UNITED STATES OF AMERICA

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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.,

Richard S. Strong, Thomas A.

Hooker, Jr. and Anthony J.

D'Amato

Respondents.

PROPOSED PLAN OF

DISTRIBUTION

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.

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.

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 market

timing." 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

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.

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.

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.

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 Transactions 3 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.

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:

Affected time oeriods

Fund

Small Company Value

20(\ 3fd , and 4U1 quarters 2002, 1st and 2nd

quarters 2003

All Cap Value

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

quarters 2003

Large Cap Growth

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

2003

Opportunity

1st, 2nd , and 3fd quarters 2001

Government Securities

1st Quarter 1998, 2nd Quarter 1999

Discovery

All Quarters 1998, 1st Quarter 1999

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.

Asia Pacific

2nd and 3fd quarters 1999, all quarters 2002,

1st and 2nd quarters 2003

Growth

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

and 3fd quarters 2003

Small Cap

1st quarter 1998

Multi Cap Value

All quarters 1998, 1st quarter 1999

Growth 20

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

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

and 3fd quarters 2003

Balanced Asset

All quarters 1998, 1st quarter 1999

Dow 30 Value

2nd quarter 1999

Large Cap Core

3m and 4th quarters 1998

Overseas

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

quarters 2003

Enterprise

4ill quarter 1998, all quarters 1999, all

quarters 2000, all ~uarters 2001, all

quarters 2002, 1st, 2n , and 3fd quarters

2003

Mid Cap Disciplined

2nd and 3fd quarters 2001

US Emerging Growth

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

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

all quarters 2002 1st , 2nd, and 3fd quarters

2003

Technology 100

1st quarter 2000, all quarters 2002, 1st, 2nd,

and 3fd quarters 2003

Advisor US Value

All quarters 1998, 1st quarter 1999

Advisor Mid Cap Growth

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

quarters 1999, 4th quarter 2000, 1st quarter

2001, 4th quarter 2002, 1st, 2nd , and 3fd

quarters 2003

Advisor Small Cap Value

1st and 3fd quarters 1998, 2nd , 3m quarter

1999, 1st 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.

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.

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.

Disruption Costs Due to Turnover.

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.

Other Potential Disruption Costs.

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

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

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.

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).

VI.

Administration of the Plan.

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.

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

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

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.

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.

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").

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.

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.

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

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

becomes available to the IDC.

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

Shareholder Loss Allocation.

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 gross

up 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

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").

Distribution Amount.

The Distribution Mailing will include a check for the

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.

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 broker

dealers, 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

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

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

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

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.

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.

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.

(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

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.

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).

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

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.

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.

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.

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

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

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;

using

the

(www.sec.gov/litigation/admin.shtml);

Commission's

internet

sending

comment

form

e-mail

rule

comments@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.

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.

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.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.