The primary objective of Spectrum Financial, Inc. (SFI) is to achieve consistent rates of return that are in excess of a buy/hold strategy over a complete market cycle and provide liquidity by preserving the purchasing power of the assets under management.  SFI strives to avoid declining markets and strives to participate in rising markets.  SFI offers three types of services to clients as described below:

Tactical Asset Allocation Service

This service aids clients in effecting buy/sell transactions between defensive (money market) funds and aggressive (bond or stock) funds in the same mutual fund family, variable life or annuity contract, or custodian/platform.  The strategies utilized are based on the client’s objectives and risk tolerance.  Several strategies may be used to diversify a client’s portfolio such as bond, US stock, international, or sector. Exchanges may result in short‑term capital gains or losses and dividends may vary depending on investment strategies.  Large quick profits are not the primary goal of these invest­ment strategies.  SFI provides its investment services to individuals, pension­/profit sharing plans, corporati­ons, and other legal entities.   SFI obtains analytical data from many sources including daily monitoring of prices of stocks, bonds, oil, US dollar, gold and many other investments to determine low risk entry and exit points for mutual funds.  Information is collected and assimilated from various computer databases, newspapers, magazines, newsletters and research materials by the manager or other qualified employees of SFI to develop different management strategies.  Other factors considered in analysis include continuous monitoring of mutual fund performance and relative strength, technical and fundamental analysis, market sentiment, and access to other leading professional investment advisors.  Reviews of investment strategies are done on a daily basis based on the analysis and information gathered as explained above. A quarterly newsletter is provided which shows the average performance for management strategies on a quarterly, 12-month, and 24-month period. 

3^rd Party Custodians: Certain strategies of SFI may only be offered through specific custodians. SFI has arrangements with third party custodians that allow SFI to choose between several fund families on a non-commission basis. SFI has discretion over the fund(s) purchased or sold without obtaining the consent of the client and may also recommend the sale or redemption of fund shares other than for exchange, if, in its opinion, the fund shares are not conducive to management. Statements usually are generated from the custodian on a monthly basis but will not be generated less than quarterly. There may be transaction charges involved when purchasing or selling the funds as well as custodial fees payable to the third party custodian. The client is made aware of these charges when the custodial account is established. SFI does not participate in these fees. 

Representatives: This service is marketed directly by officers and employees of SFI and through solicitors termed “Repre­sentatives” who may be associated with an advisory firm, brokerage firm or investment company affiliated brokerage firm.  A solicitor’s fee is paid to Representatives ranging from 25 basis points of total assets to 50% of the total fee collected. The fees charged the client for SFI services are not increased because of this arrangement. Often, the Representative is also a licensed sales person with a broker/dealer.  As such, the representative may receive or have received commissions for the client's initial purchase of the particular securities and subsequent commissions (sometimes referred to as 12b-1 charges) depending on the program entered into by the client. SFI may also recommend these types of funds to their clients but does not receive any portion of these commissions under the Tactical Asset Allocation Service. All fees paid to SFI for advisory services are separate from the fees and expenses charged to shareholders of mutual fund shares, variable life or variable annuity contracts. A complete explanation of expenses charged by the mutual fund or insurance product contracts is contained in its prospectus and should be reviewed by the client prior to investing. Since the Representative may also be affiliated with a broker/dealer handling the client's account, there may be a potential conflict of interest.

	Fee Structure:
	Investment Amount	Annual Fee
	Amounts under $100,000	2.5%
	Amounts $100,000 and over	1.5% - 1.9%
	Sector Traded Accounts	2.5% - 2.9%

In addition to the above fee structure, each account will also be charged a $100.00 administrative retainer fee annually.  The retainer fee will be reduced to $50.00 for multiple accounts after the initial fee of $100.00 is satisfied. It is the opinion of the SEC that annual management fees in excess of 2% are considered excessive and other advisors provide similar services at lower rates.  The 2.9% fees for sector-managed strategies involve a higher degree of investment management skill, as well as a substantial increase in trading activity and operational overhead. The higher 2.5% fee for accounts under $100,000 allows SFI to accept accounts smaller than our recommended minimum investment.  Although SFI reserves the right to accept accounts below $50,000, the recommended minimum account size per contract is $50,000.  The first year fee is due upon signing the contract. If additional money is contributed to an existing account, a monthly pro-rata fee will be due at the time of the deposit or on the next anniversary date of the agreement.  SFI fees will not be based upon a share of capital gains or capital appreciation of the funds or any portion of the funds of an advisory client. For renewal accounts, a billing will be generated on the anniversary date and will be based on the market value of the account. Fees may be reduced by SFI in certain situations such as, but not limited to employee or representative related accounts, adjustments due to administrative error, or situations where there is a conflict of interest.  However, generally fees are not negotiated.  A performance report for the 12-month period and the current holdings will be reported to the client along with the renewal invoice by the Representative.

Contract Processing: A client should understand that SFI might require 2‑4 weeks to establish an account, i.e., review the documents for proper form, setup computer records, and implement other procedural tasks. Delays may occur due to an improper account number, spelling of name or other matters. If a signal is generated during the initial processing, a client may or may not be moved into the signaled position and thus possible losses may occur during this period for which SFI assumes no responsibility in the implementation of these initial trades. SFI attempts to process all trade orders within 24-hours of generating a buy/sell signal.  In the event that an SFI administrative error occurs and it is not corrected within the 24-hour period, SFI will evaluate the error as follows: 1. Accounts with actual losses above 25 basis points, a credit will be applied to future management fees.  2. Accounts with lost opportunity above 25 basis points, a credit will be applied in the amount of an annualized rate of 6% of the account value and will be based on the number of days the error was not corrected outside the 24-hour period. 3. Accounts that benefit from the error will not be adjusted. If a client cancels all management, the offset of fees would be negotiated.  If resolution is not obtained, the arbitration clause in the contract would apply. Delays could occur due to circumstances beyond SFI’s control, such as restrictions imposed by funds or custodians, natural disasters, internet interruptions, etc. In such event, SFI assumes no responsibility for any possible losses. SFI will not honor any request to move an account contrary to its current recommended signal position unless the client terminates the contract and provides specific instructions to SFI. The client agrees not to cause or permit any exchange to be made in the account that is inconsistent with a recommenda­tion of SFI.  Any acts inconsistent with the foregoing shall relieve SFI of any liability.  Clients should carefully review the prospectus for possible fund restrictions on exchanges, as SFI will not be responsible for losses resulting from any such restriction.

Termination: The agreement shall remain in effect until either party to the agreement receives written notice from the other party of their desire to cancel the agreement. The withdrawal of funds from the account being managed does not constitute giving notice. Non-payment of fees by the client does not serve as notification of cancellation.  SFI will make reasonable efforts to inquire whether services are still required by the client. SFI reserves the right to continue managing the account for up to thirty days following the anniversary date. After the 30-day period, SFI has the option to give written notice to the client terminating the contract. Upon written cancellation of the agreement, all funds will be exchanged to the defensive (money market) position unless otherwise instructed in the written notification of cancellation.  In the event of termination, the retainer fee charged is not refundable.  The percentage fee will be refundable on a pro-rata monthly basis. If terminated within the first 5 days of the month, no fee is charged for that time period.

 Not withstanding anything else with the agreement, the investor has the unilateral, uncontrolled right to terminate the agreement within 5 business days of its execution without penalty.  Fees will be refunded in full if the termination of the agreement is requested within 5 business days of the agreement date.

 

Strategic Asset Allocation Service

In this service, SFI builds client’s portfolios using actively managed mutual funds. The active management is done internally within the fund giving the client the benefits of risk reduction. SFI will aid the client in determining a portfolio mix of these mutual funds based on their client profile.  The client’s mix of mutual funds is designed and intended to be held long-term with periodic rebalancing among the client’s holdings.  Annual reporting of the assets held and ongoing servicing for the account will be provided under this service.  The actively managed funds will pay SFI a 1% servicing fee (12b-1) as an expense of the fund, which eliminates additional fees, paid to SFI by the client.   The managed mutual funds will be sub-advised by an advisor (owned by a charitable foundation) that receives donated services from a SFI principal. SFI also provides donated back office services to Hundredfold Advisors, LLC.

Termination: Services provided under the Strategic Asset Allocation Service are automatically terminated without penalty when a client closes or withdraws all funds from the actively managed mutual funds.

Alternative Investment Asset Allocation Service

In this service, SFI creates a portfolio of alternative investments for qualified or accredited investors only.  The investor must provide information which will verify what type of investor they are classified.  The service includes alternative investment research, client risk analysis and annual performance reviews but primarily provides a liaison service between the investor and individual alternative investment.  This will give the client consolidated information for their portfolio on a quarterly basis.  Recommended alternative investments will likely invest in a wide range of investment vehicles and strategies, which may involve a high level of risks. SFI will provide an annual review to determine if the portfolio is inline with the client’s objectives. Recommendation for changes in allocation may be made by SFI; however, the client must provide written consent to implement changes. SFI or its officers or directors do not manage the alternative investments used in building the clients portfolio.  Clients are encouraged to understand the risks involved in alternative investment investing.

Fees: The fee for this service will be 1% of the assets placed in this allocation service and is payable in advance. Fees may be offset by compensation received by SFI directly from alternative investment (in certain arrangements), which the client is invested, up to the 1% billed.   Renewals are done annually and it is recommended the client not liquidate from the alternative investments owned in the portfolio due to possible restrictions.  In special circumstances (such as: charities, employee/rep accounts, accounts over $5 million), SFI reserves the right to waive or negotiate fees.

Termination: The client can cancel this service at any time, however, there will be no refunds for SFI service fees since the research and other preliminary work is done in advance.  SFI will assist the client in processing the paperwork to withdraw invested funds unless otherwise requested by the client.

 

Business Standards & Best Practices

SFI has established policy and procedures to comply with SEC rules and regulations.  The Policy and Procedures manual is reviewed on an annual basis by the compliance officer.

Code of Ethics – SFI requires all employees/access persons to adhere to the Code of Ethics adopted.  This document outlines policy and procedures to avoid conflicts of interest and places the interest of clients first. Violations are handled by disciplinary actions. A copy is available at our website or by calling our office (757) 463-7600.

Best Execution – SFI seeks to obtain best execution for client transactions even though clients are purchasing mutual funds with end of day pricing.  Brokerage/Custodial relationships are reviewed periodically to evaluate transaction, custodial or other fees, which are charged to the clients.  SFI does not participate in any fees charged by these firms. 

Proxy Voting – SFI does not provide services for proxy voting to its clients.  All proxies are sent directly to clients from the custodian.  Spectrum periodically reviews client options at each custodian to ensure proper coding is maintained on all client accounts. 

Privacy Notice - SFI’s policy is to protect personal client information. SFI does not sell or maintain lists for any outside nonaffiliated marketing firms.

Disaster Recovery - SFI maintains disaster recovery procedures for operational and investment management system emergencies to ensure client services are maintained.

Soft Dollar Policy – SFI does not engage in soft dollar activity with broker-dealers or third party providers.

 

Portfolio Manager

Ralph J. Doudera (DOB: 5-10-46), CEO of SFI, is a graduate of New Jersey Institute of Technology where he received an undergraduate degree in Mechanical Engineering (1969) and a Masters of Science in Management and Finance (1972). He was employed as an Account Executive with CIGNA Corporation for 10 years beginning in 1973, where he specialized in investment and estate planning.  During this period, Mr. Doudera received his certification as Chartered Life Underwriter (1976) and Chartered Financial Consultant (1979) from the American College.  He has also been a registered representative and had his securities license since 1973. In 1991, Mr. Doudera completed the Series 24 and became a registered principal for Royal Alliance Associates, Inc (Royal). Effective October 2000, Mr. Doudera terminated his relationship with Royal and does not retain his security license through any independent broker-dealership.  Mr. Doudera manages his personal assets through various brokerage firms and mutual fund companies, which may be invested in similar funds as clients and could be considered a conflict of interest. Employees of SFI may trade personal accounts, which are monitored by SFI on a quarterly basis. Mr. Doudera has been investing in many investment vehicles since 1979, but has offered services to the public since 1988 when Spectrum Financial, Inc. was registered as an Investment Advisor under the Investment Advisors Act of 1940.  Mr. Doudera has a 100% interest in SFI and his primary role is that of investment manager for which he is compensated. Mr. Doudera also owns Financial Technology Associates, Inc., which specialized in life insurance products. Renewal commissions are paid directly to Financial Technology Associates, Inc.  Current insurance licenses are not held by Mr. Doudera or the company.  Mr. Doudera has written and published a book Wealth Conundrum, which discusses a biblical perspective on the accumulation of wealth and the responsibilities related to it.  The book is not intended to provide investment advice.  Mr. Doudera is also a managing member of Hundredfold Advisors, LLC that manages three mutual funds used by the SFI’s Strategic Asset Allocation service.  SFI retains the right to enter into agreements with third party money managers for investment advice on management strategies it offers under its Tactical Asset Allocation Service.  The advice obtained by these managers may or may not be used by SFI and do not affect the fees charged to the client for services. SFI retains the right to review and use third party managers for all its management strategies without the consent of the client. SFI requires portfolio managers to have at least 10 years experience in managing investments, including but not limited to, mutual funds, stocks, bonds, futures, & ETFs and have verified performance track records.

SFI Officers – Mary K. Collins (DOB: 8-1-60), President/Compliance Officer of SFI is a graduate of Old Dominion University where she received an undergraduate degree in Business Administration (1982) with a concentration in corporate finance.  She was employed with FTA, Inc (1983) as a financial planner where she earned the Chartered Financial Consultants designation (1988).  Ms. Collins began working with Spectrum in 1986. Portfolio Reviews – Strategies are reviewed on a daily basis through the use of charting, fundamental, technical, cyclical analysis.  The use of external newsletters, periodicals, and databases are also incorporated.  This information triggers the buy/sell signals for all strategies. Clients will receive anniversary portfolio review as well as a quarterly newsletter with average data for all strategies.

Arbitration Clause

Client and SFI agree that all controversies between the parties concerning any transaction or the construction, performance or breach of this or any agreement between us, whether entered into prior, on, or subsequent to the date hereof, shall be determined by arbitration within the Commonwealth of Virginia. Client understands that this agreement to arbitrate does not constitute a waiver of the right to seek a judicial forum where such waiver would be void under the federal securities laws. 

Such arbitration shall be held before three arbitrators and conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then applying.  The arbitrators will have no authority to award punitive or other damages not measured by the prevailing party’s actual damages, except as may be required by statute. The award of the arbitrators or the majority of them shall be final.  Judgment upon any arbitration award rendered may be entered in any court, state or federal, having appropriate jurisdiction.