UNITED STATES OF AMERICA
 

Before the
 

SECURITIES AND EXCHANGE COMMISSION
 

ADMINISTRATIVE PROCEEDING 

File No. 3-11498 

In the Matter of 

Strong Capital Management, Inc.,
 

Strong Investor Services, Inc.,
 

Strong Investments, Inc.,
 PROPOSED PLAN OF 

Richard S. Strong, Thomas A. DISTRIBUTION 

Hooker, Jr. and Anthony J. 

D'Amato 

Respondents. 
I. Overview. 

A. Factual Background. 

This Plan of Distribution outlines a methodology to distribute funds to former 

shareholders of the Strong Funds (defined herein), formerly advised by Strong Capital 

Management, Inc. ("SCM"), a wholly-owned subsidiary of Strong Financial Corporation 

(together with SCM and its other subsidiaries, "Strong"), a Wisconsin corporation. 

Michael R. Gibbons was appointed as Strong's Independent Distribution Consultant 

("IDC") pursuant to the Order Instituting Administrative and Cease-and-Desist 

Proceedings, Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist 

Orders Pursuant to Sections 15(b)(4), 15(b)(6), 15B(c)(4), 17A(c)(3) and 17A(c)(4)(C) of 

the Securities Exchange Act of 1934, Sections 203(e), 203(f) and 203(k) of the 

Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company 

Act of 1940 (Release Nos. 34-49741, IA-2239, and IC-26448, Admin. Proc. File No. 3­

11498, all on May 20, 2004) (the "Order,,).l Strong agreed to the entry of the Order by 

the Securities and Exchange Commission ("Commission") to settle enforcement 

proceedings resulting from an investigation by the Commission into frequent trading at 

Strong. The parties to the settlement included the three Strong entities which were at that 

time registrants with the Commission (SCM, then a registered investment advisor, Strong 

Investor Services, Inc. ("SIS!"), then a registered transfer agent, and Strong Investments, 

Inc., ("SII") then a registered broker-dealer), former chairman Richard S. Strong, former 

A more complete discussion of the facts and methodology used to develop the Plan of Distribution 

can be found in the Report of the Independent Distribution Consultant, which will be made 

available at www.strongsettlement.com upon the Commission's approval of the Plan of 

Distribution. 

2 
executive vice president Anthony J. D'Amato, and fonner Chief Compliance Officer 

Thomas A. Hooker, Jr. As part of the settlement, $140,800,000 was paid to the 

Commission - $40 million in disgorgement and $40 million in penalties by the Strong 

entities, $30 million in disgorgement and $30 million in penalties by Richard S. Strong, 

$375,000 in disgorgement and $375,000 in penalties by Anthony J. D'Amato, and 

$50,000 in penalties by Thomas A. Hooker, Jr. On September 29, 2005, $140.75 million 

was placed in a Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 

(the "Fair Fund,,).2 As of February 28, 2009, the value of the Fair Fund, including 

interest, was $154,196,720.68. 

At the time of the entry of the Order, SCM served as the investment advisor to the 

26 registered investment companies that made up the 70 Strong mutual funds (the 

"Strong Funds"). As of August 31, 2003, assets under management for these 70 funds 

totaled approximately $32 billion. SISI served as the transfer agent to the Strong Funds, 

and SII served as the distributor of the Strong Funds (while also providing brokerage 

services). After the entry of the Order, Strong entered into an asset purchase agreement 

with Wells Fargo and Company ("Wells"). The agreement closed on December 31, 2004 

and ultimately resulted in the reorganization of the Strong Funds into the Wells Fargo 

Advantage Funds in April 2005. SCM, SISI, and SII fIled for deregistration with the 

Commission in May 2005. Strong has no ongoing business activities relating to the 

mutual fund industry, and the Strong Funds no longer exist. The Wells transaction and 

these changes in structure do not affect the substance of the allocation provisions of this 

The money paid by Thomas A. Hooker was not included because it consisted solely of penalties. 

3
 

2 
Distribution Plan, although they may affect the mechanics of the distribution itself, as 

discussed later herein. 

B. Qualifications and Background. 

The IDC, Michael R. Gibbons, is the LW. Burnham II Professor of Investment 

Banking, former Chair of the Finance Department, and Deputy Dean at the Wharton 

School of the University of Pennsylvania. 

C. Distribution Plan. 

Paragraph 56(a) of the Order provides that "SCM shall require that the 

Independent Distribution Consultant develop a Distribution Plan for the distribution of all 

the disgorgement and penalties provided for in the Order, and any interest or earnings 

thereon, according to a methodology developed in consultation with SCM and acceptable 

to the staff of the Commission and the independent Directors of the investment company. 

The Distribution Plan shall provide for investors to receive, in order of priority, (i) their 

proportionate share of losses from market-timing, and (ii) a proportionate share of 

advisory fees paid by funds that suffered such losses during the period of such markettiming." The Distribution Plan is not intended to reimburse investors for ordinary market 

losses unrelated to frequent trading. 

This submission constitutes the Distribution Plan required by Paragraph 56(a) of 

the Order (the "Plan") and has been submitted to SCM, the trustees of the successor trusts 

to the Strong Funds, and the staff of the Commission ("Staff'). The Plan is subject to 

approval by the Commission. As provided in Paragraph 56(e) of the Order, following the 

Commission's approval of the Plan, the IDC, assisted by Strong, will take all necessary 

and appropriate steps to administer the final Plan. In the course of administering the 

4
 
Plan, the Staff may extend any procedural deadline for good cause shown. The 

Commission retains jurisdiction over the implementation of the Plan. 

TI. Frequent Trading at Strong. 

A. Canary. 

According to the Order, Canary Capital Partners was a hedge fund whose 

principal, Edward J. Stem (collectively, "Canary"), approached Strong to discuss 

investing in Strong Funds in fall 2002. Canary and Strong entered into an agreement that 

permitted Canary to trade more frequently in some of the Strong Funds than was 

otherwise permitted. Strong imposed certain restrictions on this trading, including a limit 

to the amount Canary could trade. For example, Canary's positions were limited to one 

percent of the assets in a fund. Between December 2002 and June 2003, Canary invested 

in four Strong funds - Strong Growth Fund, Strong Growth 20 Fund, Strong Advisor Mid 

Cap Growth Fund, and Strong Large Cap Growth Fund. Canary made its investments 

first through one account, Nichols Point LLC, and then another, Emu Capital LLC. The 

IDC has determined that, in total, Canary made 267 transactions in the four funds on 64 

trade dates. 

B. Richard S. Strong. 

According to the Order, Richard S. Strong was the founder and former chairman 

of Strong. During the period at issue in the Order, January 1998 to July 2003, Mr. Strong 

invested in a number of Strong funds and engaged in frequent trading in certain of these 

funds. Mr. Strong conducted trades on behalf of himself and certain family members and 

friends. 

5
 
The IDC has detennined that Mr. Strong traded in an overall pattern in twentythree equity and bond funds during this time period. During this time period, Mr. Strong 

made investment decisions for up to sixteen accounts that held Strong funds. In total, 

Richard S. Strong and his associated accounts (collectively, "RSS") made 4,928 

Analyzed Transactions3 in one or another of 23 funds on 196 trade dates. However, 

many of these transactions actually resulted from a single investment decision. 

In developing this Plan, the IDC analyzed the dilutive effect of trading in Strong 

funds by Canary and RSS, as described below. The IDC has detennined to include in his 

analysis the effect of all of the Analyzed Transactions, and did not make an independent 

detennination of whether each particular transaction constituted frequent trading. It is 

possible that some, or even many, of the Analyzed Transactions might not be considered 

evidence of "frequent trading." The IDC determined to resolve that issue in favor of a 

broader distribution of the Fair Fund to affected shareholders. The IDC has detennined 

that this approach represents a fair and reasonable method of measuring harm and 

compensating affected shareholders. 

"Analyzed Transactions" include the following transaction types, based on the fact that they 

involve some degree of decision-making on the part of the person directing the account: exchange, 

buy, sell, IRA transaction, cash deposit, receive without exchange, trust distribution, loan 

proceeds, tax refund, transfer in, and charitable contribution. The following transaction types are 

excluded from the Analyzed Transactions because they do not involve decision-making on the part 

of the person directing the account, particularly as to timing: 401(k) contribution, dividends, 

miscellaneous receipts, and cash earnings. All of Canary's transactions were Analyzed 

Transactions. 

6
 

3 
c. Funds Involved. 

The IDC analyzed trading in 24 Strong funds in which Canary and/or RSS 

traded.4 This excludes all money market or cash equivalent funds, but includes all other 

funds in which there was activity during the analyzed time period of 1998-2003 (the 

"Analyzed Funds"). In several of these funds, there were very few Analyzed 

Transactions, and many of these may not be described as "frequent trading." However, 

all of the Analyzed Funds were included in the Distribution Plan. 

The Distribution Plan will compensate affected shareholders who invested in the 

following Analyzed Funds during the following affected time periods between 1998 and 

2003: 

Fund Affected time oeriods 

20(\ 3fd , and 4U1 quarters 2002, 1

st and 2nd 

quarters 2003 

2nd ,3m , and 4U1 quarters 2002, 1

st and 2nd 

quarters 2003 

4U1 quarter 2002, 1st , 2nd , and 3fd quarters 

2003 

1st , 2nd , and 3fd quarters 2001 

1st Quarter 1998, 2nd Quarter 1999 

All Quarters 1998, 1st Quarter 1999 

Small Company Value 

All Cap Value 

Large Cap Growth 

Opportunity 

Government Securities 

Discovery 

International Stock 1st quarter 2000 

Canary and RSS invested in three of the same funds. Canary also traded in a fourth Strong fund in 

which RSS did not trade. 

7 

4 
Asia Pacific 2nd and 3fd quarters 1999, all quarters 2002, 

1st and 2nd quarters 2003 

2nd quarter 1999, 4th quarter 2002, 1st , 2nd , 

and 3fd quarters 2003 

1st quarter 1998 

All quarters 1998, 1st quarter 1999 

4th quarter 1999, 3fd and 4th quarters 2000, 

1st quarter 2001, 4th quarter 2002, 1st, 2nd , 

and 3fd quarters 2003 

All quarters 1998, 1st quarter 1999 

2nd quarter 1999 

3m and 4th quarters 1998 

3m and 4th quarters 1998, 2nd and 3m 

quarters 2003 

4ill quarter 1998, all quarters 1999, all 

quarters 2000, all ~uarters 2001, all 

quarters 2002, 1s 

t, 2n , and 3fd quarters 

2003 

2nd and 3fd quarters 2001 

1st ,2nd , and 3fd quarters 1999, 1st, 3fd , and 

4th quarters 2000, 1st and 4th quarters 2001, 

all quarters 2002 1

st , 2nd , and 3fd quarters 

2003 

1st quarter 2000, all quarters 2002, 1s 

t, 2nd , 

and 3fd quarters 2003 

All quarters 1998, 1st quarter 1999 

1st and 3fd quarters 1998, 2nd , 3fd , and 4th 

quarters 1999, 4th quarter 2000, 1st quarter 

2001, 4th quarter 2002, 1s 

t, 2nd , and 3fd 

quarters 2003 

Growth 

Small Cap 

Multi Cap Value 

Growth 20 

Balanced Asset 

Dow 30 Value 

Large Cap Core 

Overseas 

Enterprise 

Mid Cap Disciplined 

US Emerging Growth 

Technology 100 

Advisor US Value 

Advisor Mid Cap Growth 

8
 
Advisor Small Cap Value 1st and 3fd quarters 1998, 2nd , 3m quarter 

1999, 1

st quarter 2001, 2nd quarter 2001, 3fd 

Quarter 2001 

High-Yield Bond 1st Quarter 2001, 3fd Quarter 2001 

III. Losses Caused by Frequent Trading. 

When some shareholders at a mutual fund are trading frequently, this may harm 

the remaining shareholders. These potential harms are the basis of the loss calculations. 

The harms generated by frequent trading are of two types. The first type of harm 

is a dilution effect to the extent that the shareholder who trades frequently is able to 

purchase (or redeem) shares in the mutual fund at an artificially deflated (or inflated) 

value. The second type of harm is what is termed "disruption" - that is, those instances 

where the fund manager is forced to generate additional turnover in the securities held in 

the mutual fund to accommodate the chaotic flow of purchases or redemptions from the 

shareholder who is trading frequently. 

A. Dilution Effect. 

Every business day a mutual fund reports a net asset value (or NAV), which is 

intended to represent the market value of the fund by computing the difference between 

the market value of the assets held by the fund and the market value of the liabilities of 

the fund. The value of the assets (and the liabilities) is based on the assessed market 

price (as of the end of the day) of each asset held in the fund. Because NAV is reported 

on a per share basis, this difference between the assets and liabilities is divided by the 

number of shares issued to all the shareholders of the mutual fund in order to compute 

NAV. 

9
 
The frequent trading by Canary and RSS could have caused dilution due to the 

possibility that the reported NAV was stale. Investor losses have been computed to 

account for this possibility by using a methodology based on the next-day NAV.s The 

dilution losses due to the Analyzed Transactions by Canary and RSS have been measured 

separately by the IDC. 

The total net dilution impact for the Canary Analyzed Transactions is approximately 

$2.6 million. 

The total net dilution impact for the RSS Analyzed Transactions is approximately 

$916,000. 

The next-day NAV methodology assumes that the true NAV at the time of the Analyzed 

Transaction equals the NAV reported on the next day after the transaction occurred. Because most 

of the assets held by the Analyzed Funds were liquid domestic securities, this assumption results 

in a conservative measure of dilution. 

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5 
B. Disruption Costs Due to Turnover. 

1. Introduction. 

Frequent trading by some shareholders at a mutual fund could impose additional 

costs on the remaining shareholders. When any shareholder purchases shares, the money 

received has to be dealt with in some manner by the fund manager (e.g., purchase of 

additional stock or increase in the holdings of cash equivalent securities). When any 

shareholder redeems shares, the fund manager has to have sufficient cash in the fund to 

cover the redemption or the ability to borrow money.6 One approach that the fund 

manager could take, although this would not always have occurred, would be to 

immediately purchase additional assets (e.g., common stock) when any shareholder 

purchases shares and liquidate assets when any shareholder redeems shares. Such an 

approach necessitates additional transactions by the mutual fund, which generates costs to 

the remaining shareholders in the form of commissions, bid-ask spreads, and the market 

impact of the transactions. 

Using this approach, the total disruption cost associated with the Canary 

transactions is approximately $2.1 million. Using this same approach, the total disruption 

cost associated with the RSS transactions is approximately $1.9 million. The total 

computation of the amount of dilution and disruption due to trading by both Canary and 

RSS using this approach is approximately $7.5 million. 

2. Other Potential Disruption Costs. 

In fact, fund managers at Strong had access to lines of credit. 

11 

6 
The IDC considered other administrative costs in the form of fees and expenses 

paid by the fund to determine if the presence of frequent traders led to an increase of 

those administrative costs. (Examples of such costs might include custody fees, transfer 

agent fees, and 12b-l fees). Most of the administrative costs are fixed and do not vary 

due to trading by the shareholders. No doubt some administrative overhead may be 

affected by the frequency of transactions by the shareholders, but any examples found 

were trivial. 

To help ensure that administrative costs were included in a fair and reasonable 

manner, the IDC determined that it was appropriate to include these costs in a return of 

advisory fees that SCM received from the presence of Canary and RSS in the funds 

during the relevant time period, given that advisory fees and most administrative costs 

were based on assets under management. Accordingly, the IDC measured advisory fees 

due to additional assets under management from the presence of Canary and RSS. The 

advisory fees earned by SCM specifically due to the investments by Canary (between 

December 2002 and June 2003) and by RSS (between January 1998 and July 2003) were 

computed to be $345,755.74. This figure was doubled as a reasonable estimation of 

administrative costs, and the $691,511.48 will be returned to shareholders of the 

Analyzed Funds. 

Advisory fees earned due to the Canary and RSS investments, doubled to account 

for unmeasured potential administrative costs, will be returned (subject to the de minimis 

requirement discussed below) to any shareholder who invested in the relevant Strong 

mutual fund at any time during a quarter in which the IDC identified Analyzed 

Transactions by either Canary or RSS or both. There is no requirement that a shareholder 

12
 
be invested during the whole quarter or even during the same days in which the Analyzed 

Transactions by either Canary or RSS occurred. These administrative costs and advisory 

fees will be returned in proportion to the shareholder's holdings during the quarter (the 

"Quarterly Administrative Cost Amount"). 

IV.	 Advisory Fees 

Paragraph 56(a) of the Order sets forth the order of priority which the IDC should 

follow in developing a distribution plan. After determining investor losses suffered from 

market timing by Canary and RSS, the Order directs the IDC to return to investors "a 

proportionate share of advisory fees paid by funds that suffered such losses during the 

period of such market-timing." To accomplish this, the IDC measured the advisory fees 

paid by the Analyzed Funds from 1998-2003. After reviewing fee information for this 

time period, the IDC calculated that the net advisory fees? paid by the Analyzed Funds in 

relevant years in which either RSS or Canary invested totals approximately $159 million. 

Thus, the advisory fees to be distributed from the remainder of the Fair Fund (after 

subtracting dilution and disruption costs) are less than the total advisory fees paid by the 

Analyzed Funds. This return of advisory fees is discussed in greater detail in section VII. 

(C) below. 

V.	 Adjusting for the Time Value of Money. 

Because the compensation reflects damages incurred in the past, all compensation 

has been increased to reflect the time value of money. The rate of interest was based on 

the yield quoted on U.S. Treasury Bills. 

? Net advisory fees include gross advisory fees less all fund expenses absorbed (fees waived plus 

other fund expenses subsidized). 

13 
VI. Administration of the Plan. 

A. Appointment of Administrators. 

Pursuant to Paragraph 56(e) of the Order, the IDC is to take all necessary and 

appropriate steps to administer the final plan for distribution of disgorgement and penalty 

funds. 

Rule l101(b)(6) of the Commission's Rules of Practice requires a Distribution 

Plan to provide procedures for the administration of the fund, including the selection of a 

fund administrator "to oversee the fund, process claims, prepare accountings, file tax 

returns, and, subject to the approval of the Commission, make distributions from the fund 

to investors who were harmed by the violation." 

The Commission has appointed Damasco and Associates ("Damasco") as the tax 

administrator (the "Tax Administrator") of the Fair Fund. The IDC, fund administrator, 

and Strong will cooperate with the Tax Administrator in providing information necessary 

to accomplish the income tax compliance, ruling and advice work assigned to the Tax 

Administrator by the Commission. The Tax Administrator shall be compensated by 

Strong. 

The IDC has proposed that PNC Global Investment Servicing, a wholly-owned 

subsidiary of the PNC Financial Services Group ("PNCGIS"), serve as fund administrator 

under his supervision.8 PNCGIS will assist in identifying and locating eligible recipients. 

With banking support from its affiliate, PNC Bank ("PNC"), which will, among other 

PNCGIS is one of the nation's largest full-service mutual fund transfer agents and a leading 

provider of processing, technology and business solutions to the global investment industry. 

PNCGIS offers fund accounting and administration, transfer agency, custody, and sub-accounting 

services for more than 62 million shareholder accounts, representing more than $1.9 trillion in 

total assets, as well as settlement administration services. 

14 

8 
things, hold Fair Fund assets during the check-cashing period, PNCGIS will make 

distributions from the Fair Fund to former Strong shareholders and provide any necessary 

accompanying materials (communications about the distribution, any required tax 

documentation, etc.). PNCGIS will prepare accountings of the distribution for review by 

the IDC, Strong, and the Commission, with additional statements provided to Damasco. 

Additional tasks to be performed by PNCGIS are laid out in greater detail below. Strong 

will pay all fees and costs associated with the administration of the Plan, including the 

fees and expenses of the Fund Administrator. 

The IDC has requested that the bond requirement of Rule 1105(c) of the 

Commission's Rules of Practice be waived for good cause shown, namely that: (1) the 

Fund Administrator will have no custody, and only limited control, of the Fair Fund; (2) 

the Fair Fund will be held by Treasury until immediately before transmittal of checks or 

electronic transfers to investors; (3) upon transfer from Treasury, funds will be held in an 

escrow account, separate from other PNC assets, until presentation of a check or 

electronic transfer, at which time funds will be transferred to a controlled distribution 

account; (4) presented checks or electronic transfers will be subject to "positive pay" 

controls before being honored by PNC; and (5) both PNCGIS and PNC will maintain, 

throughout this process, insurance and/or a financial institution bond that covers errors 

and omissions, misfeasance, and fraud. PNCGIS has informed the IDC as follows: 

•	 PNC maintains and will continue to maintain a Financial Institutions Bond 

including errors and omissions coverage with an aggregate limit of $100 

million. The primary insurer is Indian Harbor Insurance Company, a 

member of the XL Capital Group, a company which, as of its most recent 

renewal, was rated A (Stable) by A.M. Best. PNC's insurance provides 

protection against employee dishonesty, forgery or fraudulent alteration of 

securities, and electronic and computer crime exposures, which include 

15 
losses due to transfer, payment, or delivery of funds as a result of 

fraudulent input, preparation or modification of computer instructions, 

data, or fraudulent electronic transmissions or communications. 

•	 PNCGIS and PNC maintain and will continue to maintain directors and 

officers liability insurance in the amount of $250 million. This insurance 

protects against errors and omissions committed by directors, officers, and 

employees of PNC during the life of the policy. 

Additional information about PNC's insurance coverage has been provided to the 

Staff separately for review and has been deemed "not unacceptable." 

B. Control of Fair Fund. 

The assets of the Fair Fund are subject to the continuing jurisdiction and control 

of the Commission. The Fair Fund is currently deposited at the U.S. Treasury Bureau of 

Public Debt ("BPD"). Upon approval of the Plan, PNCGIS shall establish an account at 

PNC, in the name of and bearing the Taxpayer Identification Number of the Qualified 

Settlement Fund (the "QSF Account"). Following approval of the Plan, and submission 

by the IDC of a list of payees and amounts to the Staff, as well as all information 

necessary to make disbursement to each distributee, and, unless otherwise directed by the 

Commission, the Staff shall cause the balance in the Fair Fund to be deposited in the QSF 

Account. PNCGIS shall be the signer on the QSF Account, subject to the continuing 

jurisdiction and control of the Commission. PNCGIS shall authorize PNC to provide 

account information to the Tax Administrator. PNCGIS shall use the assets and earnings 

of the Fair Fund to provide payments to investors and to provide the Tax Administrator 

with assets to pay tax liabilities. The QSF Account shall be invested in short-term U.S. 

Treasury securities, all backed by the full faith and credit of the U.S. Government, of a 

type and term necessary to meet the cash requirements of the payments to investors, tax 

16
 
obligations, and fees; provided, however, that investments in U.S. Treasury securities will 

not be made through repurchase agreements or other derivative products. Other than 

interest from these investments, it is not anticipated that the Fair Fund will receive 

additional funds. In the event that the Fair Fund receives additional funds, such funds 

shall be dealt with as received, in a manner acceptable to the IDC, Strong, the trustees of 

the successor trusts to the Strong Funds, and the Staff. The Fair Fund constitutes a QSF 

under Section 468B(g) of the Internal Revenue Code, 26 U.S.c. §468B(g), and related 

regulations, 26 C.F.R. §§1.468B(g)-1 through 1.468B(g)-5. Its tax reporting is being 

performed by Damasco in accordance with the requirements of § 468B(g). 

VII. Distribution Plan and Procedures. 

A. Shareholder Database and Provisional Shareholder Allocation. 

PNCGIS, which previously provided Strong's transfer agent recordkeeping 

system, will use that recordkeeping system to develop the shareholder database to be used 

for distribution purposes (the "Shareholder Database"). The Shareholder Database will 

include all direct retail shareholders, transparent intermediary accounts, and omnibus 

accounts - essentially, all of the shareholder information available directly to Strong. 

The daily loss calculations (the amount of dilution plus the amount of disruption on any 

day on which there was a transaction by Canary or RSS) will be applied to the 

Shareholder Database to determine the amount each affected shareholder known to 

Strong should receive for each day on which they were affected (that is, each day on 

which they held an Analyzed Fund in which there was trading by Canary or RSS) (the 

"Daily Loss Amounts"). The Daily Loss Amounts will be added for each affected 

shareholder for all of the days on which they were affected over the analyzed time period. 

17
 
This net amount, or zero if the net sum of the Daily Loss Amounts for a given 

shareholder is negative, plus the Quarterly Administrative Cost Amount and adjustments 

for interest on these amounts, will then be totaled for each affected shareholder to 

determine the provisional allocation for each affected shareholder (the "Provisional 

Shareholder Loss Allocation"). 

B. Persons Ineligible to Receive Distributions and Persons Waiving 

Distributions. 

The Provisional Shareholder Loss Allocation will be set to zero for two categories 

of former Strong shareholders. The first consists of former Strong shareholders who will 

not be permitted to receive a distribution from the Fair Fund because of their roles with 

respect to frequent trading at Strong. This category includes Canary and associated 

accounts, Richard S. Strong and associated accounts (including the other individuals on 

whose behalfRSS was trading), Anthony J. D'Amato, and Thomas A. Hooker, Jr. 

The second category consists of former Strong shareholders who have 

volunteered not to receive a distribution because of their roles with respect to the 

investigation of frequent trading at Strong. This category includes certain attorneys from 

the Wisconsin Department of Justice and certain former Strong employees. 

C. Calculation of Final Shareholder Allocations. 

The Provisional Shareholder Loss Allocations will be totaled for all affected 

shareholders. That total represents an approximation of the total loss calculation.9 This 

It will not be identical to the total loss calculation due to rounding and netting of accretive and 

dilutive transactions at the individual shareholder level. 

18 

9 
figure, along with 10% of the total amount of the Fair Fund to be withheld as a reserve, 10 

will be subtracted from the total amount of the Fair Fund, yielding a remainder. This 

remainder will be returned to shareholders consistent with the requirements of Paragraph 

56(a) of the Order as a proportionate share of the advisory fees paid by funds that 

suffered such losses [from market timing] during the period of such market timing (the 

"Advisory Fee Return"), as discussed above in section N. The Advisory Fee Return will 

be allocated to shareholders in proportion to the Provisional Shareholder Loss Allocation 

for each shareholder. Because the amount of money in the Fair Fund exceeds the total of 

the Provisional Shareholder Loss Allocations (which include the total dilution and 

disruption loss amounts for each shareholder), for each shareholder with a Provisional 

Shareholder Loss Allocation that is greater than zero, the shareholder's pro rata return of 

advisory fees will be computed (the "Shareholder Fee Return Allocation,,).I! The Final 

Shareholder Loss Allocation will be the sum of the Provisional Shareholder Loss 

Allocation and the Shareholder Fee Return Allocation. 

D. DeMinimis Amounts. 

Due to the time and expense involved in making distributions to large groups of 

people, a de minimis threshold is typically set in massive distributions to avoid the 

inefficiencies resulting from making distributions of extremely small amounts. 

Consistent with other Fair Fund distributions, the de minimis amount per shareholder will 

10	 The reserve amount is subject to adjustment at the discretion of the IDe as more information 

becomes available to the IDC. 

II Mathematically, the pro rata return of advisory fees will be a multiple of the Provisional 

Shareholder Loss Allocation. 

19
 
be $10.00. Thus, each shareholder whose Final Shareholder Loss Allocation is $10 or 

more will receive a distribution (the "Eligible Recipients"). The total of all Final 

Shareholder Loss Allocations below the $10 de minimis threshold will constitute a grossup residual. This gross-up residual amount will then be re-allocated among shareholders 

whose Final Shareholder Loss Allocation is under $10 in an attempt to make as many of 

these shareholders as possible Eligible Recipients. Beginning with shareholders whose 

Final Shareholder Loss Allocation is just under $10, this residual will be re-allocated in 

sequence to bring additional shareholders to $10, thus making them Eligible Recipients, 

continuing until the gross-up residual is exhausted. 

E. Validation and Authorization of Disbursing the Distribution Funds. 

In order to distribute funds, the IDC will, after approval of the Plan, submit a 

validated list of payees and the payment amounts to the assigned Commission staff, who 

will obtain authorization from the Commission to disburse pursuant to Rule 1l01(b)(6). 

The payees and amounts will be validated at the IDC's direction by PNCGIS. The 

validation will state that the list was compiled in accordance with the Distribution Plan 

and provides all information necessary to make disbursement to each Eligible Recipient. 

Unless otherwise directed by the Commission, the Staff will obtain an Order Directing 

Disbursement that releases funds to the bank account established by the Fund 

Administrator based upon the validated list and representation by the Fund Administrator 

that the first checks will be issued within the next five business days. 

F. Shareholder Location and Mailing. 

PNCGIS will run the names and addresses of all Eligible Recipients through the 

National Change of Address Database to ensure as much accuracy as possible in locating 

20
 
Eligible Recipients. After any changed addresses have been updated in the Shareholder 

Database, PNCGIS will begin compiling and sending a mailing to each Eligible Recipient 

(a "Distribution Mailing"). The Distribution Mailing will include a check for the 

Distribution Amount. All payments shall be preceded or accompanied by a 

communication that includes, as appropriate: (a) a statement characterizing the 

distribution; (b) a description of the tax information reporting and other related tax 

matters; (c) a statement that checks will be void after 180 days from the initial mailing;12 

and (d) the name of a person at PNCGIS to contact, to be used in the event of any 

questions regarding the distribution. Any such information letter or other mailing to 

recipients characterizing their distributions shall be submitted to the assigned 

Commission staff for review and approval. Distribution checks, on their face or in the 

accompanying mailing, will clearly indicate that the money is being distributed from a 

Fair Fund established by the SEC. 

Checks that are not negotiated within 180 days shall be voided and PNC will be 

instructed to stop payment on those checks. It is anticipated that, in spite of efforts to 

verify Eligible Recipients and their current addresses, a certain number of checks will be 

returned. At that point, PNCGIS will do further research to determine the current 

addresses for the Eligible Recipients. If correct addresses are located, they will be remailed to the correct address. Once steps to locate an Eligible Recipient deemed 

commercially reasonable in the judgment of the IDC have been exhausted without 

success, the check for that Eligible Recipient will be voided, and the amount will be 

Replacement checks may be void after time periods other than 180 days; each replacement check 

will bear a statement with the date on which that check will be void. 

21
 

12 
added to the undistributed funds to be allocated as discussed in section K. below. In the 

case of a deceased Eligible Recipient, PNC will also void and re-issue checks to the 

eligible beneficiaries. 

G. Support Services for Shareholders. 

PNCGIS will provide customer support and communications programs that will 

become active at least by the time the first distribution occurs. These services will 

include a toll free number: (800) 555-7718. Recipients of a distribution may raise certain 

disputes through the customer support services. The disputes will be limited to claims 

that a recipient received an incorrect amount in the distribution or that an individual was 

incorrectly excluded from the distribution because the terms of the Plan were incorrectly 

applied to that individual. Customer support services will refer any such disputes to the 

IDC for his resolution, which shall be final. The IDC will not consider types of disputes 

other than those identified in this section. 

H. Omnibus Accounts. 

Unlike direct retail accounts, where the ultimate shareholder was a single person 

or entity whose identity is known to Strong, many intermediaries, such as outside brokerdealers, aggregated the holdings and trades of their customers into a single account held 

at Strong. With respect to these accounts (the "Omnibus Accounts"), Strong knows the 

identity and location of the intermediary, as well as the account information for that 

intermediary, but lacks access to the identities, locations, and account information for the 

intermediaries' customers, the ultimate shareholders of the fund (the "Ultimate 

Shareholders"). The information necessary to complete distributions to any affected 

Ultimate Shareholders of the Omnibus Accounts remains with the intermediary who held 

22
 
the Omnibus Account (the "Omnibus Accountholder"). Because of the substantial cost 

and time involved in obtaining this information from the Omnibus Accounts, a $1,000 

threshold is established with respect to Omnibus Accounts. This Plan provides for 

certain procedures depending on whether the Final Shareholder Loss Allocation for 

Omnibus Accounts is greater or lesser than $1,000. 

For any Omnibus Account whose Final Shareholder Loss Allocation is $1,000 or 

greater, PNCGIS will send the Omnibus Accountholder a letter no later than ten business 

days after [mal approval of the Distribution Plan explaining that the Omnibus 

Accountholder is eligible to receive a distribution from the Fair Fund, and that the Final 

Shareholder Loss Allocation has been determined to be $1,000 or more. PNCGIS will 

provide the Omnibus Accountholder with two options, from which the Omnibus 

Accountholder has 90 days to choose. As necessary, PNCGIS will follow up with phone 

calls to the Omnibus Accountholder. PNCGIS will maintain records of its efforts to 

contact each Omnibus Accountholder, as well as the responses of each Omnibus 

Accountholder to PNCGIS. 

If the Omnibus Accountholder chooses to provide the data necessary to calculate 

the Final Shareholder Loss Allocation at the Ultimate Shareholder level, then 

distributions to the Ultimate Shareholders of that Omnibus account will be made by 

PNCGIS under the IDC's supervision. Strong will reimburse the Omnibus 

Accountholder for its reasonable expenses in providing this information to PNCGIS, 

"reasonable" to be determined in the discretion of the IDC, provided that in no case will 

Strong pay more than the amount of the Provisional Shareholder Loss Allocation to that 

Omnibus Accountholder to reimburse these expenses. PNCGIS shall maintain in 

23
 
confidence shareholder identifying infonnation and any other infonnation relating to 

Ultimate Shareholders obtained from any Omnibus Accountholder pursuant to this Plan, 

and shall not share such infonnation with Strong. PNCGIS, however, may share such 

infonnation with its service providers or other parties to the extent necessary to perfonn 

its duties under the Plan, and PNCGIS shall require that such service providers and other 

parties maintain such infonnation in confidence. It is possible that the sum of the Final 

Shareholder Loss Allocations for the Ultimate Shareholders could be greater than the 

Final Shareholder Loss Allocation for the Omnibus Accountholder due to the fact that the 

Final Shareholder Loss Allocation for the Omnibus Accountholder could reflect netting 

of holdings and trading behavior among its Underlying Shareholders. Should additional 

money be required to provide the Ultimate Shareholders with their Final Shareholder 

Loss Allocation, this money will come from the reserve discussed in Section C. above. 

If the Omnibus Accountholder chooses not to provide the data necessary for 

PNCGIS to make distributions to the Ultimate Shareholders (or fails to provide this data 

within 90 days), then the IDC will provide the Omnibus Accountholder with the 

allocation fonnulas necessary to detennine the Final Shareholder Loss Allocation for 

each affected Ultimate Shareholder. The Omnibus Accountholder should then make a 

distribution to its Ultimate Shareholders in a manner consistent both with this 

Distribution Plan and with its fiduciary, contractual, and legal obligations. The receipt 

and cashing by the Omnibus Accountholder of its distribution payment shall be deemed 

to constitute an agreement by the Omnibus Accountholder that the Omnibus 

Accountholder will further distribute the proceeds to its Ultimate Shareholders in a 

manner consistent with the Distribution Plan. The Omnibus Accountholder should then 

24
 
provide the IDC with documentation sufficient to indicate how the distribution to 

Ultimate Shareholders was carried out. 

For any Omnibus Account whose Final Shareholder Loss Allocation is under 

$1,000, distribution will be made directly to the Omnibus Accountholder, who will be 

given the option of receiving the allocation formulas necessary to determine the Final 

Shareholder Loss Allocation for each affected Ultimate Shareholder. The Omnibus 

Accountholder shall then apply any distribution technique that the Omnibus 

Accountholder, in its reasonable discretion, deems to be consistent with its fiduciary, 

contractual, and legal obligations and shall report to the IDC how the distribution was 

made. 

The IDC will notify the Commission staff of any Omnibus Accountholder that 

refuses to accept a distribution payment, and any payments that are refused shall be 

added to the undistributed funds for ultimate transfer to the U.S. Treasury. 

Rather than maintaining omnibus accounts, some intermediaries maintained 

individual accounts for each Ultimate Shareholder. In some cases, the identities of these 

Ultimate Shareholders are known to Strong. In others, Strong has access only to some 

kind of shareholder identification number, and all identification and contact information 

for the Ultimate Shareholder is held by the intermediary. In the case of accounts where 

the Final Shareholder Loss Allocation can be done for each Ultimate Shareholder, but 

Strong lacks identification information sufficient to complete the distribution, PNCGIS 

will contact the intermediary of the account and provide two options, from which the 

intermediary has 90 days to choose. If the intermediary chooses to provide identification 

information sufficient to complete the distribution for each Ultimate Shareholder who is 

25
 
an Eligible Recipient to PNCGIS, then Distribution Mailings will be sent directly to these 

Ultimate Shareholders from PNCGIS. Any information provided by the intermediary 

regarding its Ultimate Shareholders will be kept confidential by PNCGIS, with access to 

this information limited except as reasonably necessary to accomplish the distribution. If 

the intermediary chooses not to provide this information, or fails to provide it within 90 

days, then PNCGIS will send distribution checks and mailings for all Ultimate 

Shareholders who are Eligible Recipients to the intermediary along with whatever 

account identifier is available to Strong, so the intermediary may send the Distribution 

Mailings to its Ultimate Shareholders. 

I. Retirement Plans and Qualified Tuition Plans. 

"Retirement Plan" as used in this Distribution Plan means an employee benefit 

plan, as such plans are defined in section 3(3) of the Employee Retirement Income 

Security Act of 1974 ("ERISA"), which is not an Individual Retirement Account 

("IRA"), whether or not the plan is subject to Title 1 of ERISA. Under this Distribution 

Plan, IRAs are treated like any other account, whether held directly through Strong or 

through an intermediary, and distributions to IRAs will be made in accordance with the 

procedures discussed above. 

Assets of Retirement Plans are held in trust by a trustee, and the trust is the legal 

owner of the assets. The Distribution Plan shall require the Intermediaries of retirement 

plans ("Retirement Plan Intermediaries") 13 to distribute the monies received in 

"Retirement Plan Intermediaries" for purposes of the Distribution Plan includes plan trustees, plan 

recordkeepers, plan administrators, and plan sponsors, in addition to other third-party 

intermediaries as described in DOL Field Assistance Bulletin No. 2006-01. 

26 

13 
accordance with their fiduciary, contractual and legal obligations, consistent with 

guidance issued by the Department of Labor in Field Assistance Bulletin No. 2006-01 

(available at http://www.dol.gov/ebsa/regs/fab_2006-1.html). 

An intermediary to one or more Retirement Plans which was an Omnibus 

Accountholder may determine the Final Shareholder Loss Allocation for eligible 

Retirement Plans according to the procedures set forth in section H or according to the 

average share or dollar balances of the Retirement Plans' investments in the Strong Funds 

during the affected time periods, provided, however, that for the purposes of such 

allocation each Retirement Plan itself (and not the individual plan participants) shall be 

treated as the Ultimate Shareholder. 

Retirement Plan Intermediaries receiving a distribution may distribute it pursuant 

to one of the following alternatives: 

(1) Retirement Plan Intermediaries may allocate the distribution to each 

affected participant (or former participant) in a given retirement plan by using the 

allocation formulas necessary to determine the Final Shareholder Loss Allocation 

referenced above. The IDC will make the allocation formulas available to 

Retirement Plan Intermediaries; 

(2) Allocate the distribution among current participants on a per capita basis 

(whether or not they are current employees); 

(3) Allocate the distribution among current participants on a pro rata basis 

based on current balances (whether or not they are current employees); 

(4) Allocate the distribution among current and former participants on a pro 

rata basis based on historical balances other than daily balances. Daily balances 

would be necessary to directly apply the allocation formulas used by the IDC to 

determine the Final Shareholder Loss Allocation, but month-end, quarter-end, or 

year-end balances (or whatever time period is best reflected in the records) could 

be used to arrive at a modified version of the Final Shareholder Loss Allocation 

for each participant. 

27 
(5) To the extent that none of the preceding alternatives is administratively 

feasible because the costs of effectuating the allocation exceed the amount of the 

distribution, Retirement Plan Intermediaries may, to the extent permitted by the 

Retirement Plan, use the distribution amount to pay the reasonable expenses of 

administering the plan otherwise payable by participants (the distribution amount 

should not be used to offset expenses otherwise payable by the employer). 

If the Retirement Plan Intermediary to whom the distribution payment is made, 

including the plan trustee, plan administrator, or plan recordkeeper, is no longer affiliated 

with the retirement plan which is the intended beneficiary of the distribution, it may 

transfer any distribution payment it receives to its successor, including by endorsement of 

the distribution check, provided that it sends the entire Distribution Mailing to its 

successor and provided that any such methodology used by the successor to distribute the 

payments is consistent with this Plan and any fiduciary, contractual, and legal 

obligations. If the successor Retirement Plan Intermediary is unknown, the former 

Retirement Plan Intermediary may send the Distribution Mailing and check to the plan 

sponsor. Alternatively, the former Retirement Plan Intermediary may return the check to 

the Plan Administrator with the identity and address, if known, of the successor 

Retirement Plan Intermediary or plan sponsor so the Plan Administrator may reissue the 

check to the proper recipient. 14 

Similar complexities are involved in making distributions to participants 

of state-sponsored qualified tuition plans ("529 Plans"). Because of these complexities, 

529 Plan sponsors may wish to consider alternate allocation and distribution 

14	 In cases where Strong Retirement Plans Services ("RPS"), a former subsidiary of Strong, was the 

former recordkeeper for plans who are Eligible Recipients, the Plan Administrator will issue the 

initial checks and send the Distribution Mailings for such plans to RPS's successor, if known, or 

to the plan sponsor. 

28
 
methodologies, provided that any such methodology used is consistent with the 

Distribution Plan and their fiduciary, contractual and legal obligations. Possible 

alternative methodologies include, but are not limited to: 

•	 Allocate the distribution among current participants on a per capita basis; 

•	 Allocate the distribution among current participants on a pro rata basis 

based on current balances; 

•	 Allocate the distribution among current and former participants on a pro 

rata basis based on historical balances other than daily balances. Daily 

balances would be necessary to directly apply the allocation formulas used 

by the IDC to determine the Final Shareholder Loss Allocation, but 

month-end, quarter-end, or year-end balances (or whatever time period is 

best reflected in the records) could be used to arrive at a modified version 

of the Final Shareholder Loss Allocation for each participant. 

•	 In lieu of directly allocating to plan participants (because the amounts 

allocable to participants would be too small), use the distribution amount 

to offset plan expenses, such as audit fees, provided that the distribution 

amount should only be used to offset expenses otherwise payable by 

participants (the distribution amount should not be used to offset expenses 

otherwise paid by the plan manager). 

J.	 Termination of Fair Fund. 

Upon distribution of the funds, PNCGIS shall make arrangements for the final 

payment of taxes by the Fair Fund and shall submit a final accounting to the Commission 

in an SEC standard accounting format provided by the Commission. The Fair Fund shall 

be eligible for termination after all of the following have occurred: (1) the fmal 

accounting by the Fund Administrator has been submitted and approved by the 

Commission; (2) all taxes have been paid; and (3) all remaining funds or any residual has 

been paid to the Commission for transfer to the U.S. Treasury. The Staff shall seek an 

order from the Commission to (1) approve the final accounting; (2) approve sending the 

29
 
remaining residual amount to the U.S. Treasury after the final tax payment has been made 

and the final accounting has been approved; and (3) authorize the Secretary of the 

Commission, upon receipt of notice from the Staff assigned to this matter that all funds 

have been expended, to discharge the Fund Administrator. 

K. Disposition of Funds Not Otherwise Distributed. 

It is unlikely that the entire Fair Fund will be distributed pursuant to the 

Distribution Plan. Reasons for this include the inability to locate certain Eligible 

Recipients despite reasonable steps taken, uncashed checks sent to Eligible Recipients, 

and Eligible Recipients who refuse distribution. Upon termination as defined in section 

J. above, all undistributed assets will be returned to the Commission for transfer to the 

U.S. Treasury. 

L. Accountings. 

PNCGIS will file an accounting in the Commission's standard accounting format 

during the first ten days of each calendar quarter after the funds have been transferred 

from BPD to PNC, and will submit a final accounting for approval of the Commission 

prior to termination of the Fair Fund and the discharge of PNCGIS as Fund 

Administrator. 

M. Limitation of Liability 

The IDC and the Fund Administrator, and/or each of their designees, agents and 

assigns, shall be entitled to rely on any Orders issued in this proceeding by the 

Commission, the Secretary by delegated authority, or an Administrative Law Judge, and 

may not be held liable to any Eligible Recipient or other former shareholder of the Strong 

Funds for any act or omission in the course of administering the Fair Fund, except upon a 

30
 
fmding that such act or omission is caused by such party's gross negligence, bad faith or 

willful misconduct, reckless disregard of duty, or reckless failure to comply with the 

terms of the Plan. This paragraph is an expression of the current state of the law and is 

not intended, nor should it be deemed to be, a representation to or an indemnification of 

the IDC or the Fund Administrator or their designees, agents and assigns, nor should this 

paragraph preclude the Commission or the Fair Fund from seeking redress for any act or 

omission in the course of administering the Fair Fund or from seeking redress from any 

insurance or bond provided as set forth in this Distribution Plan. 

VIII.	 Tax Issues. 

The Tax Administrator has obtained a private letter ruling ("PLR") from the 

Internal Revenue Service ("IRS") regarding the tax information reporting and 

withholding obligations of the QSF. Generally speaking, the IRS ruling concludes that 

distribution payments, with the exception of distributions made directly to participants in 

tax-qualified retirement plans, will have no income reporting obligations. Payments 

made directly to participants in tax-qualified retirement plans will be reportable, subject 

to a $600 reporting threshold. A communication summarizing the PLR will be made 

available to investors at the www.strongsettlement.com website maintained by PNCGIS. 

IX.	 Notice of Proposed Distribution Plan. 

Pursuant to Rule 1103 of the Commission's Rules of Practice, notice of this 

proposed Distribution Plan shall be published in the SEC Docket, on the SEC website 

(www.sec.gov), and in other such publications as the Commission or the hearing officer 

may require. The notice shall specify how copies of the proposed plan may be obtained 

and shall state that persons desiring to comment on the proposed plan may submit their 

31
 
views, in writing, to the Commission within 30 days of the publication date of the 

Distribution Plan. Comments may be submitted: 1. to the Office of the Secretary, United 

States Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549­

1090; 2. by using the Commission's internet comment form 

(www.sec.gov/litigation/admin.shtml); or 3. by sending an e-mail to rulecomments@sec.gov. All comments on the proposed Distribution Plan should include the 

Administrative Proceeding File Number (Admin. Proc. File No. 3-11498) in the subject 

line. Comments received will be publicly available, so persons should only submit 

information that they wish to make publicly available. 

The Plan is not a claims-based plan, so procedures for providing notice and for 

making and approving claims are not applicable. 

The distribution shall be accomplished as soon as is practicable following the 

Commission's [mal approval of the Distribution Plan. 

x.	 Changes!Amendments to Distribution Plan. 

It is possible that once the distribution process begins, changes or additions will 

need to be made to the Distribution Plan to resolve issues that are currently unanticipated. 

The IDC has discretion to make such determinations affecting the methodology and the 

amounts allocated by the Distribution Plan provided that they are not unacceptable to the 

Staff. The IDC will inform the Staff of any material changes in the Distribution Plan, and 

will obtain approval from the Commission prior to their implementation. If material 

changes are required, the Distribution Plan may also be amended upon the motion of 

Strong, PNCGIS or upon the Commission's own motion. 

32 
XI. Conclusion. 

The methods of calculation of each Eligible Recipient's share of the Fair Fund are 

intended to result in a payment to each Eligible Recipient that restores the impaired value 

of the Eligible Recipient's investment in the affected Strong Fund(s). The IDC's methods 

of calculation are intended to estimate conservatively the impaired value that each 

investor has suffered (where choices had to be made, this was the guiding principle). In 

addition, because the impaired value is less than the total funds to be distributed, each 

Eligible Recipient will receive additional funds characterized as a return of advisory fees 

as described above. In the view of the IDC, this constitutes a fair and reasonable 

allocation of the Fair Fund. 

Submitted on ~t-_)_1__, 2009 

By: ~;Lt~

Michael R. Gibbons, 

Independent Distribution Consultant for 

Strong Capital Management, Inc. 

33