right of Apollo Group’s board of directors to convert shares of University of Phoenix Online common stock to shares of Class A APOL or other applicable common stock; and
	•	the discretion of Apollo Group’s board of directors in making determinations relating to a variety of cash management and allocation matters.

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The market price of University of Phoenix Online common stock could fluctuate significantly, subjecting us to securities class action litigation.

      The stock market has experienced extreme price and volume fluctuations and the market prices of securities of Internet-related companies have been particularly volatile. In the past, companies that have experienced such volatility have sometimes been the object of securities class action litigation. Securities class action litigation may result in substantial costs and a diversion of our management’s attention and resources.

There are many factors which may inhibit or prevent acquisition bids for us.

      If we were a separate company, any third party interested in acquiring us without negotiating with management could seek control by obtaining control of our outstanding voting stock by means of a tender offer or proxy contest. Although we intend that University of Phoenix Online common stock will reflect our performance, a person interested in acquiring only us without negotiation with Apollo Group’s management could obtain control of us only by obtaining control of the outstanding Class B APOL common stock.

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

      After giving effect to the offering and assuming the underwriters do not exercise their option to purchase additional shares, there will be approximately           million shares of University of Phoenix Online common stock available for future issuance without further shareholder approval. One of the effects of the existence of authorized and unissued common stock and preferred stock could be to enable Apollo Group’s board of directors to issue shares to persons friendly to current management, which could render more difficult or discourage an attempt to obtain control of Apollo Group by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of Apollo Group’s management. Those additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of Apollo Group.

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

The value of University of Phoenix Online common stock may decline due to future issuances of University of Phoenix Online common stock.

      Apollo Group’s amended and restated articles of incorporation permit its board of directors, in its sole discretion, to issue authorized but unissued shares of University of Phoenix Online common stock. This could dilute the value of University of Phoenix Online common stock. Apollo Group’s board of directors may issue 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.

      Under Arizona law, Apollo Group’s board of directors would not need the approval of the holders of University of Phoenix Online common stock for these issuances. Apollo Group’s board of directors does not intend to seek the approval of the holders of University of Phoenix Online common stock for any of these issuances unless:

	•	stock exchange regulations or other applicable law requires approval; or
	•	Apollo Group’s board of directors deems it advisable.

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The market price of University of Phoenix Online common stock may decline due to shares of University of Phoenix Online common stock eligible for future sale.

      Upon completion of this offering, Apollo Group expects to have           million shares of University of Phoenix Online common stock outstanding, or           million shares if the underwriters fully exercise their option to purchase additional shares. These shares will be freely tradable without restriction by persons other than affiliates of Apollo Group. In addition, our employees, the employees of APOL, and the directors of Apollo Group, will have the right to purchase approximately 11,100,000 million additional shares of University of Phoenix Online common stock under an employee stock purchase plan, a director stock option plan, and a stock incentive plan. Also, upon completion of this offering, and assuming the underwriters do not exercise their option to purchase additional shares, Apollo Group will be entitled to issue up to approximately           million additional shares of University of Phoenix Online common stock, of which up to           million shares could be for the account of APOL in respect of its retained interest in us.

      We cannot predict the effect, if any, that sales of University of Phoenix Online common stock, or the availability of shares for sale, will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of University of Phoenix Online common stock in the public market, or the perception that those sales may occur, could adversely affect the prevailing market price.

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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

      This prospectus 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 prospectus and in the other information contained in Apollo Group’s publicly available SEC filings, incorporated by reference into this prospectus.

USE OF PROCEEDS

      The net proceeds from the sale and issuance of the           shares of University of Phoenix Online common stock offered are estimated to be $ million at the initial public offering price of $     per share after deducting the underwriting discounts and commissions and our estimated offering expenses. If the underwriters’ over-allotment option is exercised in full, our estimated net proceeds will be $     million.

      We intend to use the net proceeds for general corporate purposes, including marketing and sales activities, working capital, and capital expenditures, but we have no specific plans for the use of the net proceeds of this offering. Pending these uses, we will invest the net proceeds of the offering in short-term, interest-bearing investment-grade securities. In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. We currently have no agreements or commitments with respect to any acquisition or investment, and we are not involved in any negotiations with respect to any similar transaction.

DIVIDEND POLICY

      Apollo Group does not expect to pay any dividends on University of Phoenix Online common stock for the foreseeable future. Apollo Group currently intends to allocate any future earnings for the development and operation of our business.

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CAPITALIZATION

      The following tables set forth our capitalization as well as that of Apollo Group as of November 30, 1999 on an actual basis and as adjusted to give effect to the adoption of Apollo Group’s amended and restated articles of incorporation and the sale of shares of University of Phoenix Online common stock in this offering, at an assumed initial public offering price of $     per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Capitalization of University of Phoenix Online

Capitalization of Apollo Group

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DILUTION

      At November 30, 1999, we had a net tangible book value of approximately $5,338,000 or $     per share equivalent. Net tangible book value per share equivalent at any date represents the amount of our total tangible assets less total liabilities divided by the total number of shares of University of Phoenix Online common stock outstanding plus shares effectively owned by APOL through its retained interest. After giving effect to the sale of           shares of University of Phoenix Online common stock offered in the offering at an assumed initial public offering price of $     per share and the application of the estimated net proceeds allocated to us, our adjusted net tangible book value would have been approximately $          or $     per share equivalent. Thus, under these assumptions, purchasers of University of Phoenix Online common stock offered by this prospectus will pay $ per share and will receive shares with a net tangible book value per share equivalent of $          , which represents an immediate dilution of $     per share.

      The following table illustrates this per share dilution:

      The discussion and table above exclude the following:

	•	shares of University of Phoenix Online common stock issuable upon the exercise of options outstanding at             , at an exercise price of $     per share under Apollo Group’s stock incentive plan;
	•	all shares of University of Phoenix Online common stock issuable under Apollo Group’s employee stock purchase plan;
	•	shares of University of Phoenix Online common stock issuable upon the exercise of options outstanding at             , at an average exercise price of $     per share, under Apollo Group’s director stock plan; and
	•	shares of University of Phoenix Online common stock reserved for future issuance under Apollo Group’s stock incentive plan, Apollo Group’s employee stock purchase plan, and Apollo Group’s director stock plan.

      To the extent these options are exercised or this stock is issued in the future, investors in this offering may experience further dilution.

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SELECTED FINANCIAL INFORMATION OF UNIVERSITY OF PHOENIX ONLINE

      You should read the following selected financial information together with our financial statements and the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of University of Phoenix Online” contained elsewhere in this prospectus. The statement of operations data for the years ended August 31, 1999 and 1998 and the balance sheet data as of August 31, 1999 and 1998 are derived from University of Phoenix Online’s audited financial statements, which are included elsewhere in this prospectus. The statement of operations data for the three months ended November 30, 1999 and 1998 and the balance sheet data as of November 30, 1999 are derived from University of Phoenix Online’s unaudited financial statements, which are also included elsewhere in this prospectus. The unaudited financial information reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of the interim periods. The operating results for the three months ended November 30, 1999 are not necessarily indicative of the results to be expected for any other interim period or any future fiscal year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

      The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future plans, expectations, events, or performance that involve risks and uncertainties. Our actual results of operations could differ materially from those anticipated in these forward-looking statements as a result of various factors. You should read the following discussion together with our financial statements and the related notes, which are included elsewhere in this prospectus.

Overview

      We are a leading online provider of accessible, high quality educational programs for working adults and their employers. We began operations in 1989 by modifying courses developed by University of Phoenix’s physical campuses for delivery via modem to students worldwide. Today, students can log on to their online classes via the Internet 24 hours a day, 7 days a week wherever there is Internet accessibility using basic technology such as a Pentium-class personal computer, a 28.8K modem, and an Internet service provider, thereby enhancing the accessibility of and the potential market for our programs. We currently offer 11 accredited degree programs in business, education, information technology and nursing. As of January 31, 2000, we had approximately 12,000 degree students and over 1,100 faculty members. We currently have relationships with over 1,600 corporations in the form of employer tuition reimbursement programs.

      From a financial reporting perspective, Apollo Group has separated our results from the rest of its business. Apollo Group intends for the University of Phoenix Online common stock to track our financial performance.

      Our financial statements, provided elsewhere is this prospectus, include allocations for expenses incurred by Apollo Group for services provided to us. While we believe such allocations are reasonable, they are not necessarily indicative of, and it is not practical for us to estimate, the levels of expenses that would have been incurred if we had been operating as an independent company. We have also relied upon Apollo Group to finance our operations since inception. Therefore, our financial position and cash flows to date are not necessarily indicative of the financial position and cash flows that would have resulted had we been operating as an independent company.

      The provision of services and other matters between us and Apollo Group, including the right to use Apollo Group’s curriculum, trademarks and copyrights, will be governed by corporate expense, income tax, and license allocation policies, which are described in “Certain Cash Management and Allocation Policies.” These policies were not in place prior to March 24, 2000. However, in order to prepare financial statements that include charges and benefits of the types provided for under these policies, the financial statements included in this prospectus reflect charges and benefits that would have applied if these policies had been in effect during the periods presented.

      Net revenues are comprised primarily of tuition revenues from students net of discounts. Our degree programs last up to four academic years and are billed on a course-by-course basis. Courses typically have a duration of five or six weeks. Billings occur when the student first attends a session, resulting in the recording of a receivable and deferred tuition revenue for the amount billed. The deferred tuition revenue is recognized as income pro rata over the period of instruction. If a student withdraws from a course or program, the unearned portion of the program that the student has paid for is refunded in accordance with our refund policy.

      Because our educational programs are billed in short blocks of time, deferred tuition revenue at the end of each period is usually recognized as income within five to six weeks following the end of that period. We do not record the unbilled portion of educational programs for existing students because the students are not financially obligated for the unbilled portion. A majority of these students do, however, remain in their programs until completion.

      Instructional costs and services consist primarily of costs related to the delivery and administration of our educational programs and includes a license fee equal to 4% of our net revenue for the use of Apollo

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      Selling and promotional costs consist primarily of compensation for enrollment advisors, advertising costs, production of marketing materials, and other costs related to selling and promotional functions. Additionally, expenses relating to centralized marketing functions are allocated to us. We expect selling and promotional costs, both in absolute dollars and as a percentage of tuition and other net revenues, to increase significantly as we expand our marketing efforts to increase enrollments and brand awareness.

      General and administrative costs consist of the allocation of administrative salaries, occupancy costs, depreciation and amortization, and other related costs for departments such as executive management, information systems, corporate accounting, human resources, and other departments that do not provide direct services to our students.

      Our results, along with those of University of Phoenix’s other divisions, are included in Apollo Group’s consolidated federal income tax return. State taxes are paid based upon apportioned taxable income or loss of Apollo Group and its subsidiaries, with the exception of certain state taxes that are based upon an apportionment of University of Phoenix’s taxable income or loss. In order to prepare financial statements, we calculate our provision for income taxes on a separate company basis. The related current and deferred tax assets and liabilities are settled with University of Phoenix at the end of each period through the divisional equity (deficit) account.

Results of Operations

      The following table sets forth our statement of operations data, expressed as a percentage of tuition and other net revenues for the periods indicated:

Three Months Ended November 30, 1999, Compared with Three Months Ended November 30, 1998

      Tuition and other net revenues increased by 39.1% to $20.7 million in the three months ended November 30, 1999 from $14.9 million in the three months ended November 30, 1998 due primarily to an increase in average degree student enrollments. Average degree student enrollments increased to approximately 10,600 in the three months ended November 30, 1999 from approximately 7,600 in the three months ended November 30, 1998.

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      Instructional costs and services increased by 22.3% to $10.4 million in the three months ended November 30, 1999 from $8.5 million in the three months ended November 30, 1998 due primarily to the direct costs necessary to support the increase in degree student enrollments. Direct costs consist primarily of faculty compensation and related staff salaries. Instructional costs and services as a percentage of tuition and other net revenues decreased to 50.2% in the three months ended November 30, 1999 from 57.1% in the three months ended November 30, 1998 due primarily to greater net revenues being spread over the fixed costs related to centralized student services. As we expand, we may not be able to leverage our existing instructional costs and services to the same extent.

      Selling and promotional expenses increased by 21.4% to $3.1 million in the three months ended November 30, 1999 from $2.5 million in the three months ended November 30, 1998 due primarily to additional advertising and marketing. These expenses as a percentage of tuition and other net revenues decreased to 14.8% in the three months ended November 30, 1999 from 17.0% in the three months ended November 30, 1998 due primarily to greater net revenues being spread over a proportionately lower increase in our selling and promotional expenses.

      General and administrative expenses increased by 54.7% to $1.7 million in the three months ended November 30, 1999 from $1.1 million in the three months ended November 30, 1998 due primarily to our higher revenues growth rate in that period compared to the rest of Apollo Group which resulted in a higher allocation of general and administrative expenses to us. General and administrative expenses as a percentage of tuition and other net revenues increased to 8.0% in the three months ended November 30, 1999 from 7.2% in the three months ended November 30, 1998 due primarily to increases in allocated expenses.

      Our effective tax rate was 40.5% for both the three months ended November 30, 1999 and 1998, respectively.

      Net income increased to $3.3 million in the three months ended November 30, 1999 from $1.7 million in the three months ended November 30, 1998.

Year Ended August 31, 1999, Compared with the Year Ended August 31, 1998

      Tuition and other net revenues increased by 54.3% to $69.6 million in 1999 from $45.1 million in 1998 due primarily to an increase in average degree student enrollments. Average degree student enrollments increased to approximately 8,800 in 1999 from approximately 5,500 in 1998.

      Instructional costs and services increased by 53.4% to $39.6 million in 1999 from $25.8 million in 1998 due primarily to the direct costs necessary to support the increase in degree student enrollments. These costs as a percentage of tuition and other net revenues decreased to 56.9% in 1999 from 57.3% in 1998 due primarily to greater net revenues being spread over the fixed costs related to centralized student services. As we expand, we may not be able to leverage our existing instructional costs and services to the same extent.

      Selling and promotional expenses increased by 44.7% to $11.4 million in 1999 from $7.9 million in 1998 due primarily to an increase in enrollment advisors and additional advertising and marketing. These expenses as a percentage of tuition and other net revenues decreased to 16.4% in 1999 from 17.4% in 1998 due primarily to greater net revenues being spread over a proportionately lower increase in our selling and promotional expenses.

      General and administrative expenses increased by 49.9% to $5.4 million in 1999 from $3.6 million in 1998 due primarily to our higher revenue growth rate in that period compared to the rest of Apollo Group which resulted in a higher allocation of general and administrative expenses to us. General and administrative expenses as a percentage of tuition and other net revenues decreased to 7.8% in 1999 from 8.1% in 1998.

      Our effective tax rate decreased to 40.5% in 1999 from 40.6% in 1998.

      Net income increased to $7.8 million in 1999 from $4.6 million in 1998.

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Quarterly Fluctuations in Results of Operations

      We may experience seasonality in our results of operations primarily as a result of changes in the level of student enrollments. While we enroll students throughout the year, average enrollments and related revenues may be lower in some quarters than others. Most of our expenses do not vary directly with revenues and are difficult to adjust in the short term. As a result, if revenues for a particular quarter are lower than another, we may not be able to proportionately reduce operating expenses for that quarter.

Quarterly Results of Operations

      The following table sets forth selected unaudited quarterly financial information for each of the last eight quarters. We believe that this information includes all normal recurring adjustments necessary for a fair presentation of that quarterly information when read in conjunction with the financial statements included elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the results for any future period.

Liquidity and Capital Resources

      Net cash provided by operating activities increased to $1.3 million in the three months ended November 30, 1999 from $0.1 million in the three months ended November 30, 1998. The increase resulted primarily from increased net income, a smaller increase in accounts receivable, and a decrease for the current period compared to an increase for the prior period in student deposits and deferred tuition revenue.

      Net cash provided by operating activities increased to $6.1 million in 1999 from $5.5 million in 1998 primarily as a result of increased net income and non-cash charges for uncollectible accounts, depreciation,

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      Capital expenditures decreased to $238,000 in the three months ended November 30, 1999 from $687,000 in the three months ended November 30, 1998. Total purchases of property and equipment for the year ended August 31, 2000, are expected to range from $3.0 to $4.0 million. These expenditures will primarily be related to increases in normal recurring capital expenditures due to the overall increase in students and employees resulting from the growth in the business.

      Capital expenditures increased to $2.6 million in 1999 from $0.8 million in 1998. This increase resulted primarily from a change in our technology platform and continued growth of our operations.

      We believe that the net proceeds of this offering, together with cash from operations, will satisfy our financing requirements for at least the next 18 months.

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BUSINESS OF UNIVERSITY OF PHOENIX ONLINE

Overview

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

      Our relationship with University of Phoenix’s physical campuses enables us to benefit from their expertise and resources in a number of areas including curriculum development, accreditation, faculty training and recruitment, ongoing academic quality monitoring, student services, and learning resources such as an electronic library. We offer accredited degree programs that have an immediate practical application for today’s working adults as well as their employers. In addition, we provide comprehensive administrative services to cater to the specific needs of busy adult students.

      Our enrolled student base, as well as our revenues, have grown rapidly. As of January 31, 2000, we had approximately 12,000 degree students, an increase from approximately 8,800 on January 31, 1999. Our revenues have increased to approximately $69.6 million for the fiscal year ended August 31, 1999 from approximately $45.1 million for the fiscal year ended August 31, 1998. Based on our recent surveys, the average age of our incoming students is mid-thirties, 55% of these students are women, and their average annual household income is $65,000. In addition, approximately 78% of our students have been employed on a full-time basis for nine or more years.

Industry Background

  The Growth of the Internet as a Communications Medium

      The Internet has emerged as the fastest growing communication medium in history and is dramatically changing how people and businesses communicate and share information. IDC estimates that the number of Internet users worldwide will grow to approximately 502 million at the end of 2003 from approximately 196 million at the end of 1999. The Internet provides a particularly effective medium for the delivery of educational and training content since it enables students both to have access to educational and training classes and to interact with their instructors and other class members regardless of geographical location.

      The Internet’s universal accessibility and interactive nature offer numerous advantages to working adults. The flexibility of taking classes any time of the day and from anywhere in the world not only enhances the convenience of these classes, but also broadens the market to those adult learners who otherwise would not have access to these programs. IDC projects that the number of distance learning enrollments will grow to 2.2 million in 2002 from 0.7 million at the end of 1998.

  The Adult Education Market

      The adult education market is a significant and growing component of the post-secondary education market, which is estimated by the U.S. Department of Education to be a more than $200 billion industry. The U.S. Department of Education estimated that for 1996, adults over the age of 24 comprised approximately 6.1 million, or 43%, of the students enrolled in higher education programs. The U.S. Census Bureau estimates that approximately 75% of students over the age of 24 work while attending school. The market for adult education should continue to increase as working adults seek additional education and training to update and

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      Many working adults are seeking accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. The Internet provides a platform that enables working adult students to attend classes and complete coursework on a more convenient schedule. In addition to offering broader access, accredited online learning programs offer a high quality learning experience in terms of course content, faculty instruction, and a level of customer service that compares favorably to a traditional campus-based education. Many universities and emerging technology-based education and training companies currently do not effectively address the unique requirements of working adult students due to the following specific constraints:

	•	Traditional Universities and Colleges — These institutions were designed to fulfill the educational needs of conventional, full-time students aged 18 to 24, who remain the primary focus of these universities and colleges. Many of these institutions believe strongly in the physical classroom format and direct student/ faculty interaction and have limited their efforts to providing only a few supplemental courses rather than a complete degree online. Consequently, these institutions have found it difficult to tailor their educational programs for an adult population looking for an easily accessible Internet delivery system. Traditional universities and colleges are also limited in their ability to market to or provide the necessary customer service for working adult students because it requires the development of additional administrative and enrollment infrastructure. We believe that, more importantly, these institutions lack our single-minded focus of serving students’ needs via a dynamic and evolving Internet delivery system.
	•	Technology-based Education and Training Companies  — With the convergence of education and the Internet, a number of technology-based education and training companies have emerged. Many of these companies are focused exclusively on developing software for the Internet delivery of education and training and have little or no prior experience in the development of educational content catering to the unique requirements of working adults. Although some of these companies have also begun to offer their own select classes online, most of them have limited experience in designing a comprehensive curriculum and recruiting and training faculty. In addition, few of these companies offer a complete Associates, Bachelors, Masters or Doctoral degree program.

      We believe that we are the premier online education provider and have gained that status by offering a comprehensive service combining high quality educational content, experienced teaching resources, and superior customer service with a technology platform that is accessible and easy to use for students and corporate clients.

University of Phoenix Online Solution

      We believe that we are uniquely positioned to deliver superior online education and training programs and customer service to working adult students and their employers. Our ability to combine University of Phoenix’s experience as a leading provider of higher education programs for working adults with our online delivery model enhances the quality and accessibility of these programs. We benefit from University of Phoenix’s expertise in designing curriculum, recruiting and training faculty, monitoring academic quality, and providing a high level of support services to its students by providing our students with the same high quality curriculum, faculty, and support services. Our solution includes the following:

  Broad Access to our Programs

      We have redesigned the classes taught at University of Phoenix’s physical campuses into an online format to meet the needs of students worldwide. Our classes are available 24 hours a day, 7 days a week wherever there is Internet accessibility and can be accessed using a Pentium-class personal computer, a 28.8K modem, and a standard Internet service provider. This accessibility allows us to offer our classes and programs to students who prefer online delivery of these classes and programs or who lack convenient access to physical campuses. Our degree programs are offered in sequential classes without any on-site requirements,

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      We use a Web-enabling system built on a Microsoft Exchange platform, which is simple to use and is designed to support interactivity between and among faculty and students. Our move to the Microsoft Exchange technology this past year will allow us to support a student body of up to 500,000 students.

  Accredited Degree Programs

      We currently offer 11 degree programs in business, education, information technology, and nursing that are accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools. This accreditation enables us to grant Associates, Bachelors, Masters, and Doctoral degrees, while also providing our students with access to federal financial aid programs.

  Experienced Faculty Resources

      While substantially all of our faculty are working professionals, we require each member of our faculty to possess either a Masters or Doctoral degree and to have five years of recent professional experience in a field related to the subject they teach. We have well developed methods for hiring and training our faculty, which include peer reviews of newly hired instructors by other members of the faculty, training in grading and instructing students, and a teaching internship with a more experienced faculty member. Our classes are designed to be small. We currently average one instructor for every nine students, and faculty members are required to maintain online office hours.

  High Quality Programs

      We use content experts selected from over 6,500 University of Phoenix faculty to design our curriculum. This enables us to offer current and relevant standardized, high quality programs to our online students. We also utilize an institution-wide system created by University of Phoenix to assess the educational outcomes of our students and improve the quality of our curriculum and instructional model. This system evaluates the cognitive and affective skills of our students upon registration and upon conclusion of the program and also surveys students two years after graduation in order to assess the quality of the education they received.

      Most University of Phoenix students achieve higher than average results on nationally normed tests; additionally, our learning outcomes research shows that our students achieve results comparable to or higher than the students at University of Phoenix’s physical campuses.

  Comprehensive Online Administrative and Support Services

      We offer a wide array of services designed to cater to the needs of working adults. Most of our administrative services are available online, including application, registration and payment for our programs, academic counseling, and technology support. We have approximately one professional staff member for every 35 students. In addition, we offer learning resources electronically, including online access to journals and periodicals, as well as ordering of books and articles for research. We believe that University of Phoenix’s Learning Resources Services (the “LRS”) is one of the largest specialized online libraries of any U.S. institution of higher education. The LRS is available to all students and may be accessed either directly or through the LRS research librarians.

  Benefits to Employers

      Our student’s employers often collaborate with our faculty members in designing curriculum, and class projects are typically based on issues relevant to the companies that employ our students. Our classes are taught by a practitioner faculty that emphasizes the skills desired by employers. In addition, the time flexibility provided by our classes further benefits employers since it avoids conflict with their employees’

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Strategy

      Our objective is to be the leading online provider of accessible, high quality education for working adults and a preferred provider of workplace training to their employers. In addition, we intend to leverage our expertise in developing, hosting, and marketing online education programs by offering our services to corporations and other complementary education and training companies. We will implement the following strategic initiatives to accomplish this objective:

  Increase Enrollments and Retention through Marketing, Partnerships, and other Initiatives

      We plan to employ several measures to attract more students to our programs, including:

	•	Accelerate Marketing — We intend to accelerate spending on our marketing initiatives, including direct marketing, which includes list acquisition of prospective students and targeted advertising on the Internet. In addition, we plan to begin advertising through traditional media, including television and radio, to increase the recognition of our brand name.
	•	Expand Partnerships — We intend to identify key partners who can provide us access to additional students for our program offerings. These partners may include Internet search engines, full-service portals, content providers, and other education-related vendors.
	•	Increase the Enrollment Counseling Staff — We will expand our team of enrollment counselors who are responsible for converting prospective students, generated by our marketing activities and partnerships, into enrolled students.
	•	Increase Academic Counseling Staff — We will increase our team of academic counselors to increase retention rates of existing students, thereby increasing total enrollments.
	•	Sell Ancillary Services — In order to increase traffic to our Web site, we will unbundle the ancillary services that we currently offer, like the LRS and our assessment and quality assurance services, and make them available for a reasonable fee to individual adult learners and complementary providers of education and training programs. We believe that this will provide us with an increased lead flow and enable us to test the market for other educational-related products and services.
	•	Leverage the University of Phoenix Community — According to our estimates, approximately 20% of our students are referred to us by their employers, current students, alumni, co-workers, friends and family. We intend to increase this referral rate by increasing our marketing efforts to this community and having them promote our programs.

  Expand Program Offerings

      We will continue to respond to the changing educational needs of working adults and their employers by introducing new undergraduate and graduate degree programs as well as training programs. We have recently added the Bachelor of Science in Information Technology, Bachelor of Science in Business Project Management, Master of Science in Computer Information Systems, and Doctor of Management to our degree offerings. We believe that expanding our program offerings will help us maintain our position as a leading provider of online education and training for working adults. Potential additions to our current University of Phoenix Online offerings include:

	•	new degree programs, such as a Bachelor of Science and a Masters of Business Administration in e-Business;
	•	certificate programs, such as the Microsoft Certified System Engineer;
	•	continuing education targeted at working professionals, such as Certified Public Accountants;

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	•	professional certification, such as the Certified Financial Planner Program;
	•	training programs, such as information technology and general management training; and
	•	migrating additional existing University of Phoenix programs from the physical campuses to University of Phoenix Online.

  Increase and Strengthen Corporate Partnerships and Offer Corporate Training Programs

      We intend to strengthen and expand our relationships with corporations to become the preferred provider of online education and training for their employees. We believe that our corporate partnership opportunities are significantly enhanced by the widespread presence of University of Phoenix’s physical campuses and its many existing corporate relationships, which have been established at both a local and a national level. We currently have relationships with approximately 1,600 corporations in the form of employer tuition reimbursement programs. We also plan to negotiate agreements with large national and international employers similar to our agreement with AT&T, in which classes taken by AT&T employees at their corporate university’s School of Business can be accepted for class credit at both our online and University of Phoenix physical campuses.

      We also intend to expand University of Phoenix’s customized corporate training programs into our online format. Our potential corporate customers’ employees can use both our online classes and University of Phoenix’s physical campuses, making our offering more attractive than those of our competitors who can offer only one alternative.

  Expand Internationally

      We believe that the international market for our services is a major growth opportunity. The U.S. is the most common destination for international students studying abroad. We believe that many more students would opt for a U.S. education, but find that its high cost and the stringent visa requirements make it prohibitively expensive and inaccessible. Therefore, offering these prospective students an online, accredited degree from a U.S. institution creates a tremendous market opportunity. In addition, many U.S. residents live and work in foreign countries and would benefit from the opportunity to continue their education while abroad. Using only limited Internet-based advertising, we currently have students located in 25 different countries. We intend to expand our international marketing efforts, which may include Internet and traditional media advertising in addition to hiring enrollment counselors for targeted international markets, to increase substantially our number of international students.

  Generate New Revenue Streams by Offering Complementary and Ancillary Educational Services

      We intend to derive revenues from new sources by leveraging our existing relationships with our students and corporate clients and our expertise in attracting and marketing to students. Currently, we intend to provide the following services to accomplish this objective:

	•	Customizing Content of Education and Training Programs to an Online Format and Hosting These Programs for Other Complementary Companies — We will enter into agreements with other education and training companies to tailor their course offerings to an online format. Depending on the scope of the prospective agreements, we may also host these online education and training programs at our facilities.
	•	Providing a Marketing Platform for Online Providers of Complementary Education and Training Programs — We will provide sales and marketing services to complementary online education and training companies. We intend to provide these services by using our sales and marketing infrastructure to cross-sell complementary programs and by featuring these companies on our Web site.

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	•	Selling Ancillary Services — We will unbundle the ancillary services we currently offer our students and make them available for a reasonable fee to individual adult learners and providers of complementary education and training programs.
	•	Providing Targeted Advertising Opportunities — We also intend to provide access to advertisers who are interested in marketing education-related goods and services to our students. We will do this only in a way that does not interfere with the students’ learning process. Advertising will only be allowed on our Web site and not in any of our online classes.

Teaching/ Learning Model

      We use the same teaching/learning model as University of Phoenix’s physical campuses, modified for online delivery. This model consists of:

  Curriculum

      The curriculum is designed to integrate academic theory and professional practice and their application to the workplace. The curriculum provides for the achievement of specific educational outcomes that are based on the input from faculty, students, and students’ employers. The standardized curriculum for each degree program is also designed to provide students with specified levels of knowledge and skills.

  Faculty

      Faculty applicants must possess an earned Masters or Doctoral degree from a regionally accredited institution, and have a minimum of five years recent professional experience in a field related to the subject matter in which they seek to instruct. To help promote quality delivery of the curriculum, our faculty members are required to:

	•	complete an initial assessment conducted by staff and faculty;
	•	receive training in grading, facilitation of the teaching/learning model, and oversight of study group activities;
	•	serve an internship with an experienced faculty mentor; and
	•	receive ongoing performance evaluations by students, peer faculty, and staff, which are used to establish developmental plans to improve individual faculty performance and to determine continued eligibility of faculty members to provide instruction.

  Interactive Learning

      Classes are designed to combine individual and group interaction between and among students and the instructor. The curriculum requires a high level of student participation for purposes of increasing the student’s ability to work as part of a team.

  Learning Resources Services

      Students and faculty members are provided with electronic and other learning resources for their information and research needs. Students can access these services directly through the Internet or with the help of a LRS research librarian.

  Sequential Enrollment

      Students enroll in and complete classes sequentially, rather than concurrently, thereby allowing full-time working adults to focus their attention and resources on one subject at a time. This provides a better balance between learning and ongoing personal and professional responsibilities.

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  Academic Quality

      University of Phoenix has an Academic Quality Management System designed to maintain and improve the quality of programs and academic and student services. This system includes the Adult Learning Outcomes Assessment, which seeks to measure student growth in both the cognitive (subject matter) and affective (educational, personal and professional values) skills.

Online Classes

      We have developed our system to be easily accessible and familiar to most students. All the student needs to participate in our online classes is a Pentium-class personal computer, a 28.8K modem, and an Internet service provider.

      Each student orders textbooks online from a third party prior to the beginning of each class. The student logs into his or her particular class using a password. Prior to the class starting, the instructor posts a syllabus that the student can download and use as a guide. In addition, the student can download the biographies of the other students and the instructor.

      Each week, the instructor posts a lecture on the classroom discussion board. Students log on and read the lecture or print the lecture to read at their convenience. On average, we have nine students per class, who are divided into study groups of three to four students to work on projects together. Throughout the week, students participate in a group discussion, based on the class content for that week, which is facilitated by the instructor. There are separate conferences set up for study group projects and individual submission of class assignments. Instructors log on and read comments posted by students, respond to them, and assign grades for their study group projects. Instructors also give students weekly feedback on class participation. Both students and instructors are required to log on at least five days a week to participate in the classes. In addition, faculty members are required to maintain online office hours. Students are graded on a combination of participation, work product, and examinations.

Learning Resources Services

      We share the LRS, including its electronic library, with the University of Phoenix physical campuses. The electronic library has contracts with services that gather newspapers, journal articles, and corporate reports into databases that currently contain approximately 9,000 journals and 1.5 million corporate reports. In addition, a team of research librarians is available for our students if they need help accessing or finding a particular report or journal. If the item is not in the database, the librarians can generally find the item from another source. In addition, our alumni have lifetime access to the LRS.

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Degree Programs

      The following is a list of the degree programs and related areas of specialization that we offer:

	•	Associates of Arts
	•	Bachelor of Science in Information Technology
	•	Bachelor of Science in Business Information Systems
	•	Bachelor of Science in Business

        Areas of Specialization

	•	Bachelor of Science in Nursing
	•	Master of Arts in Organizational Management
	•	Master of Business Administration

        Areas of Specialization

	•	Master of Science in Nursing

        Areas of Specialization

	•	Master of Science in Computer Information Systems

        Areas of Specialization

	•	Master of Arts in Education

        Areas of Specialization

	•	Doctor of Management

      Undergraduate students may demonstrate and document college level learning gained from experience through an assessment by faculty members (according to the guidelines of the Council for Adult and Experiential Learning) for the potential award of credit. The average number of credits awarded to approximately 380 of our undergraduate students who utilized the process in 1999 was approximately three credits of the 120 required to graduate. The Council for Adult and Experiential Learning reports that over 1,200 regionally accredited colleges and universities currently accept credits awarded for college level learning gained through experience.

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Customers/ Students

      We consider our students to be our primary customers and the employers that provide tuition reimbursement to their employees as our secondary customers. The following is a breakdown of our students by the level of program they are seeking, at January 31, 2000:

      Based on student surveys of incoming students in the second half of fiscal 1999, the average age of our students is in the mid-thirties, approximately 55% are women and 45% are men, and the average annual household income is $65,000. Approximately 78% of our students have been employed on a full-time basis for nine years or more. The approximate age percentage distribution of incoming students is as follows:

Marketing

      To generate interest among potential students, we engage in a broad range of activities to inform the public about our teaching/learning model and the programs offered. These activities include:

  Direct Mail

      Direct mail is effective at reaching the working adult population that expresses interest in training, education, and self-improvement. Direct mail also enables us to target specific career fields, such as Accounting, Business, Education, Information Technology, and Nursing. We currently purchase education-related mailing lists from numerous suppliers who specialize in this area. In addition, we track leads for every direct mail campaign by allowing potential students the opportunity to respond using the following methods:

	•	mailing us a business reply card;
	•	faxing us a business reply card;
	•	calling us at a specific 1-800 number; or
	•	directing the potential student to a microsite with a specific URL address on the Internet. We have over 20 microsites that are used to track individual marketing campaigns for reach and effectiveness.

  Internet Marketing

      Internet advertising has been our largest source of leads. We advertise extensively on the Internet using purchased banner advertisements on targeted sites. We also benefit from paid and non-paid Internet referrals, including links from other Web sites, such as education portals and leads directed to one of our 14 domain

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  Re-Marketing

      Re-marketing efforts include both direct mail post cards and e-mail sent to existing leads. Re-marketing is a very successful part of our marketing campaign because of our growing database of “qualified” prospects.

  Referrals

      Based on our recent estimates, approximately 20% of our new students are referred by their employers, co-workers, current students, alumni, family and friends.

  Print

      We rely on print advertising primarily to build brand recognition. We plan to begin advertising in trade magazines, particularly in those that specialize in fields that require skills taught by us.

Competition

      Online learning is an evolving and competitive market that is subject to rapid technological change. Although there are high barriers to entry for regionally accredited degree providers, there are relatively few barriers to entry on the Internet for non-accredited programs, and we expect competition to increase. We currently face, and expect in the future to face, competition from the following direct and indirect competitors:

	•	traditional universities offering or planning to offer online classes and programs;
	•	other private education companies seeking to enter the online market for adult education and training; and
	•	software companies providing online learning software that enables direct competitors to offer online programs.

      In addition, the online learning market is relatively new and we expect further competition from new participants to the market. We believe that the competitive factors in the online learning market include the following:

	•	the ability to provide easy, user-friendly access to online education programs and classes;
	•	online products and services that are reliable and have high-quality;
	•	qualified and experienced faculty;
	•	reputation of programs, classes, and services; and
	•	features and functions of the online programs.

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Employees

      At January 31, 2000, we had the following numbers of employees:

Regulatory Environment

      The Higher Education Act of 1965 and the related regulations govern all higher education institutions participating in the Title IV programs. The Higher Education Act mandates specific additional regulatory responsibilities for each of the following components:

	•	the accrediting agencies recognized by the U.S. Department of Education;
	•	the federal government through the U.S. Department of Education; and
	•	state higher education regulatory bodies.

      All higher education institutions participating in Title IV programs must be accredited by an association recognized by the U.S. Department of Education. The U.S. Department of Education reviews all participating institutions for compliance with all applicable standards and regulations under the Higher Education Act. Accrediting associations are required to include the monitoring of certain aspects of Title IV Program compliance as part of their accreditation evaluations under the Higher Education Act.

Accreditation

      We are covered by the regional accreditation of University of Phoenix, which provides the following:

	•	recognition and acceptance by employers, other higher education institutions and governmental entities of the degrees and credits earned by students; and
	•	qualification to participate in Title IV programs.

      University of Phoenix was granted accreditation by the North Central Association of Colleges and Schools in 1978. University of Phoenix’s accreditation was reaffirmed in 1982, 1987, 1992, and 1997. The next focused evaluation visit is scheduled to begin in May 2000, and the next North Central Association of Colleges and Schools reaffirmation visit is expected to begin in 2002.

      All accrediting agencies recognized by the U.S. Department of Education are required to include certain aspects of Title IV program compliance in their evaluations of accredited institutions. As a result, all regionally accredited institutions, including University of Phoenix, will be subject to a Title IV program compliance review as part of accreditation visits.

      Regional accreditation is accepted nationally as the basis for the recognition of earned credit and degrees for academic purposes, employment, professional licensure, and, in some states, for authorization to operate as a degree-granting institution. Under the terms of a reciprocity agreement among the six regional accrediting associations, representatives of each region in which a regionally accredited institution operates participate in the evaluations for reaffirmation of accreditation. The achievement of the University of Phoenix mission requires it to employ academically qualified practitioner faculty that are able to integrate academic theory with current workplace practice.

      University of Phoenix’s Bachelor of Science in Nursing program received program accreditation from the National League for Nursing Accrediting Commission in 1989. The accreditation was reaffirmed in October 1995. The Master of Science in Nursing program earned the National League for Nursing Accrediting

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      The address and phone number for the accrediting bodies are as follows:

	North Central Association of Colleges and Schools
	Commission on Institutions of Higher Education
	30 North LaSalle Street, Suite 2400
	Chicago, Illinois 60602-2504
	(312) 263-0456
	National League for Nursing Accrediting Commission
	61 Broadway, 33rd Floor
	New York, New York 10006
	(800) 669-1656

Federal Financial Aid Programs

      Our students may receive federal financial aid under the Title IV programs. In the fiscal year ended August 31, 1999, we derived approximately 34% of net revenues from students who participated in Title IV programs. Our students may receive Title IV funds because:

	•	University of Phoenix is accredited by an accrediting agency recognized by the U.S. Department of Education;
	•	the U.S. Department of Education has certified University of Phoenix’s eligibility to participate in the Title IV programs; and
	•	University of Phoenix has applicable state authorization to operate.

      The U.S. Department of Education has issued regulations, the most recent of which became effective on July 1, 1999, that amend certain provisions of the Title IV programs. The following material provisions of Title IV regulations, and their related calculations, apply to University of Phoenix, which includes both us and the physical campuses.

  Limits on Title IV Program Funds

      The Title IV regulations define the types of educational programs offered by an institution that qualify for Title IV program funds. For students enrolled in qualified programs, the Title IV regulations place limits on the amount of Title IV program funds that a student is eligible to receive in any one academic year as defined by the U.S. Department of Education.

      For undergraduate programs, an academic year must consist of at least 30 weeks of instructional time to include a minimum of 360 hours of instructional time and a minimum of 24 credit hours. The Title IV regulations define a week of instruction as the equivalent of 12 hours of regularly scheduled instruction, examinations or preparation for examinations. Most of our degree programs meet this 360 hour minimum and, therefore, qualify for Title IV program funds. The programs that do not qualify for Title IV program funds consist primarily of certificate, corporate training, and continuing professional education programs. These programs are paid for directly by the students or their employers.

  Restricted Cash

      The U.S. Department of Education places certain restrictions on Title IV program funds collected for unbilled tuition and funds transferred to us through electronic funds transfer. Under certain circumstances, an institution is required to submit an irrevocable letter of credit to the U.S. Department of Education in an amount equal to at least 25% of the total dollar amount of refunds paid by the institution in its most recent

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  Standards of Financial Responsibility

      Pursuant to the Title IV regulations, as revised, each eligible higher education institution must satisfy the minimum standard established for three tests which assess the financial condition of the institution at the end of the institution’s fiscal year. The three tests are:

	•	primary reserve ratio (adjusted equity to total expenses);
	•	equity ratio (modified equity to modified assets); and
	•	net income ratio (income before taxes to total revenues).

      These tests provide three individual scores which must then satisfy a composite score standard. The maximum composite score is 3.0. If the institution achieves a composite score of at least 1.5, it is considered financially responsible. A composite score from 1.0 to 1.4 is considered financially responsible, subject to additional monitoring, and the institution may continue to participate as a financially responsible institution for up to three years. An institution that does not achieve a satisfactory composite score will fall under alternative standards. At August 31, 1999, University of Phoenix’s composite score was 3.0.

  The “90/10 Rule” (formerly the “85/15 Rule”)

      A requirement of the Higher Education Act, commonly referred to as the “90/10 Rule,” applies only to for-profit institutions of higher education, which includes University of Phoenix. Under this rule, for-profit institutions will be ineligible to participate in Title IV programs if the amount of Title IV Program funds used by the students or institution to satisfy tuition, fees and other costs incurred by the students exceeds 90% of the institution’s cash-basis revenues from eligible programs. University of Phoenix’s percentage was 53% at August 31, 1999. University of Phoenix is required to calculate this percentage at the end of each fiscal year.

  Student Loan Defaults

      Eligible institutions must maintain a student loan cohort default rate of less than 25% for fiscal year 1994 and all subsequent fiscal years. In 1997, the most recent U.S. Department of Education cohort default rate reporting period, the national cohort default rate average for all higher education institutions was 8.8%. University of Phoenix students’ cohort default rates for the Federal Family Education Loans for 1997 as reported by the U.S. Department of Education was 5.6%.

  Compensation of Representatives

      Title IV regulations prohibit an institution from providing any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruitment, admission or financial aid awarding activity. We believe that our current method of compensating enrollment counselors complies with the Title IV regulations.

  Eligibility and Certification Procedures

      The Higher Education Act specifies the manner in which the U.S. Department of Education reviews institutions for eligibility and certification to participate in Title IV programs. University of Phoenix submitted its application on a timely basis to the U.S. Department of Education, and eligibility to participate in Title IV programs will continue until the U.S. Department of Education acts upon the application. It would have a material adverse affect on us if the U.S. Department of Education does not renew University of Phoenix’s eligibility.

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  Administrative Capability

      The Higher Education Act directs the U.S. Department of Education to assess the administrative capability of each institution to participate in Title IV programs. The failure of an institution to satisfy any of the criteria used to assess administrative capability may allow the U.S. Department of Education to determine that the institution lacks administrative capability and, therefore, may be subject to additional scrutiny or denied eligibility for Title IV programs.

  Restrictions on Distance Education Programs

      The regulations of the U.S. Department of Education specify that an institution is not eligible to participate in the Title IV Programs if 50% or more of its courses are correspondence courses, or if 50% or more of its regular students are enrolled in the institution’s correspondence courses. The regulations currently consider most distance education courses to be correspondence courses if the number of distance education courses exceeds 50% of the sum of courses offered in campus-based delivery systems and courses offered through distance education. University of Phoenix does not plan to exceed this 50% level.

  Change of Ownership or Control

      A change in ownership or control of University of Phoenix or Apollo Group, depending on the type of change, may have significant regulatory consequences. Such a change of ownership or control could trigger recertification by the U.S. Department of Education, reauthorization by certain state licensing agencies or the evaluation of the accreditation by the North Central Association of Colleges and Schools.

      The U.S. Department of Education has adopted the change of ownership and control standards used by the federal securities laws for institutions owned by publicly-held corporations. Upon a change of ownership and control sufficient to require Apollo Group to file a Form 8-K with the SEC, University of Phoenix, including us, would cease to be eligible to participate in Title IV programs until recertified by the U.S. Department of Education. Under some circumstances, the U.S. Department of Education may continue the institution’s participation in the Title IV programs on a temporary basis pending completion of the change in ownership approval process. This recertification would not be required, however, if the transfer of ownership and control was made upon a person’s retirement or death and was made either to a member of the person’s immediate family or to a person with an ownership interest in University of Phoenix or Apollo Group who had been involved in management of University of Phoenix or Apollo Group for at least two years preceding the transfer.

      In addition, certain states where University of Phoenix is presently licensed have requirements governing change of ownership or control. Currently, Arizona and California would require University of Phoenix, to be reauthorized upon a 20% change in ownership and 25% change in control. These states require a new application to be filed for state licensing if such a change of ownership or control occurs. Washington has a similar reauthorization requirement triggered by a change of ownership, but provides that a temporary certificate of authorization may be issued pending the reauthorization process.

      Moreover, University of Phoenix is required to report any material change in stock ownership. At that time, the North Central Association of Colleges and Schools may seek to evaluate the effect of such a change of stock ownership on University of Phoenix’s continuing operations.

State Authorization

      Certain states assert authority to regulate all degree-granting institutions if their educational programs are available to their residents, whether or not the institutions maintain a physical presence within those states. If a state were to establish grounds for asserting authority over online learning, we may be required to obtain authorization for, or restrict access to, our programs available in those states.

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Admissions Standards

      To gain admission to our undergraduate programs, students generally must have a high school diploma or General Equivalency Degree and satisfy minimum grade point average, employment and age requirements. Additional requirements may apply to individual programs. Students in undergraduate programs may petition to be admitted on provisional status if they do not meet specified admission requirements.

      To gain admission to our graduate programs, students generally must have an undergraduate degree from a regionally accredited college or university and satisfy minimum grade point average, work experience and employment requirements. Additional requirements may apply to individual programs. Students in graduate programs may petition to be admitted on provisional status if they do not meet specified admission requirements.

Tax Reform Act Of 1997

      In August 1997, Congress passed the Tax Reform Act of 1997 that added several new tax credits and incentives for students and extended benefits associated with the educational assistance program. The Hope Scholarship Credit provides up to $1,500 tax credit per year per eligible student for tuition expenses in the first two years of post-secondary education in a degree or certificate program. The Lifetime Learning Credit provides up to $1,000 tax credit per year per taxpayer return for tuition expenses for all post-secondary education, including graduate studies. Both of these credits are phased out for taxpayers with modified adjusted gross income between $40,000 and $50,000 ($80,000 and $100,000 for joint returns) and are subject to other restrictions and limitations. The Tax Reform Act of 1997 also provides for the deduction of interest from gross income on education loans and limited educational IRA’s for children under the age of 18. These deductions are also subject to adjusted gross income limitations and other restrictions. These new provisions became effective for 1998 individual tax returns.

Employer Tuition Reimbursement

      Many of our students receive some form of tuition reimbursement from their employers. In certain situations, as defined by the Internal Revenue Code (the “Code”), this tuition assistance qualifies as a deductible business expense when adequately documented by the employer and employee. The Code also provides a safe-harbor provision for an exclusion from wages of up to $5,250 of tuition reimbursement per year per student under the Educational Assistance Program. The Educational Assistance Program provision does not apply to graduate level programs and expires in December 2001. Employers or employees may still continue to deduct such tuition assistance where it qualifies as a deductible business expense and is adequately documented. The percentage of our incoming students with access to employer tuition reimbursement was 65% in 1999.

Properties

      We have a 10-year lease to operate our administrative facility in a 75,000 square foot building in Phoenix, Arizona.

Legal Proceedings

      Neither we nor Apollo Group is engaged in any legal proceedings that we believe would have a material effect on the financial position or operating results of either us or Apollo Group.

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MANAGEMENT

      We are managed by the officers and directors of Apollo Group. Anthony F. Digiovanni is the Executive Vice President of University of Phoenix and Brian Mueller is the Regional Vice President for Distance Education of University of Phoenix. Apollo Group’s directors serve one year terms and are elected each year by the holders of Class B APOL common stock. The following table sets forth information as of March 15, 2000 concerning Apollo Group’s directors and executive officers:

      John G. Sperling, Ph.D. is the founder, Chief Executive Officer and Chairman of the board of directors of Apollo Group. Dr. Sperling was also President of Apollo Group from its inception until February 1998. Prior to his involvement with Apollo Group, from 1961 to 1973, Dr. Sperling was a Professor of Humanities at San Jose State University where he was the Director of the Right to Read Project and the Director of the NSF Cooperative College-School Science Program in Economics. At various times from 1955 to 1961, Dr. Sperling was a member of the faculty at the University of Maryland, Ohio State University and Northern Illinois University. Dr. Sperling received his Ph.D. from Cambridge University, an M.A. from the University of California at Berkeley, and a B.A. from Reed College. Dr. Sperling is the father of Peter V. Sperling.

      Todd S. Nelson has been with Apollo Group since 1987. Mr. Nelson has been the President of Apollo Group since February 1998. Mr. Nelson was Vice President of Apollo Group from 1994 to February 1998 and the Executive Vice President of University of Phoenix from 1989 to February 1998. From 1987 to 1989, Mr. Nelson was the Director of University of Phoenix’s Utah campus. From 1985 to 1987, Mr. Nelson was the General Manager at Amembal and Isom, a management training company. From 1984 to 1985, Mr. Nelson was a General Manager for Vickers & Company, a diversified holding company. From 1983 to 1984, Mr. Nelson was a Marketing Director at Summa Corporation, a recreational properties company. Mr. Nelson received an M.B.A. from the University of Nevada at Las Vegas and a B.S. from Brigham Young University. Mr. Nelson was a member of the faculty at University of Nevada at Las Vegas from 1983 to 1984.

      J. Jorge Klor de Alva, J.D., Ph.D. has been President of University of Phoenix and a Senior Vice President of Apollo Group since February 1998 and has been a director of Apollo Group since 1991. Dr. Klor de Alva was Vice President of Business Development of Apollo Group from 1996 to 1998. Dr. Klor de Alva was a Professor at the University of California at Berkeley from July 1994 until July 1996. From 1989 to 1994, Dr. Klor de Alva was a Professor at Princeton University. From 1984 to 1989, Dr. Klor de Alva was the Director of the Institute for Mesoamerican Studies, and from 1982 to 1989, was an Associate Professor at the State University of New York at Albany. From 1971 to 1982, Dr. Klor de Alva served at various times as Associate Professor, assistant Professor or lecturer at San Jose State University and the University of California at Santa Cruz. Dr. Klor de Alva received a B.A. and J.D. from the University of California at Berkeley and a Ph.D. from the University of California at Santa Cruz.

      Jerry F. Noble has been with Apollo Group since 1981. Mr. Noble has been a Senior Vice President of Apollo Group since 1987 and the President of the Institute for Professional Development since 1984. From 1981 to 1987, Mr. Noble also was the controller of Apollo Group. From 1977 to 1981, Mr. Noble was the

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      Peter V. Sperling has been with Apollo Group since 1983. Mr. Sperling has been a Senior Vice President since June 1998. Mr. Sperling was the Vice President of Administration from 1992 to June 1998 and has been the Secretary and Treasurer of Apollo Group since 1988. From 1987 to 1992, Mr. Sperling was the Director of Operations at Apollo Education Corporation. From 1983 to 1987, Mr. Sperling was Director of Management Information Services of Apollo Group. Mr. Sperling received his M.B.A from University of Phoenix and his B.A. from the University of California at Santa Barbara. Mr. Sperling is the son of John G. Sperling.

      Kenda B. Gonzales has been with Apollo Group since October 1998. Ms. Gonzales is the Chief Financial Officer of Apollo Group. Prior to joining Apollo Group, Ms. Gonzales was the Senior Executive Vice President and Chief Financial Officer of UDC Homes, Inc. From 1985 to 1996, Ms. Gonzales was the Senior Vice President and Chief Financial Officer of Continental Homes Holding Corp. Ms. Gonzales began her career as a Certified Public Accountant with Peat, Marwick, Mitchell and Company and is a graduate of the University of Oklahoma with a Bachelor of Accountancy.

      Thomas C. Weir has been a director of Apollo Group since 1983 and is a member of the Audit and Compensation Committees of the board of directors of Apollo Group. During 1994, Mr. Weir became the President of Dependable Nurses, Inc., a provider of temporary nursing services, W.D. Enterprises, Inc., a financial services company and Dependable Personnel, Inc., a provider of temporary clerical personnel. In 1996, Mr. Weir became the President of Dependable Nurses of Phoenix, Inc., a provider of temporary nursing services. In addition, Mr. Weir has been an independent financial consultant since 1990. From 1989 to 1990, Mr. Weir was President of Tucson Electric Power Company. From 1979 to 1987, Mr. Weir was Chairman and Chief Executive Officer of Home Federal Savings & Loan Association, Tucson, Arizona.

      Dino J. DeConcini has been a director of Apollo Group since 1981 and is currently a member of the Audit Committee of the board of directors of Apollo Group. Mr. DeConcini is currently Executive Director, Savings Bonds Marketing Office, U.S. Department of the Treasury. From 1979 to 1995, Mr. DeConcini was a shareholder in DeConcini, McDonald, Brammer, Yetwin and Lacy, P.C., Attorneys at Law. From 1993 to 1995, Mr. DeConcini was a Vice President and Senior Associate of Project International Associates, Inc., an international business consulting firm. From 1991 to 1993 and 1980 to 1990, Mr. DeConcini was a Vice President and partner of Paul R. Gibson & Associates, an international business consulting firm.

      Hedy F. Govenar has been a director of Apollo Group since March of 1997. Ms. Govenar is founder and President of Governmental Advocates, Inc., a lobbying and political consulting firm in Sacramento, California. An active lobbyist with the firm since 1979, she represents a variety of corporate and trade association clients. From 1989 to 1999, Ms. Govenar served as a Commissioner on the California Film Commission as an appointee of the California State Assembly. Ms. Govenar received an M.A. from California State University and a B.A. from University of California at Los Angeles.

      John R. Norton III has been a director of Apollo Group since March of 1997 and is currently a member of the Audit and Compensation Committees of the board of directors of Apollo Group. Mr. Norton founded his own company in 1955 engaged in diversified agriculture including crop production and cattle feeding. He served as the Deputy Secretary of the U.S. Department of Agriculture in 1985 and 1986. Mr. Norton is also on the board of directors of Terra Industries, Inc. He attended Stanford University and the University of Arizona where he received a B.S. in Agriculture in 1950.

      In addition, key members of our management team include:

      Anthony F. Digiovanni has been with University of Phoenix since 1989. Mr. Digiovanni has served as Executive Vice President of University of Phoenix since February 1998. From 1992 to 1998, he was Regional Vice President of University of Phoenix’s Western Region. Prior to that, he was Campus Director for the Southern California Campus of University of Phoenix. From 1984 to 1989, Mr. Digiovanni was Chief Operating Officer for Abco Hardware and Builder’s Supply, a Southern California based Industrial

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      Brian Mueller has been the Regional Vice President of Distance Education for University of Phoenix since 1997. Mr. Mueller was Vice President/ Director of University of Phoenix’s San Diego campus from 1995 to 1997 and Vice-President/ Director of the New Mexico campus from 1993 to 1995. From 1987 to 1993 Mr. Mueller was an Enrollment Advisor and Director of Enrollment at the Phoenix campus. Prior to joining Apollo Group, Mr. Mueller was a faculty member at Concordia University for four years. He earned his B.A. in 1976 and his M.A. in 1987 from Concordia University.

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DESCRIPTION OF CAPITAL STOCK

      The following is a summary of the material terms of APOL common stock and University of Phoenix Online common stock. This summary is not complete, and we encourage you to read Apollo Group’s amended and restated articles of incorporation, which are filed as an exhibit to the registration statement of which this prospectus is a part.

General

      Apollo Group’s amended and restated articles of incorporation provide for the following:

	•	400 million shares of Class A APOL common stock;
	•	3 million shares of Class B APOL common stock;
	•	400 million shares of University of Phoenix Online common stock;
	•	400 million shares of one or more additional series of undesignated common stock; and
	•	1 million shares of preferred stock.

      University of Phoenix Online common stock is intended to reflect our performance.

      APOL common stock is intended to reflect the performance of the rest of the businesses conducted by Apollo Group and its subsidiaries, including a retained interest in us.

      All of Apollo Group’s consolidated assets, liabilities, revenues, expenses, and cash flows have been allocated between APOL and us.

      Apollo Group’s 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 in which case the assets and liabilities of APOL to which each such series of common stock relates shall be considered an additional “Group” (as defined below).

      Several sections of this prospectus refer to “APOL’s retained interest in us.” This represents the ownership of APOL in that portion of us 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 us that change either the total amount of our assets or the number of shares of University of Phoenix Online common stock that are outstanding. These actions, and the effect that they would have, are described further in this section under the caption “APOL’s Retained Interest.” Also, see Annex A to this prospectus, “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.

Definitions

      The following capitalized terms used in this section and other places in this prospectus 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

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	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 preferred stock of Apollo Group 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 class 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 class 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 Apollo Group’s amended and restated articles of incorporation.
	•	Convertible Securities — at any time means any securities of Apollo Group or of any subsidiary thereof, 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 class of common stock of Apollo Group, 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 Apollo Group’s amended and restated articles of incorporation are first filed with the Arizona Corporation Commission.
	•	Exempt Disposition — includes any of the following:

	(a)  a Disposition in connection with the dissolution or the liquidation and winding-up of Apollo Group and the distribution of assets to its shareholders;
	(b)  a Disposition to any person or entity controlled by Apollo Group, as determined by Apollo Group’s 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 Apollo Group’s board of directors in the resolution or

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	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 class of common stock of Apollo Group 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 class 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 Apollo Group’s board of directors.
	•	Group — means APOL or University of Phoenix Online, as the case may be. Additionally, if Apollo Group’s board of directors authorizes the issuance of a class of common stock other than APOL common stock or University of Phoenix Online common stock, Apollo Group’s board of directors will designate the assets and liabilities of Apollo Group to which such class of common stock relates, which assets and liabilities shall be an additional “Group.”
	•	Group Subsidiaries — means one or more wholly owned subsidiaries of Apollo Group.
	•	Issuance Date — means the date of first issuance of shares of University of Phoenix Online common stock.
	•	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 Apollo Group’s 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 Apollo Group’s board of directors) for, (a) any taxes payable by Apollo Group or any subsidiary or affiliate thereof 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 Apollo Group 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 Apollo Group’s board of directors.
	•	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 Apollo Group’s board of directors designates prior to the time Apollo Group first issues shares of the class of common stock applicable to such Group as adjusted in accordance with Apollo Group’s 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 Apollo Group 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.

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	•	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 class 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 class 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 Apollo Group’s 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 the receipt by Apollo Group of an opinion of a tax advisor of its choice experienced in such matters, who is not an officer or employee of Apollo Group or any of its 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)  Apollo Group, its subsidiaries or affiliates, or any of its 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
	(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 stock of Apollo Group.

	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

      Apollo Group’s board of directors will retain the discretion whether or not to pay dividends on University of Phoenix Online common stock or any other series of common stock of Apollo Group. However, it is not expected that dividends will be paid on any series of common stock.

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      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 Apollo Group 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, Apollo Group’s 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 such 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 we 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 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 us and (ii) the amounts available for the payment of dividends by Apollo Group.

  Mandatory Dividend, Redemption, or Conversion of Common Stock

      In general, if 80% or more of the assets allocated to us are sold or otherwise disposed of, Apollo Group must either:

	(i)  declare and pay a dividend, subject to all applicable limitations on the payment of dividends, to holders of University of Phoenix Online 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 the product of (i) the Outstanding Interest Fraction relating to University of Phoenix Online (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 University of Phoenix Online common stock, in exchange for an aggregate amount equal to the product of (i) the Outstanding Interest Fraction relating to University of Phoenix Online (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 University of Phoenix Online common stock, unless the Disposition involves substantially all (but not all) of the assets allocated to University of Phoenix Online, in which case, the number of shares redeemed shall 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 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

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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 premium may be payable in connection with any such conversion depending on the date of the Disposition. 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.

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

      At any time within one year of completing any dividend or partial redemption of the kind referred to in paragraphs (i) or (ii) above, Apollo Group will have the right to convert shares of University of Phoenix Online common stock to shares of Class A APOL common stock 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, Apollo Group would, in addition to other matters, consider:

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

      There could be substantial benefits or detriments to the holders of University of Phoenix Online common stock depending on the payment alternative selected by Apollo Group’s board of directors following a 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 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 does 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, the 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 will result in more or less value to the holders of such shares. In addition, depending on the tax basis of a shareholder in his or her shares of University of Phoenix Online common stock, among other factors, the tax consequences of a conversion of University of Phoenix Online common stock to Class A APOL common stock which generally would be tax-free under current law, might be more favorable than the tax consequences of a dividend or redemption of the University of Phoenix Online common stock which generally would be taxable.

      Similar treatment will apply in connection with Dispositions by APOL and, except as otherwise provided by Apollo Group’s board of directors, in connection with Dispositions by Groups other than University of Phoenix Online and APOL.

Conversions of Stock at Apollo Group’s Option

      Conversion of University of Phoenix Online Common Stock Generally. Assuming that assets are available therefor, Apollo Group’s board of directors will have the right, at any time, to convert outstanding

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      See Annex A to this prospectus “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 shares of University of Phoenix Online common stock to shares of Class A APOL common stock at the option of Apollo Group.

      Except as otherwise provided by Apollo Group’s board of directors, Apollo Group 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 Apollo Group’s board of directors.

      Conversion of University of Phoenix Common Stock to Stock of an Apollo Group Subsidiary. At any time at which all of the allocated assets and liabilities of University of Phoenix Online (and no other assets or liabilities of Apollo Group or any subsidiary thereof) are held directly or indirectly by one or more Group Subsidiaries, Apollo Group’s board of directors will have the right to convert all of the outstanding shares of common stock relating to University of Phoenix Online 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 University of Phoenix Online, 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 APOL or other Group Subsidiaries, or distributed by APOL to the shareholders of APOL common stock, or a combination of the foregoing.

      Except as otherwise provided by Apollo Group’s 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. In this case, 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, Apollo Group 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 and deliver those shares to the holders of APOL common stock or to one of the Group Subsidiaries.

  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, Apollo Group or its 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

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  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 Apollo Group’s Option,” Apollo Group will cause to be given to each holder of shares of University of Phoenix Online 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 University of Phoenix Online 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 University of Phoenix Online 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 Class A APOL common stock to be received with respect to each share of University of Phoenix Online common stock to be converted, including details as to the calculation thereof;
	(4)  the place or places where certificates for shares of University of Phoenix Online Common Stock to be converted, properly endorsed or assigned for transfer, unless Apollo Group waives such requirement, are to be surrendered for delivery of certificates for shares of Class A APOL common stock;
	(5)  the number of outstanding shares of Class A APOL common stock and the number of shares of Class A APOL 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 University of Phoenix Online common stock 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 Apollo Group’s transfer books or by such other methods as may be determined from time to time by Apollo Group’s board of directors, (a) not more than 40 trading days following a Disposition and not less than 10 trading days before the conversion in the case of a conversion after a Disposition, or (b) not less than 10 trading days and not more than 30 trading days before the conversion date in the case of any other conversion.

      Neither the failure to mail any notice described above to any particular holder of shares of University of Phoenix Online 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 University of Phoenix Online common stock or of outstanding Convertible Securities, or the validity of any such conversion.

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      Apollo Group 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 University of Phoenix Online common stock is held at the same time by the same holder, Apollo Group 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 University of Phoenix Online common stock is a fraction, Apollo Group 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 University of Phoenix Online common stock. However, if such shares are converted by Apollo Group after the record date for determining holders of University of Phoenix Online 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 University of Phoenix Online 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 University of Phoenix Online common stock, such holder is required to surrender at such place as Apollo Group specifies, certificates for shares of University of Phoenix Online common stock, properly endorsed or assigned for transfer, unless Apollo Group waives such requirement. As soon as practicable after Apollo Group’s receipt of certificates for such shares of University of Phoenix Online common stock, Apollo Group 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 University of Phoenix Online common stock, all rights of a holder of shares of University of Phoenix Online common stock that were converted will cease, except for the right, upon surrender of the certificates representing such shares of University of Phoenix Online 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 of University of Phoenix Online common stock represented shares of University of Phoenix Online 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, Apollo Group will, however, be entitled to treat the certificates for University of Phoenix Online 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 University of Phoenix Online Common Stock represented by such certificates should have been converted, notwithstanding the failure to surrender such certificates.

      Apollo Group 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 shares of University of Phoenix Online common stock pursuant hereto. Apollo Group will not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance or delivery of any shares of capital stock and/or other securities in a name other than that in which the shares of University of Phoenix Online common stock so converted were registered, and no such issuance or delivery

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  Voting Rights

      Holders of University of Phoenix Online common stock and Class A APOL 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 class 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 class.

  Liquidation

      Under Apollo Group’s amended and restated articles of incorporation, in the event of a dissolution or liquidation and winding-up of Apollo Group, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of Apollo Group 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 Apollo Group’s board of directors fixing the liquidation rights and preferences of such series of preferred stock), the holders of APOL common stock and University of Phoenix Online common stock will be entitled to receive the net assets, if any, of Apollo Group 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 University of Phoenix Online common stock 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 University of Phoenix Online 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) a voluntary liquidation, dissolution, or winding-up of Apollo Group or (ii) the institution of any proceeding for the involuntary liquidation, dissolution, or winding-up of Apollo Group, 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 may not bear any relationship to the relative market values of the series.

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

      If Apollo Group subdivides (by stock split, reclassification, or otherwise) or combines (by reverse stock split, reclassification, or otherwise) the outstanding shares of either APOL common stock or University of Phoenix Online common stock, or declares a dividend in shares of APOL common stock or University of Phoenix Online common stock to holders of such class of common stock, the number of liquidation units of APOL common stock or the number of liquidation units of University of Phoenix Online common stock, as applicable, will be appropriately adjusted as determined by Apollo Group’s board of directors (if necessary) so as to avoid any dilution in the aggregate liquidation rights of either class of common stock.

      Neither the merger or consolidation of Apollo Group into or with any other corporation, nor the merger or consolidation of any other corporation into or with Apollo Group, nor any sale, transfer, or lease of all or any part of the assets of Apollo Group, will be deemed to be a dissolution, liquidation, or winding-up for purposes of the liquidation provisions set forth above.

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  APOL’s Retained Interest

      In this prospectus, the proportional interest in us or 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 us or any other 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

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 such series of common stock 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

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

      Attribution of Issuances of Common Stock. Whenever Apollo Group’s board of directors decides to issue shares of University of Phoenix Online common stock, it will determine, in its sole discretion, whether to attribute that issuance (and the proceeds thereof) to APOL in respect of its retained interest in us (in a manner similar to a secondary offering of common stock of a subsidiary owned by a corporate parent) or to us (in a manner similar to a primary offering of common stock). If it issues any shares of University of Phoenix Online common stock and attributes that issuance (and the proceeds thereof) to APOL in respect of APOL’s retained interest in us, then:

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

If Apollo Group’s board of directors instead attributes that issuance (and the proceeds thereof) to us, then:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in us would remain unchanged;
	•	the number of outstanding shares of University of Phoenix Online common stock would be increased by the number of shares so issued;

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	•	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%. Prior to this offering, the Retained Interest Fraction was 100% and the Outstanding Interest Fraction in respect of us was 0%.

      Apollo Group is hereby offering to the public, for cash,  shares of University of Phoenix Online common stock. Its board of directors has designated           as the initial Number of Shares Issuable with Respect to APOL’s Retained Interest in us. Assuming Apollo Group completes the sale of all      shares, its board of directors will attribute all of the net proceeds to our equity. The issuance will have no effect on the Number of Shares Issuable with Respect to APOL’s Retained Interest. Thus, assuming all             shares of University of Phoenix Online common stock offered hereby 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 us 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. Apollo Group reserves 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, its board of directors would generally attribute that distribution to APOL in respect of APOL’s retained interest in us. As a result:

	•	the Number of Shares Issuable with Respect to APOL’s Retained Interest in us 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;
	•	the Retained Interest Fraction would be decreased; and
	•	the Outstanding Interest Fraction would be correspondingly increased.