IAI Investment Funds VII, Inc.
File No. 2-39560
SUPPLEMENT DATED MARCH 7, 2000
TO THE JOINT PROSPECTUS DATED AUGUST 1, 1999
OF
IAI GROWTH & INCOME FUND
(A PORTFOLIO OF IAI INVESTMENT FUNDS VII, INC.)
Growth & Income Fund generally closed to new investors on February 17, 2000.
Shareholders of the Fund as of such closing date may continue to add to an
account through the reinvestment of dividends on any 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 Fund shares will be permitted while
the Fund is closed.
FUND INVESTMENT IN MATRIXONE, INC.
Growth & Income Fund has historically invested a small portion of its assets
directly in privately held, early-stage developing companies. One such company,
MatrixOne, Inc. ("MatrixOne"), offered shares of its common stock for public
sale (an "initial public offering" or "IPO") on March 1, 2000. Following the
IPO, there was a substantial increase in the market price of MatrixOne stock.
However, shortly prior to the IPO, a complaint was filed regarding the Fund's
holdings of MatrixOne. In October 1999, IAI entered into an agreement on the
Fund's behalf to sell all of the Fund's shares of MatrixOne stock at a price
substantially lower than the price at which MatrixOne stock later sold in the
IPO. The 90 day period set forth in the agreement for closing the sale expired,
and IAI determined not to extend the agreement. In February 2000, the other
party to the agreement filed a complaint seeking specific performance of the
agreement (I.E., that the Fund's MatrixOne shares be sold at the originally
agreed upon price) or, in the alternative, seeking damages. As a result of this
lawsuit, and because of the potential illiquidity of the MatrixOne shares
discussed in the following paragraph, the Fund's Securities Valuation Committee,
using a "fair value" methodology, has valued the Fund's MatrixOne holdings at a
significant discount from market value. If the Fund prevails in the litigation,
there could be a significant positive impact in the Fund's net asset value.
Alternatively, if the Fund does not prevail, there could be a significant
negative impact on the Fund's net asset value. Because of the risks resulting
from the pending litigation, the Fund intends to remain closed until the
litigation is resolved. In the meantime, IAI and the Fund's Securities Valuation
Committee will continue to value the Fund's MatrixOne stock using a "fair value"
methodology and to act in the best interests of Fund shareholders.
In addition to the risks resulting from the pending litigation, the Fund's
holdings of MatrixOne result in other risks to Fund shareholders. Based on the
value of the MatrixOne holdings determined by the Fund's Securities Valuation
Committee, MatrixOne accounted for approximately 12% of the Fund's net assets as
of March 6, 2000. Because MatrixOne accounts for such a significant percentage
of the Fund's net assets, the Fund's shareholders will be subject, to a greater
extent than is normally the case in a diversified mutual fund, to the particular
risks of MatrixOne. These risks are discussed below under "Information about
MatrixOne, Inc. set forth in its Prospectus dated March 1, 2000." In addition,
shareholders will be subject to risks resulting from the potential illiquidity
of the MatrixOne shares. Certificates representing the Fund's shares of
MatrixOne contain legends restricting their transfer. Because of potential
difficulties in having these legends removed and because of the pending
litigation, it may be difficult for the Fund to sell its shares of MatrixOne. As
a result, the Fund may be forced to sell other securities instead in order to
meet redemption requests or to forego other investment opportunities. Either of
these occurrences could have a negative effect on the Fund's performance. The
percentage of the Fund's net assets that are not readily marketable, including
the MatrixOne shares, was approximately 13% as of March 6, 2000.
The Fund's holdings on MatrixOne will also subject the Fund to significant
additional risk of net asset value volatility. Following the March 1, 2000 IPO
at $25.00 per share, the stock of MatrixOne has traded as high as $85.00, as low
as $62.25, and its market price at the close of business on March 6, 2000 was
$74.00. The market price of MatrixOne common stock is likely to continue to be
highly volatile. Factors such as fluctuations in MatrixOne's operating results,
announcements of technological innovations, new products or new services by
MatrixOne or by its partners, competitors or customers or its competitors'
developments with respect to patents or proprietary rights, announcement of
litigation by or against MatrixOne, changes in stock market analyst
recommendations regarding MatrixOne or its competitors, and general market
conditions may have a significant effect on the market price of MatrixOne's
common stock and a corresponding effect on the Fund's net asset value.
INFORMATION ABOUT MATRIXONE, INC.
SET FORTH IN ITS PROSPECTUS DATED MARCH 1, 2000
The following information, insofar as it pertains to MatrixOne, is based solely
on information contained in MatrixOne's Prospectus dated March 1, 2000, for its
IPO, and has not been independently verified by the Fund. MatrixOne is required
to file periodic and special reports with the Securities and Exchange Commission
which may contain more current information than that contained in the
Prospectus. The Prospectus, the Registration Statement of which it is a part,
and such periodic and special reports may be obtained as described below under
"Additional Available Information on MatrixOne."
MatrixOne intends to be a leading provider of Internet business collaboration
software. Its eMatrix suite of products serves as an Internet platform
facilitating collaboration among different departments and geographic locations
of global organizations. Its software is also designed to serve as a backbone
for an enterprise to collaborate through the Internet with its customers,
suppliers and other business partners. Its eMatrix line of products integrates
different business processes and facilitates the exchange of information and
ideas such as conceptual planning and design of new products, design for
manufacturability, new product introduction and a variety of other key business
activities. Additionally, MatrixOne provides services such as implementation,
training, maintenance and customer support, designed to ensure that its
customers successfully utilize its eMatrix products.
The investment in MatrixOne is also subject to other significant risk factors
specifically related to MatrixOne, including:
(1) its future success is uncertain because it has significantly
changed its business;
(2) it may not achieve anticipated revenues if
market acceptance of its eMatrix line of software products is not
forthcoming;
(3) the market for its eMatrix software products is newly
emerging and demand for business collaboration software may not evolve
and could decline;
(4) it has a history of losses, expects to incur
substantial losses in the future and may not achieve or maintain
profitability;
(5) if it is unable to obtain additional capital as
needed in the future, its business may be adversely affected and the
market price of its common stock could significantly decline;
(6) its quarterly revenues and operating results are likely to
fluctuate and if it fails to meet the expectations of securities
analysts or investors, its stock price could decline;
(7) its lengthy and variable sales cycle makes it difficult to predict
when or if sales will occur and therefore it may experience an
unplanned shortfall in revenues;
(8) it may not achieve its anticipated revenues if large software and
service orders expected in a quarter are not planned or are delayed;
(9) it will not succeed unless it can compete in its markets;
(10) if it is not successful in developing new products and services
that keep pace with technology, its operating results will suffer;
(11) if its existing customers do not license additional software
products from them, it may not achieve growth in its revenues;
(12) its revenues could decline if it does not develop and maintain
successful relationships with systems integrators and complementary
technology vendors;
(13) its international operations and planned expansion expose it to
business risks which could cause its operating results to suffer;
(14) it depends on licensed third-party technology, the loss of which
could result in increased costs of or delays in licenses of its
products;
(15) if systems integrators are not available or fail to perform
adequately, its customers may suffer implementation delays and a lower
quality of customer service, and it may incur increased expenses;
(16) it may not be able to increase revenues if it does not expand its
sales and distribution channels;
(17) it currently performs many implementations of its software
products on a fixed-price basis, which could cause a decline of its
gross margins;
(18) its rapid growth is placing a significant strain on its resources,
and its business will suffer if it fails to manage its growth properly;
(19) it depends on key personnel to manage its business effectively,
and if it is unable to retain key personnel, its ability to compete
could be harmed;
(20) its future acquisitions may negatively affect is ongoing business
operations and its operating results;
(21) its products may contain defects that could harm its reputation,
be costly to correct, delay revenues and expose it to litigation;
(22) its failure to protect its intellectual property could harm its
name recognition efforts and ability to compete effectively;
(23) it could incur substantial costs defending its intellectual
property from claims of infringement;
(24) it could be adversely impacted by the Year 2000 problem;
(25) its management may use the proceeds of the IPO and the concurrent
private placement in ways that do not increase its profits or its
market value;
(26) its stock price could be volatile which may lead to losses by
investors;
(27) it is at the risk of securities class action litigation
due to its expected stock price volatility;
(28) its executive officers and directors and their affiliates will
retain significant control over it after the IPO and the concurrent
private placement, which may lead to conflicts with other stockholders
over corporate governance matters;
(29) future sales by existing shareholders could depress the market
price of its common stock; and
(30) anti-takeover provisions in its organizational documents and
Delaware Law could prevent or delay a change in control of MatrixOne.
ADDITIONAL AVAILABLE INFORMATION ON MATRIXONE
MatrixOne has filed with the Securities and Exchange Commission a Registration
Statement and Prospectus dated March 1, 2000, referred to above. The
Registration Statement, including exhibits filed therewith, and the Prospectus
may be inspected without charge at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Room 1034, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and its public reference facilities in New York, New York, and
Chicago, Illinois, at prescribed rates. In addition, the Commission maintains a
World Wide Web site that contains reports, proxy and information statements that
are filed electronically with the Commission. The address of the site is
http://www.sec.gov.
MatrixOne's offices are located at Two Executive Drive, Chelmsford,
Massachusetts, 01824, its telephone number is (978) 322-2000, and the address of
its Internet site is http://www.matrixone.com. MatrixOne's Nasdaq National
Market Symbol is MONE.
