MUTUAL FUNDS Can All the King's Men Put I.O.S. Together Again?

"I set out to build up a big business in the mutual-fund field, and I think I succeeded," said Bernard Cornfeld last week. "But I like to live well, I like the good life and--let's face it--I'm a lousy administrator."

Because of Cornfeld's weakness at administration, his Investors Overseas Services, Ltd. was top-heavy with costly employees, expenses outraced income, and the whole structure almost collapsed. Last week Denver Millionaire John King (see following story) signed a deal to give I.O.S. a $40 million transfusion in return for effective control of the company. But the terms revealed were so vague and incomplete that the agreement seemed shaky. Suspicious Europeans rushed to cash in their shares in I.O.S. funds, heightening doubts about the future of the company. In turn, I.O.S. was reportedly forced to dump some of the U.S. stocks that it held, further depressing the market in Wall Street. After word got out that hard-pressed I.O.S. had a potential rescuer in King Resources--the oil and mineral corporation controlled by John King--that corporation's stock dropped in one day from 11 1/2 bid to 9.

Help! According to last week's rescue pact, King Resources would lend I.O.S. $20 million in cash for three years. John King also agreed to arrange for an additional $20 million line of credit, though the big question is where he would get that money. His spokesmen in Geneva said that The Bank of New York and Fidelity Corp., which is a holding company based in Richmond, were part of his group. Both firms denied any connection with King.

As security for the loans, King and his group would get shares in I.O.S. Management, a mutual-fund-management subsidiary. He would also receive warrants to buy 20% of I.O.S.'s preferred stock. King and his associates would name 16 directors out of 27 on the newly enlarged I.O.S. board and have veto power over the rest. The deal was by no means final because it permits either King or I.O.S. to back out if the other side fails to live up to the terms.

Prestige Needed. Until King moved in, the French and British members of the Rothschild banking family were interested in forming a team to take control. But the Rothschilds made it clear that they had no desire to get into an I.O.S. dominated by King. To restore European investor confidence in I.O.S., the company urgently needs to get some old-line European bankers into the rescue operation--and Cornfeld knows it. At first, he and his top associates agreed to place their 37% stock interest in I.O.S. into a King-controlled voting trust for three years. But last week, in order to give himself bargaining power in negotiations, Cornfeld refused to put his own 15% share in trust.

The European moneymen raised questions about whether King's fast attempt to save I.O.S. was a defensive maneuver to help his own stock, and they worried about the interlocking relationships between King and I.O.S. Fund of Funds, I.O.S.'s second largest mutual fund, has put $60 million of its $473 million of assets into King Resources or projects in which the company is involved. King Resources and the fund jointly own 22 million acres of Canadian Arctic oil leases; critics contend that the value of these lands was exaggerated.

Invading the U.S. Under a 1967 agreement with the Securities and Exchange Commission, I.O.S. promised not to sell funds to U.S. citizens anywhere in the world. Reason: the company refused to comply with full-disclosure rules. Now, ambitious John King plans to invade the U.S. with I.O.S. funds if he can resolve "all I.O.S. matters now pending before the commission." Before he does that, he may have to seek SEC permission for U.S. banks and even King Resources itself to participate in any rescue deal. Another factor that could delay completion of the rescue is the lateness of the audited financial statements of I.O.S. for 1969. Due the first week of this month, they may not be ready until next week.

Whatever happens, I.O.S. will be in for a managerial housecleaning. As Cornfeld put it last week: "A hell of a lot more people will go." It would be dangerous, however, if many salesmen defected on their own. European financial pages are carrying ads placed by rival funds trying to lure I.O.S. salesmen --and their clients. The 14,000-man sales force--I.O.S.'s principal asset-has dwindled by several thousand. Unless it can be kept together, there will not be much left of the company to salvage.

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