Auction Rate Securities (“ARS”) and Liquidity Position

Recently, there have been reports about failed auctions in the auction rate securities market, and speculation with regard to the effect the failures may have on the liquidity of investors who hold these securities, such as Apollo Group. During the second quarter of fiscal 2008, the Company owned as much as $365 million in ARS – all in high quality (A rated and above) municipal securities, preferred stock and other tax-exempt bonds. As of February 19, 2008, all but $107 million of the ARS investments had been liquidated and not reinvested in the ARS market as the Company intentionally reduced its exposure to these instruments. Of the $107 million, approximately $79 million in ARS instruments were not liquidated due to failed auctions. Despite these failed auctions, there have been no defaults on the underlying securities, and investment income on these ARS holdings continues to be received in a timely manner. As a result, the interest rates on these failed ARS investments were reset and now have a weighted average tax-exempt interest rate of 5.2% compared to 4.5% prior to the failed auctions.

For the immediate future, the Company will maintain a more conservative investment portfolio given the uncertainties in the credit markets and expects investment income to reflect the conservative nature of these investments. As of February 19, 2008, the Company had approximately $1 billion in liquidity composed of approximately $500 million of cash, cash equivalents and marketable securities (excluding student-related restricted cash and after posting the bond as discussed below), and a $500 million line of credit, which it has not drawn upon since its inception.

 http://finance.sfgate.com/hearst?Account=sfgate&GUID=4677991&Page=MediaViewer&Ticker=APOL

Be well