IAI Investment Funds VIII, Inc.
File No. 2-84589
SUPPLEMENT DATED JULY 17, 1998
TO THE JOINT PROSPECTUS DATED AUGUST 1, 1997
OF
IAI VALUE FUND
(A PORTFOLIO OF IAI INVESTMENT FUNDS VIII, INC.)
Value Fund generally closed to new investors on May 12, 1998. Shareholders of
Value Fund as of such closing date may continue to add to an account through the
reinvestment of dividends and cash distributions on any Value Fund shares owned,
through an existing systematic purchase or exchange plan, or through an existing
retirement plan allocation. No changes in these plans or allocations having the
effect of increasing current purchases of Value Fund shares will be permitted
while the Fund is closed.
Value Fund invests from time to time directly in privately held, early-stage
developing companies. One such company (the "Venture Company") filed a
registration statement in May 1998 with the SEC for the purposes of offering its
securities for public sale, also known as an initial public offering or "IPO".
Using a fair value methodology based on information available at that time to
IAI, the Fund's investment adviser and manager, the Fund's Board of Directors
approved a substantial increase in the valuation of the Venture Company's
securities. This valuation has had several effects, including a substantial
increase in the Fund's net asset value. Some of these effects, however, have
resulted in increased risks associated with investing in Value Fund. Certain of
these risks results from the large percentage of the Value Fund's net assets
invested in the Venture Company (approximately 23% as of July 16, 1998).
Subsequent to that initial filing, on July 16, 1998, the Venture Company filed
an amended registration statement containing new information about the expected
price range at which its securities would be offered for sale at the time of the
IPO. Based on this new information, consistent with its fair value pricing
methodology, the Fund's Board of Directors approved a decrease in the valuation
of the Venture Company's securities. Even with this decrease in valuation, the
Fund's investment in the Venture Company continues to present increased risks,
as discussed elsewhere in this supplement.
The Venture Company intends to become a leading provider of high quality, low
cost, long haul telecommunications capacity to second and third tier markets
throughout the United States primarily by upgrading existing wireless
infrastructure to develop a state-of-the-art, digital SONET network. The Venture
Company believes there is a substantial market opportunity available to it, and
that it will enjoy various competitive advantages.
However, the Value Fund investment in the Venture Company is subject to the
significant risks of investing in small and early-stage developing companies
described under "Venture Capital" and "Special Risk Factors Associated with
Investing in Small Companies" at pages 19 and 23 of the Prospectus. The
investment in the Venture Company is also subject to other significant risk
fac-
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tors including: (1) its limited history of operations, operating losses and
negative cash flow; (2) its significant capital requirements and uncertainty of
obtaining additional financing; (3) its substantial use of leverage, and its
ability to service its current and substantial additional indebtedness; (4) its
ability to timely and cost-effectively complete its digital network, and sell a
substantial amount of its capacity; (5) its ability to maintain and add
additional long-term contractual relationships with various entities to enable
it to deploy its network; (6) its ability to manage its future anticipated
growth; (7) its dependence on key personnel; (8) its ability to successfully
compete in the highly competitive telecommunications industry, where price
competition has generally been intense and is expected to increase; (9) its
substantial reliance on a single supplier of telecommunications equipment; (10)
the existence of various technical limitations on its network; (11) the risk of
rapid technological changes in the telecommunications industry; (12) the
existence of substantial regulation by federal, state and local governmental
agencies of its digital network; (13) the possibility that wireless equipment
may pose health risks to humans due to radio frequency emissions; (14) the fact
that the Venture Company does not expect to pay cash dividends for the
foreseeable future; and (15) the risk that the IPO will not occur.
As of July 16, 1998, approximately 35% of the Value Fund's assets were illiquid.
Since market quotations for such securities are not readily available, these
securities are valued using a "fair value" methodology. The Venture Company's
securities held by the Value Fund are subject to substantial restrictions on
sale even after the Venture Company's IPO, because the underwriters of the
Venture Company's IPO have requested that the Fund not sell or otherwise
transfer the Venture Company's stock during the 180-day period following the
effective date of the IPO.
