SF (LUX) SICAV 3. Société d'investissement à capital variable. 2C, rue Albert Borschette, L-1246 Luxembourg SALES PROSPECTUS.

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1 VISA 2018/ PC L'apposition du visa ne peut en aucun cas servir d'argument de publicité Luxembourg, le Commission de Surveillance du Secteur Financier SF (LUX) SICAV 3 Société d'investissement à capital variable 2C, rue Albert Borschette, L-1246 Luxembourg SALES PROSPECTUS February 2018 Distribution of this prospectus ("Prospectus") is not authorised unless it is accompanied by a copy of the latest available annual report of SF (LUX) SICAV 3 containing the audited balance-sheet and a copy of the latest half-yearly report, if published after such annual report. The sales prospectus and the respective annual and semi-annual reports may be obtained free of charge from all paying agents and sales agencies. It is prohibited to disclose information on the Fund, which is not contained in this sales prospectus, the documents mentioned therein, the latest annual report and any subsequent semi-annual report. The English version of the Prospectus is binding. 1

2 SF (LUX) SICAV 3 TABLE OF CONTENTS INTRODUCTION... 3 SECTION I: DESCRIPTION OF THE AVAILABLE SUBFUNDS... 5 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND DIVERSIFIED USD... 6 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND DIVERSIFIED CHF...32 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND DIVERSIFIED EUR SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND FOCUSED EUR SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND FOCUSED CHF SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND FOCUSED USD SF (LUX) SICAV 3 ALTERNATIVE APPRECIATION INDEX EUR SECTION II: GENERAL PROVISIONS MANAGEMENT AND ADMINISTRATION THE FUND INVESTMENT OBJECTIVES AND POLICY INVESTMENTS IN SF (LUX) SICAV LIQUIDATION AND MERGING OF THE FUND AND ITS SUBFUNDS DIVIDEND POLICY SPONSOR MANAGEMENT COMPANY AND AIFM PORTFOLIO MANAGERS/ INVESTMENT ADVISORS DEPOSITARY AND MAIN PAYING AGENT ADMINISTRATIVE SERVICES TAXATION CHARGES AND EXPENSES INFORMATION AVAILABLE TO SHAREHOLDERS AND SHAREHOLDER RIGHTS REMUNERATION POLICY OF THE MANAGEMENT COMPANY CONFLICTS OF INTEREST FAIR TREATMENT OF SHAREHOLDERS APPLICABLE LAWS AND JURISDICTION INVESTMENT GUIDELINES APPENDIX 1 - LIST OF SUB-CUSTODIANS OF THE DEPOSITARY

3 INTRODUCTION SF (LUX) SICAV 3 (the "Fund") is a company organised as a société d'investissement à capital variable ("SICAV") and is registered under Part II of the amended Luxembourg law of 17 December 2010 on undertakings for collective investment (the "Law"). This registration pursuant to the Law does not require any Luxembourg authority to approve or disapprove either the adequacy of this Prospectus or the portfolio of securities held by the Fund. Any representation to the contrary is unauthorised and unlawful. The Fund is subject to Part II of the Law because the investment policy of one, several or all of its Subfunds (as defined below) permits the exposure to underlying assets, by way of a financial index, that are not transferable securities and/or other financial assets as referred to in Article 41(1) of the Law laying down the permissible investments for UCITS. The Fund is an alternative investment fund ("AIF") within the meaning of Directive 2011/61/EU of the European Parliament and the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFM Directive"). The Fund has appointed UBS Third Party Management Company S.A. as its alternative investment fund manager ("AIFM") within the meaning of the AIFM Directive and the amended Luxembourg law of 12 July 2013 on alternative investment fund managers (the "Law of 2013"). Investors should note that by virtue of current statutory regulations in the United States of America, the shares in the Fund are not authorised for sale in that country. Shares in the Fund may therefore neither be offered, sold or distributed within the United States of America, nor may any shares be acquired or held by US citizens or residents in the sense of the current statutory regulations in the United States. The shares have not been approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission or other regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of these offering materials. Any representation to the contrary is unlawful. The Subfunds may be registered in different distribution countries. The distribution of this Prospectus may be restricted in certain jurisdictions, in particular pursuant to selling restrictions set out under the AIFM Directive and applicable local rules and restrictions. The Subfunds may be offered for sale to professional investors in certain European Economic Area Member states subject to passport notification. Potential subscribers to the Fund should inform themselves on applicable laws and regulations (i.e. as to the possible tax requirements or foreign exchange control) of the countries of their citizenship, residence or domicile, and which might be relevant to the subscription, purchase, holding, conversion and redemption of shares. Any reference to "EUR" in this prospectus refers to the official currency of the European Monetary Union. Any reference to "USD" in this prospectus refers to the official currency of the United States of America. Any reference to "CHF" in this prospectus refers to the official currency of Switzerland. Any reference to "business day" in this prospectus refers to any day upon which the banks shall be open for business in Luxembourg. This Prospectus is subject to changes concerning the addition or suppression of Subfunds as well as other modifications. Therefore it is advisable for subscribers to ask for the most recent issue of the Prospectus. 3

4 Potential subscribers should note that the structure of the Prospectus is made up of Section I which contains the provisions which are specific to each available Subfund and of Section II which contains general provisions applicable to all Subfunds and the Fund as a whole. 4

5 SECTION I: DESCRIPTION OF THE AVAILABLE SUBFUNDS List of available Subfunds SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified USD SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified CHF SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified EUR SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused EUR SF (LUX) SICAV 3 Key Multi-Managed Hedge Fund Focused CHF SF (LUX) SICAV 3 Key Multi-Managed Hedge Fund Focused USD SF (LUX) SICAV 3 Alternative Appreciation Index EUR Unless otherwise indicated in the descriptions below, each Subfund of SF (LUX) SICAV 3 is subject to the general provisions as set out in Section II of this Prospectus. 5

6 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND DIVERSIFIED USD This specific section describes the particulars of the Subfund SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified USD and is part of the general sales prospectus. Therefore, all information given herein should be considered in conjunction with this general prospectus. Profile of the typical investors The Subfund is suitable for investors with a relatively long investment horizon who consider investments in this Subfund as a convenient way of participating in the performance of the Key Multi-Manager Hedge Fund Diversified USD Index (the "Index"). The Index reflects the performance of a notional portfolio comprised primarily of hedge funds (single manager and fund of hedge funds) and certain financial instruments as further described below. The performance of the Subfund is determined by the performance of the Index. If the level of the Index increases from Launch Date, then this will result in a comparable increase in the performance of the Subfund; conversely if the level of the Index decreases from Launch Date, then this will result in a comparable decrease in the performance of the Subfund. The strategy as described herein is a high risk investment which does not provide any right of repayment of capital invested and as such, should the Index Components (as defined below) not perform favourably, then investors will incur a partial or total loss of capital invested. Shares of the Subfund are exclusively available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. The Fund reserves the right to compulsorily redeem shares that are not held in accordance with the aforementioned requirements or for other regulatory, legal or tax obligations of the Subfund. Those shares will be redeemed at the prevailing net asset value per share. Investment objective The investment objective of the Subfund is to generate capital appreciation by providing investors with a return linked to the performance of the Key Multi-Manager Hedge Fund Diversified USD Index, a diversified hedge fund index, as further described below. Investment policy The Subfund will principally invest in equity and debt securities issued by corporate entities domiciled in any OECD country and listed or traded on regulated markets of an OECD country (the "Investment Portfolio"), and for the purpose of meeting its investment objective the Subfund will enter into a performance swap agreement (the "Swap Agreement") negotiated at arm's length with a counterparty the obligations of which under the Swap Agreement are guaranteed by UBS AG or with another first class financial institution specialised in this type of transactions (the "Swap Counterparty"). Under the terms of the Swap Agreement, the Swap Counterparty delivers to the Subfund exposure to the Index (as described below) (the "Investment Strategy") and the Subfund delivers to the Swap Counterparty a total return exposure to the Investment Portfolio. As of 3 rd November 2010 the Swap Counterparty changed from UBS AG (London branch) to STAR Compass plc, with all obligations under the Swap Agreement being guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. STAR Compass plc is a special purpose vehicle (in the form of a public limited company) established under the laws of Ireland and in relation to this transaction, its sole purpose is to act as swap counterparty and securities lending counterparty to various Subfunds of the Fund. The Subfund may hold liquid assets on an ancillary basis. The Subfund may not invest directly in other undertakings for collective investment in transferable securities (UCITS) and/or open-ended undertakings for collective investment (UCI). 6

7 The Subfund will only utilise leverage to a limited extent by which the exposure of the Subfund will not exceed 225% of the NAV. when calculated applying the gross method in accordance with Article 7 of Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 and 125% of the NAV when calculated applying the commitment method in accordance with Article 8 of Commission Delegated Regulation (EU) No 231/2013 of 19 December The Subfund will enter into securities lending transactions in order to generate additional income with UBS AG, Zurich or such other counterparty in accordance with the requirements and regulations of the CSSF and of which obligations under the relevant securities lending agreement are guaranteed by UBS AG or such other counterparty specialised in this type of transactions (the "Securities Lending Counterparty"). As of 3 rd November 2010 the Securities Lending Counterparty changed from UBS AG, Zurich to STAR Compass plc with all obligations under the Securities Lending Agreement guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. The Swap Agreement will incorporate the terms of and be governed by a master agreement based on the standard 1992 ISDA Master Agreement governed and construed in accordance with English law and published by the International Swaps and Derivatives Association, Inc. The Swap Agreement will be valued on a consistent and monthly basis by the calculation agent ("Swap Calculation Agent") being UBS AG (London branch) or such other party as accepted by the Board of Directors from time to time, in accordance with the prevailing market parameters and valuations. The valuation methodology is outlined below. The Swap Counterparty will provide a trading price at which the Subfund can increase or decrease the Swap Agreement notional amount. Such a facility will be available on each Valuation Day when requested by the Portfolio Manager. The notional amount of the Swap Agreement will be the proceeds raised at the Launch Date and, in the case of subsequent subscriptions and/or redemptions, the notional amount will be adjusted accordingly. The Swap Agreement may be terminated or otherwise cancelled in accordance with its terms. The Swap Agreement will be entered into for a 5 year term as outlined therein. Thereafter it will be extended for consecutive 5 year periods, subject to the consent of the Board of Directors of the Fund and the Swap Counterparty at the end of each period (each such expiry date also being a relevant "Maturity Date") and the end of the last such period being the final maturity date (the "Final Maturity Date"). The Swap Counterparty has the option to early terminate the Swap Agreement in various circumstances upon the provision of adequate notice to the Subfund; in such circumstances, the early termination date would become the Final Maturity Date. The Swap Agreement neutralises the performance of the Investment Portfolio. Consequently, any income (including dividends) and capital gains from the Investment Portfolio are delivered to the Swap Counterparty under the Swap Agreement and will not be paid to investors in the Subfund. Risk Profile: The Subfund replicates the performance of a hedge fund index. It is therefore exposed via the Swap Agreement to less liquid financial instruments, a wide range of asset classes and potentially leverage in some of the index components. A significant portion of the Subfund is exposed to less liquid instruments, whose prices could fluctuate in certain market conditions. This potential for higher volatility has determined that the Subfund be classified in a high risk category. Interim Swap Flows: In accordance with the Swap Agreement, and for the first time on 6th January 2009 and thereafter on the 3rd Subfund Business Day of each quarter until the Final Maturity Date: The Swap Counterparty will pay to the Subfund an amount, which corresponds to all fees and operating charges and expenses incurred by the Subfund as referred to in the section "Fees and Expenses" below. The Subfund will pay to the Swap Counterparty the income received on the Investment Portfolio and on any ancillary liquid assets. 7

8 Maturity Swap Flows: At the end of the relevant term, amounts to be paid out under the Swap Agreement are determined on the basis of the following formula: Amount payable = outstanding Notional Amount on Final Maturity Date * (ISm IPm) where: ISm = performance of the Investment Strategy in USD (consisting of exposure to the Index, calculated on the basis of the liquidation proceeds that the Swap Counterparty would actually receive in respect of the hedge position under the Swap Agreement by redeeming or selling such hedge position, as determined by the Swap Calculation Agent; or, if agreed by the Fund and Swap Counterparty, an amount equal to the estimated level of the Index as determined by the Swap Calculation Agent) at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. IPm = performance of the Investment Portfolio in USD at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. If the amount is positive, then the Swap Counterparty will pay the amount to the Subfund. If the amount is negative then the Subfund will pay the amount to the Swap Counterparty. Valuation of Swap Agreement and its effects on the performance of the Subfund Before each Maturity Date, except for decreases of the notional amount, no payment is made to the Subfund in relation to the performance of the Investment Strategy. The performance of the Investment Strategy is taken into account in the meantime by virtue of the Swap Agreement in the calculation of the Net Asset Value per share of the Subfund. Accordingly, the valuation of the Swap Agreement determines the performance of the Subfund. On any Valuation Day after the Launch Date but before the Maturity Date, the value of the Swap Agreement is determined as follows: Outstanding Notional Amount on the relevant Valuation Day * (ISi IPi) ISi = the estimated performance of the Investment Strategy in USD (consisting of exposure to the Index) at close of business on that Valuation Day in relation to the initial value when the relevant agreement commenced, as determined by the Swap Calculation Agent. For the avoidance of doubt the estimated performance of the Investment Strategy will be calculated based on the latest estimated valuations of the Index Components (as defined below) multiplied by their weights provided on or before the relevant Valuation Day and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as at the Valuation Day (and not on the final Index level which is calculated on a one month delayed basis as outlined below) as determined by the Swap Calculation Agent on that Valuation Day. IPi = performance of the Investment Portfolio at close of business on the relevant Valuation Day in relation to the initial value when the relevant agreement commenced. Guarantee The irrevocable and unconditional Guarantee was issued on the 3rd November 2010 by UBS AG (London branch), 1 Finsbury Avenue, London EC2M 2PP (the "Guarantor"). UBS AG (London branch) is the London branch of UBS AG, a company incorporated under the laws of Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel, Switzerland and Bahnhofstrasse 45, CH-8098 Zurich, Switzerland. The Guarantor irrevocably and unconditionally guarantees to the Subfund the due and punctual observance and performance by STAR Compass plc under the Securities Lending Agreement and Swap Agreement and agrees to pay to the Subfund from time to time on demand any and every sum or sums of money from time to time due and payable (but unpaid) by STAR Compass plc under or pursuant to the Securities Lending Agreement or Swap Agreement. The Guarantee exclusively aims at covering the Subfund's counterparty risk on STAR Compass plc and the Subfund's risk on the failure of STAR Compass plc to perform its obligations under the 8

9 Securities Lending Agreement and the Swap Agreement. The Guarantee does not guarantee any investment returns upon redemption or at Maturity Date. Market Making UBS AG will make a market in the shares of the Subfund for investors who wish to realise their investment outside of the normal subscription and redemption cycle (as further described below under "Secondary market"). Key Multi-Manager Hedge Fund Diversified USD Index The Index is a USD denominated index which reflects the performance of notional index components comprising (i) various private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the Financial Instruments (as described below), and (iii) the Cash Position (as described below), (which together with the Hedge Funds, the Financial Instruments and the Cash Position, shall be referred to as the "Index Components"). The level of the Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). Index Sponsor and Index Calculation Agent: UBS Switzerland AG, created the Index and is responsible for the selection, rebalancing as well as the management of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). Each of the Index Sponsor and Index Calculation Agent may delegate all or parts of its duties to other group entities within the UBS Group or a third party. Further details on the Index are included in the Appendix below. Collateral In order to reduce the credit risk exposure of the Subfund to the Swap Counterparty and the Securities Lending Counterparty (together the "Counterparty"), the Counterparty will provide the Subfund with collateral which should at least correspond to 90% of the Net Asset Value of the Subfund on any Valuation Day. This collateral will consist of eligible assets in accordance with the requirements and regulations of the CSSF and may include units of funds of hedge funds and claims against protected custody accounts opened with a regulated custodian in which the collateral assets are held. Should the Subfund exercise economic ownership control over collateral such collateral shall be subject to section 17. "INVESTMENT GUIDELINES". Collateral received will not be reinvested or otherwise reused. Risk Considerations Investment risk: no capital protection: the Subfund is a high-risk investment and employs no capital protection techniques or capital guarantees. Accordingly, investors are not entitled to repayment of the capital invested. The full amount of an investor's subscription is at risk and may be lost. Investment risk: achievement of investment objective: the investment objective of the Subfund is to generate growth in value. The return of the Subfund will be linked to the return of the estimated Index level as determined by the Swap Calculation Agent subject to certain adjustments or, at the Final Maturity Date, to the final Index level. There can be no assurance that the Index level will increase in value, and accordingly there is no assurance that the Subfund's investment objective will be attained. Investment risk: alternative investment index risk: the return of the Subfund will be linked to the return of the estimated Index level as swap underlying. Investors in the Subfund are therefore exposed to general risks inherent in the Hedge Funds, as well as specific risks associated with the Index. Such risks include but are not limited to the following: The risk that the Index Sponsor is not effective in selecting appropriate Hedge Funds components that will generate positive returns over the long term. 9

10 The risk that the Hedge Funds may suspend the calculation of their net asset values which could impact the calculation of the Index level or estimated Index level as relevant and could lead to a suspension of subscriptions and redemptions of the Subfund shares. Hedge funds are generally considered to be unregulated investment vehicles. They may sell securities short, use significant levels of leverage, invest in various asset classes and instrument types including derivatives and commodities, whether traded on a regulated market or over the counter, and may not be required to diversify their investments. Accordingly, investments in hedge funds are generally considered to have a greater degree of risk than investments in regulated funds. To the extent that the Hedge Funds invest in the securities markets of developing countries, the political, regulatory and economic risks inherent in investments in emerging markets' securities are significant and may differ in kind and degree from the risks presented by investments in the world's major securities markets. These may include greater price volatility, substantially less liquidity and controls on foreign investment and limitations on repatriation of invested capital. The risk that the Index or any of the Hedge Funds diverge from their stated investment objectives and take on greater than expected levels of investment risk. The risk that some or all of the investments are illiquid. Accordingly, some or all the Hedge Funds may be unable to redeem from and/or sell the underlying investments in a timely manner which may affect the liquidity of the Subfund. The risk of incorrect or stale investment values. The Hedge Funds and their investments may include assets which are not traded on an exchange or regulated market. Accordingly, their values may be difficult to determine and may be based on models or quotes provided by the relevant manager. These values may be incorrect or stale and may not reflect fair value. Lack of operating history of managers. The Index may include Hedge Funds whose managers have no, or a very short, performance history. Such investments may involve greater risks than those with more established managers. Operational risks of the managers, including inadequate back office functions, trade processing, accounting, administration, risk management, valuation services and reporting. Reliance on key personnel in the Hedge Funds components selection process. The loss of key personnel at both the Index Sponsor and the Hedge Funds could materially and negatively impact the value of the Index. Limited capacity of managers. In order to deliver positive returns, some managers close their funds to new subscriptions once their fund has reached a certain size. The Index may be unable to reference underlying funds at all times, and therefore from time to time, the Index may in part also reference cash or money market instruments. Risk of lack of regulatory oversight. The Hedge Funds are domiciled in countries providing significant investment discretion and which are generally considered to be lightly regulated. For example, the Hedge Funds are generally not required to deposit their assets with an independent custodian bank. Instead, such assets may be deposited with brokers or other intermediaries who do not provide for segregation of client assets. The Net Asset Value of the Subfund will be affected by various levels of fees, including fees at the level of the Subfund, the Index and the Index Components. These fees may include asset-based as well as performance fees. Consequently, performance fees may be charged in periods when the Net Asset Value of the Subfund has fallen. Additionally, performance fees may be paid on unrealised gains which in fact are never realised. Foreign currency risk: The Hedge Funds are mostly denominated in USD. The Hedge Funds in turn may invest in assets denominated in various currencies. The Index is calculated in USD. The level of the Index and the return to investors in the Subfund could be adversely affected not only by changes in exchange rates but also by local exchange control regulations and other limitations, including currency exchange limitations and political and economic developments in the relevant countries. 10

11 Liquidity Risk: The risk that the Fund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares. Collateral Risk The Fund has made all reasonable endeavours to ensure the collateral is enforceable under the relevant laws and regulations. However, there is a risk that as a result of a change in, or amendment to, the applicable laws and regulations, the collateral may become unenforceable. Valuation risk estimated Index level: the main determinant of the monthly Net Asset Value per share of the Subfund is the level of the Index on the Valuation Day. The final Index level is provided monthly by the Index Sponsor, typically within a month after the relevant Valuation Day. In order to calculate the value of the Swap Agreement on any Valuation Day (other than the Final Maturity Date) at which the Subfund can trade with the Swap Counterparty, the estimated Index level will be determined by the Swap Calculation Agent based on estimated values of the Hedge Funds provided to the Swap Counterparty by the managers or administrators of the Hedge Funds on or before the Valuation Day and may be adjusted to reflect expected changes to the estimated valuations as at the Valuation Day; where the values of any Hedge Funds are not available or, in the opinion of the Swap Calculation Agent, are otherwise unreliable or unrepresentative, the Swap Calculation Agent may estimate in good faith the value of such Hedge Funds in order to determine the estimated value of the Index on the Valuation Day. The value of the Index used in determining the Net Asset Value per share of the Subfund may differ from the final Index level for the relevant month as provided by the Index Sponsor. In such circumstances, the value of the Swap Agreement and the Net Asset Value per share of the Subfund will not be revised or otherwise amended to reflect any such difference. Valuation risk final Index level: The Net Asset Value per share of the Subfund at the Final Maturity Date will be based on the final Index level as calculated by the Index Calculation Agent. In valuing the Hedge Funds, the Index Calculation Agent may need to rely on financial information provided by the managers of the Hedge Funds themselves. Independent valuation sources such as exchange listing may not be available for the Hedge Funds of the Index. The net asset value of the Hedge Funds may be finalized using estimated values provided by the managers or administrators of the Hedge Funds. In most cases, the Index Calculation Agent will have no ability to assess the accuracy of the valuations received. In certain cases, the values provided by the managers or administrators of the Hedge Funds may subsequently be amended; e.g. as a result of adjustments identified as part of the annual audit of the underlying schemes. In such circumstances, the value of the Index and the Net Asset Value per share of the Subfund at the Final Maturity Date will not be revised or otherwise amended to reflect any such difference. Effect of Substantial Redemptions: A number of events could trigger substantial redemptions from a Hedge Fund. Actions taken to meet substantial redemption requests could result in a decrease in prices of financial instruments. The overall value of Hedge Funds may also decrease because the liquidation value of certain assets may be materially less than their mark-to-market value. Hedge Funds may be forced to sell their more liquid positions, may need to maintain greater amounts of cash and cash-equivalent investments than they would otherwise maintain and may also be restricted in their ability to obtain financing or derivatives counterparties needed for certain investment and trading strategies. Settlement of redemption amounts prior to the Final Maturity Date: redemption proceeds will generally be paid 2 Subfund Business Days following the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. Settlement of redemption amounts on the Final Maturity Date: redemption proceeds will generally be paid after one calendar month plus 5 Subfund Business Days following the Final Maturity Date. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. 11

12 Early Maturity: Under the terms of the Swap Agreement, the Swap Counterparty may terminate the Swap Agreement on a calendar quarter-end prior to the Maturity Date. In such circumstances, the date of the early termination would become the Final Maturity Date of the Subfund, and the Subfund would terminate unless the Subfund enters into another swap agreement with another counterparty. The Swap Counterparty must give at least 100 calendar days' notice to the Subfund prior to an early termination date. Index disruption: If the Swap Calculation Agent determines the Index has been replaced with another index, or the Index is likely to cease to be calculated by the Index Calculation Agent or maintained by the Index Sponsor, then the Swap Counterparty and the Subfund may agree to use another index, and the terms of the Swap Agreement may be amended accordingly. Alternatively, the Swap Agreement may be terminated and accordingly the Subfund would terminate as well as set out above unless the Subfund enters into another swap agreement with another counterparty. Counterparty Risk: the Subfund is exposed to the risk that the Swap Counterparty (together with the Guarantor) may default on its obligations to perform under the Swap Agreement and that the Securities Lending Counterparty (together with the Guarantor) may default on its obligations to deliver equivalent collateral. In assessing this risk, investors should recognise that the Swap Counterparty will pledge collateral to ensure that the net credit risk of the Subfund to the Swap Counterparty will not exceed 10% of the Net Asset Value of the Subfund; and the Securities Lending Counterparty will pledge collateral equivalent to the value of the securities under loan. In circumstances where UBS AG (or another single counterparty) is both the Swap Counterparty and the Securities Lending Counterparty, then the net exposure to UBS AG, or another single counterparty, will be collateralised such that the net credit risk to the relevant counterparty will not exceed 10% of the overall net exposure to that counterparty. Taxation: Potential shareholders should seek information on the taxation laws and regulations in force and, where appropriate, seek advice on the subscription, purchase, possession and sale of shares at their place of residence. Further information on taxation is provided in the section "Taxation" of Section II. Use of Derivatives: The Swap Agreement is a structured derivative transaction as part of the investment strategy. While the prudent use of such a derivative can be beneficial, derivatives also involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Structured derivative transactions are complex and may involve a high degree of loss. The aim of the Swap Agreement is to deliver exposure to the Investment Strategy and as such, the use of the Swap Agreement is not speculative in nature. Alternative Investments: The Subfund may take advantage of opportunities with respect to certain other alternative instruments that are not presently contemplated for use by the Subfund or that are currently not available, but that may be developed, to the extent such opportunities are both consistent with the investment objective of the Subfund and legally permissible for the Subfund. Certain alternative instruments may be subject to various types of risks, including market risk, liquidity risk, the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty, legal risk and operations risk. Avoidance of conflicts of interest: The units within the UBS Group who are providing services to the Subfund operate as independent entities and in order to avoid possible conflicts of interest, all transactions between these entities and the Subfund are undertaken at arm's length prices, always keeping in mind the best interest of the shareholders. In particular, the estimated level of the Index on any Valuation Day prior to the Final Maturity Date will be determined by the Swap Calculation Agent based on estimated values for the Index Components and agreed by the Index Sponsor, both of whom may be different entities or divisions within the UBS Group. In the normal course of business, UBS Group and/or its directors, officers and employees may have or may have had interests in the Hedge Funds. Such activity may or may not affect the value of the Index and Subfund. Although the Index Sponsor has agreed to use its best efforts in managing the Index, the Index Sponsor and its principals, members and affiliates (collectively the "Index Sponsor Parties") are not required to devote full time or any material portion of their time to managing the Index. The Index Sponsor is the investment adviser to a number of investment funds, including funds with investment objectives similar or substantially similar to those of the Index, and the Index Sponsor Parties advise 12

13 and may advise additional clients, some of which hold or may hold the same investments as are included in the Index. The Index Sponsor may in the future sponsor other indices similar to the Index. UBS Group may receive management fees, performance fees and other fees, if applicable, for such portion of the Index allocated to Index Components managed by any member of the UBS Group, which may constitute a significant percentage of the Index. Accordingly, in determining Index allocations, the Index Sponsor is subject to a conflict of interest because such allocation will result in higher amounts being allocated or paid to the UBS Group than if the Index was allocated exclusively to managers not affiliated with the UBS Group. Competition: Certain markets in which Hedge Funds may invest are extremely competitive for attractive investment opportunities. Thus, the managers of such Hedge Funds might not be able to identify or successfully pursue attractive investment opportunities in such environments and, as a result, there may be reduced expected investment returns. Economic conditions: Changes in economic conditions, including, for example, interest rates, employment conditions, competition, technological developments, political and diplomatic events and trends, and tax laws can affect substantially and adversely the business and prospects of the Hedge Funds. None of these conditions is within the control of the managers of such Hedge Funds and/or Index Sponsor and no assurances can be given that the managers of such Hedge Funds and/or Index Sponsor will anticipate these developments. The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Subfund. Prospective investors should read the prospectus and the articles of incorporation of the Fund and consult with their own advisers before deciding whether to invest in the Subfund. Investments in the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified USD General Information Reference currency: USD. This is the currency in which the Net Asset Value per share of the Subfund is calculated. The Swap Agreement is denominated in USD. The Index is calculated in USD. Allocation of income: this Subfund will pursue an accumulation policy. Valuation Day: the Net Asset Value per share will be calculated as of the third last bank business day of each month (i.e. each day on which banks are open during normal business hours) in London, Zurich and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich and Luxembourg. "Non-statutory rest days" are days on which several banks and financial institutions are closed in London, Zurich and Luxembourg. The Board of Directors may, at its sole discretion, decide to fix one or more extraordinary Valuation Day(s) or alter the cut-off point for dealing instructions in order to better deal with subscriptions and redemptions in the Subfund. Any decision to fix an extraordinary Valuation Day will be notified to shareholders. In order to cover any costs associated with subscriptions and redemptions, and if in the interest of the Subfund's shareholders, the Board of Directors may decide to apply an extraordinary charge to the value of the subscriptions and redemptions and to reflect this extraordinary charge in the Net Asset Value of the Subfund. Issue of shares: shares may be issued monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to increase the notional of the Swap Agreement on a Valuation Day, then subscription applications of shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a subscription of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to increase the 13

14 notional amount of the Swap Agreement, the subscription order may be rejected by the Subfund. In such case, the Subfund will execute the subscription order on the next Valuation Day on which the Swap Counterparty is prepared to increase the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward subscription applications to the Administrative Agent. No issue will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". Shares will be issued as non-certificated registered shares, unless otherwise decided by the Board of Directors. Upon request and against payment by the shareholder of all incurred expenses, share certificates may be issued in physical form. The Board of Directors reserves the right to issue share certificates in denominations of one or more shares, however fractions of shares will not be issued in certificated form. Global share certificates will not be issued. Redemption of shares: shares may be redeemed monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to decrease the notional of the Swap Agreement on a Valuation Day, then redemption applications relating to shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a redemption of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to decrease the notional amount of the Swap Agreement, the redemption order may be rejected by the Subfund. In such case, the Subfund will execute the redemption order on the next Valuation Day on which the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward redemption applications to the Administrative Agent. No redemption will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". In addition, the Board of Directors is empowered to: a) Reject a subscription application at its discretion and to discretionarily decide to accept subscription requests on any other Valuation Day; b) At any time redeem shares of the Subfund held by shareholders who are not qualified to purchase or hold shares of the Subfund. Such redeemed shares are reimbursed to the shareholders and thereby cease to be valid. Subfund Business Day: days on which the TARGET system is open and normal bank business days (i.e. each day on which banks are open during normal business hours) in London, Zurich, New York, Cayman Islands and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich, New York, Cayman Islands and Luxembourg. "Non-statutory rest days" are days, on which several banks and financial institutions are closed in London, Zurich, New York, Cayman Islands and Luxembourg. Secondary market: UBS AG (the "market-maker") will make a market in the shares of the Subfund. Shareholders may sell shares to the market-maker on each business day. The price at which shares can be traded with the market-maker may differ from the most recent Net Asset Value of the Subfund. Pursuant to a Market Maker Agreement between the market-maker and the Fund, the market-maker may decide not to buy shares of the Subfund in the secondary market if the 14

15 market-maker determines, in its sole discretion, that one of the following extraordinary events has occurred: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) the stock exchanges or markets on which the valuation of a major part of the Fund's assets is based or when the foreign exchange markets corresponding to the currencies in which the Net Asset Value or a considerable portion of the Subfund's assets are denominated, are closed, except on regular public holidays, or when trading on such a market is limited or suspended or temporarily exposed to severe fluctuations; political, economic, military or other emergencies beyond the control, liability and influence of the Fund make it impossible to access the Subfund's assets under normal conditions or such access would be detrimental to the interests of the shareholders; disruptions in the communications network or any other reason make it impossible to calculate with sufficient exactitude the value of a considerable part of the Subfund's net assets; limitations on exchange operations or other transfers of assets render it impracticable for the Fund to execute business transactions, or where purchases and sales of the Subfund's assets cannot be effected at the normal conversion rates; when for any other reason the prices of any investments owned by the Fund cannot promptly or accurately be ascertained; upon the publication of a notice convening a general meeting of shareholders for the purpose of resolving the winding-up of the Fund; a violation by the Fund or change of any material terms of the prospectus or constitutional documents which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; any restriction or limitation or suspension or deferral or delay of redemptions of, or subscriptions for, shares in the Subfund (including, without limitation, any partial payment of redemption proceeds or the introduction or increase of any associated fee, cost or expense, the introduction or use of gating or a side pocket, or any restructuring, reorganisation or action that has a similar impact to gating or a side pocket), or any mandatory redemption of shares of the Subfund; any review or investigation of the activities of the Fund or the Subfund by a relevant regulator, in connection with suspected or alleged wrongdoing or breach of any rule or regulation, or other similar reason, or any disciplinary action taken by such regulator in connection therewith which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; if as a consequence of shareholders of the Fund selling shares of the Subfund to the market-maker, the market-maker would become the beneficial owner of 25% or more of the shares of the Subfund; any winding-up, liquidation of, or any termination or any loss of regulatory approval, licence or registration of, the Portfolio Manager, or any merger, de-merger, winding-up or liquidation of or affecting the Fund or the Subfund; any arrangement between the market-maker and the Fund or the Subfund including arrangements relating to subscriptions for, and redemptions of, shares in the Subfund, is changed or terminated; and/or (m) the Fund or the Subfund becomes party to any litigation or dispute which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Sub-fund. Specific reasons for the suspension of the Net Asset Value calculation and/or issue, conversion and redemption of shares: Notwithstanding the reasons set out in Section II "Suspension of the Net Asset Value calculation and of the issue, conversion and redemption of share" the Subfund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging 15

16 positions due to restrictions on subscriptions or redemptions of the entirety of or some of the hedging positions. Subject to an extraordinary event, including without limitation, liquidation or force majeure, the Subfund will ensure that investor's shares will be redeemed within 12 months following the request for redemption but in no case later than within 36 months. UBS Group: UBS AG together with its branches and affiliates (which shall for this purpose mean any entity owned by and/or under common ownership or control of UBS Group AG.) Portfolio Manager: UBS Asset Management (UK) Ltd. The Portfolio Manager is part of UBS Asset Management, a business group of UBS AG. The Portfolio Manager is regulated by the UK Financial Conduct Authority. Launch Date: 16 October 2008 Share classes The Board of Directors can issue several classes of shares for the Subfund. Currently, the following share class is offered: I-class available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. Fees and Expenses The Subfund will bear all the costs incurred in connection with the management, administration, portfolio management of the Subfund's assets (the "Flat Fee"), which will be calculated based on the Net Asset Value of the Subfund and in total will not exceed 0.45% per annum of the Net Asset Value per share and be payable on a quarterly basis. The Depositary will receive a fee that will not exceed 0.05% per annum of the Net Asset Value per share calculated and payable on a quarterly basis. In addition, the Subfund shall bear the expenses (the "Additional Expenses") as described in Section II 12. Charges and Expenses. As described above, the Swap Counterparty pays the Subfund on a quarterly basis an amount corresponding to the aforementioned fees and costs and all additional costs incurred by the Subfund. Fees which are borne by the investor directly are the following: Issuing commission of up to 3% of the issue price per share; Redemption charge of up to 0.5% of the Net Asset Value per share to be redeemed, which may be increased up to 5% in periods of increased volatility of the Index Components or in the event that the Subfund experiences significant redemptions. Subscriptions On the Launch Date the shares of the Subfund may be subscribed at a price calculated based on the latest estimated valuations of the Index Components multiplied by their weights provided on or before the Launch Date and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as of the Launch Date as determined by the Swap Calculation Agent on that date plus any stamp duties and fees. Investors may settle the subscription 'in-kind'. After the Launch Date, the issue price is based on the Net Asset Value per share. Any taxes, commissions and other fees that apply to investors in the different countries in which shares may be sold will also be charged in addition to the Net Asset Value per share. Sales agencies may charge investors an issuing commission of up to 3% of the issue price per share. 16

17 Example 1 sales commission applied in addition to investment amount Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares subscribed Total amount of subscription EUR 10,300 EUR 10,000 Example 2 sales commission applied to initial investment Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares issued Total subscription amount EUR 10,000 EUR 10,000 Subscriptions for shares in the Subfund are accepted by the Fund as well as by the sales agencies and paying agents, which forward them to the Fund. Subscriptions received on any Subfund Business Day prior to the time stated under "Issue of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent, earlier cut-off times may apply for submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. The issue price of the Subfund shares is paid no later than two Subfund Business Days following the relevant Valuation Day into the account at the Depositary in favour of the Subfund. In addition, the Fund may issue fractional shares up to three decimal places. However, no certificates are issued for these fractional shares. They are credited to the shareholder via an entry in the securities custody account of his or her choice. Fractions of shares do not confer the right to vote at general meetings, but will grant entitlement to a distribution or a proportionate distribution of the liquidation proceeds in the case where the Subfund is dissolved. In certain circumstances during the first six months after Launch Date, at the discretion of the Board of Directors, the Subfund may process subscriptions on a Subfund Business Day which is not a Valuation Day. In such cases, the assets and liabilities of the Subfund will be valued on that Subfund Business Day. Redemptions Redemption applications, accompanied by any certificates that might have been issued, are accepted by the Fund as well as at the sales agencies and paying agents, which forward them to the Fund. Applications for redemption received on any Subfund Business Day prior to the time stated under "Redemption of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent earlier 17

18 cut-off times may apply for the submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. In general, the value of redeemed Subfund shares is paid out no later than two Subfund Business Days after the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself and has not received redemption proceeds for whatever reasons with respect to its hedge, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. In addition, legal provisions, such as foreign exchange controls or restrictions on capital movements, or other circumstances beyond the control of the Depositary, may make it impossible to transfer the redemption amount to the country in which the redemption application was submitted. Any taxes, commissions and other fees incurred in the countries in which Fund shares may be sold will also be charged. The price at which shares in the Subfund are redeemed, shall be calculated according to the Net Asset Value per share of the Subfund and of the relevant share class. In the event of an excessively large volume of redemption applications, the Board of Directors may decide to delay execution of the redemption applications until the corresponding assets of the Fund have been sold without unnecessary delay. Should such a measure be necessary, all redemption applications received on the same day will be calculated at the same price. In calculating the redemption price, the Subfund may on any Valuation Day when there are redemptions adjust the redemption price by deducting an amount of up to 0.5% from the Net Asset Value per share to be redeemed. However, in periods of increased volatility of the Index Components and/or in the event that the Subfund experiences significant redemptions such deduction may be increased up to 5% of the Net Asset Value per share. Example 3 redemption charge applied to redemption of shares Example where no redemption charge is applied Example where redemption charge of 0.5% is applied Example where redemption charge of 5% is applied Number of shares redeemed Net asset value per share EUR 100 EUR 100 EUR 100 Redemption charge (in %) 0% 0.5% 5.0% Redemption price per share EUR 100 EUR 99.5 EUR 95 Total redemption proceeds EUR 10,000 EUR 9,950 EUR 9,500 Conversions Conversions of shares into other Subfunds' shares of the Fund may be permitted. 18

19 Past performance The chart shows the investment returns of the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified USD I-class calculated as a percentage of the change in Net Asset Value over the previous year. In general any past performance takes account of all ongoing charges but not the entry charge/issuing commission. The past performance is not an indicator for the future performance. The share class was launched on The past performance is calculated in USD. 19

20 APPENDIX: INDEX DESCRIPTION Neither the Index Sponsor nor the Index Calculation Agent guarantees the accuracy and/or the completeness of the Index or any data included therein, and neither of them shall have any liability for any errors, omissions, or interruptions therein. Neither the Index Sponsor nor the Index Calculation Agent does make any warranty, express or implied, as to the performance of the Subfund, investors or any other person or entity from the use of the Index or any data included therein. Neither the Index Sponsor nor the Index Calculation Agent makes any express or implied warranties and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall either of the Index Sponsor or the Index Calculation Agent have any liability for any lost profits or indirect, punitive, special or consequential damages, even if notified of the possibility thereof. I. Background to the Index The Key Multi-Manager Hedge Fund Diversified (USD) Index (the "Index") is a USD denominated index which reflects the performance of (i) various private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the "Financial Instruments"), and (iii) the Cash Position (as described below; which together with the Hedge Funds, the Financial Instruments and the Cash Position shall be referred to as the "Index Components"). The level of the USD denominated Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). UBS Switzerland AG, is responsible for the selection of the Index Components as well as the composition, management and rebalancing of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). It is at the full discretion of each of the Index Sponsor and the Index Calculation Agent to delegate their respective duties and rights related to the selection of the Index Components and to the composition, management, calculation and rebalancing of the Index, entirely or partially to another affiliated or non-affiliated party. The objective of the Index is to achieve a long-term appreciation. The Index seeks to achieve performance results that are less volatile in both rising and falling markets than direct exposure to traditional markets by selecting Index Components that utilize hedged strategies, among others. This is to be aimed for by diversifying both the approach according to which the Index mirrors investments in assets, i.e. Index Components and the respective types of instruments. The Hedge Funds included in the Index have broad flexibility to take long or short positions, employ leverage and use derivative instruments. The Index Sponsor will consider including in the Index Hedge Funds operating in all global markets. The Index Sponsor may include a revenue participation in Hedge Fund management companies within the Index. The Index may also include Hedge Funds which may be managed and/or owned by the Index Sponsor, the Index Calculation Agent or any of their affiliates. The Index was created on 30 January 2004 with an opening Index level of 1, points and may be rebalanced at any date thereafter (each an "Index Rebalancing Date"). The Index Sponsor may on any Index Rebalancing Date, in its reasonable discretion, change the composition of the Index or the weightings of existing Index Components (such change hereinafter called "Rebalancing") subsequent to the initial composition of the Index in line with the objectives and goals of the Index. On each Index Rebalancing Date on which a change in the composition of the Index is made, the Index will be adjusted by assigning new weightings to one or more of the Index Components subject to the condition that the level of the Index after the change is effected is the same as the level of the Index before the change. In other words, no change in the level of the Index occurs on the Index Rebalancing Date as a result of changes to the composition of the Index. II. Cash Position The Index will include as an Index Component a "Cash Position" which reflects the holding of cash, money market instruments or cash obligations. The Cash Position can also reflect the application of 20

21 leverage, in which case the Cash Position may mirror a negative cash balance and may reflect the cost of such leverage in the returns of such Cash Position. Accordingly, the Cash Position may be a negative amount at such times that borrowing exceeds cash holdings. III. Expenses and Index Fees The Index is calculated net of certain fees, costs and expenses commonly to be associated with establishing and maintaining a portfolio similar to the notional portfolio mirrored by the Index, as determined by the Index Calculation Agent in its reasonable discretion, including, without limitation, investment, research, legal, accounting, administration, custodial and professional expenses (collectively, the "Expenses"). In addition, the Index Fees (as defined below) will be deducted when calculating the level of the Index. The Index Fees are applied to the value in USD of the Weighted Closing Valuations of the Index Components and consist of: (i) (ii) IV. an index management and calculation fee of 0.90% per annum of the value (in USD) of the Weighted Closing Valuations of the Index Components at the end of each calendar month (calculated and deducted on a monthly basis) (the "Index Management and Calculation Fee"); and a quarterly index performance fee of 5.00% of the increase in value (in USD) of the Weighted Closing Valuations of the Index Components during each calendar quarter (after deduction of the aforementioned Index Calculation Fee) (calculated and accrued monthly, payable quarterly in arrears) (the "Index Performance Fee", together with the Index Calculation Fee, the "Index Fees"). Index Calculation UBS Switzerland AG, as Index Sponsor, selects the Index Components and is responsible for the weightings, re-weightings and changes to the Index Components. The Index Calculation Agent calculates the level of the Index as at any given Index Valuation Date. Each of the Index Sponsor and the Index Calculation Agent may, at its discretion and under its own responsibility, delegate some or all of their respective duties to another party, which may be affiliated to or independent of the Index Sponsor and/or the Index Calculation Agent. "Index Valuation Date" means the last calendar day of each month. The first Index Valuation Date was 29 February On every Index Calculation Date, the Index Calculation Agent will calculate the official closing level of the Index as at the applicable Index Valuation Date. The "Index Calculation Date" relating to an Index Valuation Date is the last Index Business Day of the month immediately following that Index Valuation Date or such earlier date following the relevant Index Valuation Date as the Index Calculation Agent may determine. The first Index Calculation Date was 31 March "Index Business Day" means any calendar day (except Saturday and Sunday) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the Cayman Islands, Zurich, Switzerland and New York, the USA. The level of the Index is based on the performance of the Index Components in USD from the previous Index Valuation Date to the present Index Valuation Date, less the Index Fees and Expenses. The following formula will be used by the Index Calculation Agent on a monthly basis in order to calculate levels of the Index. Index (t) = Index (t-1) * {USD Value (t) / USD Value (t-1) } where: (the interval between t and t-1 refers to the period of one month) Index (t) : Index (t-1) : The closing level of the Index as at the Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date. The closing level of the Index as at the Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant Index Calculation Date. 21

22 USD Value (t) : USD Value (t - 1) : The sum of the Weighted Closing Valuations in USD of the Index Components as at Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date, minus Index Fees and Expenses. The sum of the Weighted Closing Valuations in USD of the Index Components as at Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant previous Index Calculation Date, minus Index Fees and Expenses. Index Valuation The Index Valuation Date in month t. Date (t) Index Valuation The Index Valuation Date in month t-1 Date (t-1) Weighted Closing Valuations: The last valuation of each Index Component, including the most recent estimated unaudited valuations of each Hedge Fund as provided by the managers or/and the administrators of the Hedge Funds making up the Index to the Index Calculation Agent on or before the relevant Index Calculation Date, multiplied by their respective weightings as at the relevant Index Valuation Date. If information concerning the last official valuation of an Index Component as at an Index Valuation Date is not received by the Index Calculation Agent prior to and including the relevant Index Calculation Date, the Index Calculation Agent shall use best efforts to determine in its reasonable discretion the Index Component's value using the last available valuation, the net asset value estimated by the Index Calculation Agent, current market conditions or any other available information as its basis. Such determination will serve as the basis for the Index Calculation Agent's further calculations. The above procedure will also be applied when the Index Calculation Agent needs to determine in its reasonable discretion the last official valuation of an Index Component that, at some relevant point in time, cannot be redeemed against payment of cash or material assets. V. Index Component Selection The Index Sponsor will follow certain general guidelines in choosing the Hedge Funds as Index Components. While the Index Sponsor will attempt to apply such guidelines consistently, the guidelines involve the application of subjective and qualitative criteria and therefore the selection of the Index Components is a fundamentally subjective process. The use of the selection guidelines may be adjusted by the Index Sponsor in its reasonable discretion in line with the objectives and goals of the Index. The Index Sponsor or its delegate will conduct a number of onsite and offsite interviews with the investment managers or investment advisers of prospective Index Components and substantial other due diligence prior to making a selection. The goal of the due diligence process is to evaluate the candidates on a wide range of criteria. By combining historical quantitative analysis with a sound knowledge of these key qualitative attributes, the Index Sponsor will attempt to forecast the proposed Index Components' potential for generating sustainable positive risk-adjusted returns under a wide variety of market conditions. When selecting the Index Components, the Index Sponsor shall always consider whether the Index Components can meet certain criteria. The criteria include, but are not limited to: 1. The manager of the Index Component should display an employment background with a reasonable amount of relevant experience in the specialty of the strategy employed. 2. The manager of the Index Component should have proper risk control policies and procedures that are consistent with meeting the investment goals of the Index. 3. The manager of the Index Component should have the proper research and operational infrastructure to conduct its business properly. 22

23 4. The manager of the Index Component should employ a strategy where, in the opinion of the Index Sponsor, reasonable risk-return parameters exist. 5. The Index Sponsor should be able to classify the investment strategy pursued by the Index Component under the basic investment strategy categories it utilizes. VI. Constructing the Index The Index Sponsor will seek to construct a portfolio of Index Components that is broadly diversified and has low correlation to traditional benchmarks. The Index Sponsor will seek to use a variety of Index Components that trade in diverse markets, utilize different trading strategies, construct varying types of portfolios and layer capital in a manner that is consistent with the risks embedded in their trading philosophy. The Index Sponsor will then assign percentage weights (the sum of all weights being equal to 100%) to each Index Component subject to the following restrictions being satisfied on any Index Valuation Date: 1. The minimum number of Hedge Funds will at all times be equal or higher than The value of any single Hedge Fund should generally not be more than 20% of the aggregate Weighted Closing Valuations on any given Index Valuation Date; however, if as a result of extreme positive performance an Index Component the value of any single Hedge Fund exceeds this level, an adjustment in the allocation will be made as soon as practicable. 3. Hedge Funds selected for inclusion within the Index will be grouped based on the particular strategy each of them pursues. The aggregate weights of the Index Components falling into the respective strategy at any given Valuation Date shall be as follows: Strategy Lower Limit Upper Limit Equity Hedged 0% 70% Credit /Income 0% 50% Relative Value 0% 50% Trading 0% 50% Others 0% 15% Cash and cash equivalents -25% 25% The above guidelines are intended to be general and the Index Sponsor may vary them where appropriate. Monitoring of Hedge Funds and Reallocation. The Index Sponsor will monitor Hedge Funds through a combination of periodic net asset value updates, position reports and correspondence and meetings with managers of the Hedge Funds. The Index Sponsor will also rely on its experience to make qualitative assessments about the current risk conditions that each Hedge Fund and the overall Index may face. The performance of each Hedge Fund will be compared with the performance of other hedge funds which utilise the same or similar strategies (and who may or may not at that time be in the Index). Reasons for reducing or withdrawing entirely an allocation to a Hedge Fund may include, without limitation: i. the identification by the Index Sponsor of an alternative Hedge Fund which in the opinion of the Index Sponsor will improve the performance of the Index; ii. iii. iv. a change in the Hedge Fund's strategy or personnel; a significant change in the amount of assets under the Hedge Fund's management; a decline in performance relative to the performance of other hedge funds using the same investment strategy; v. any other circumstance or reason affecting the composition of the Index such as legal, regulatory or any other requirements as determined by the Index Sponsor; vi. a decline in the potential for gains on investment in the Hedge Funds market niche; 23

24 vii. viii. VII. a failure of a Hedge Fund to meet expectations of or adhere to restrictions on activities established by the Index Sponsor; or relative gains or losses in the accounts of different Hedge Funds that cause the Index Sponsor's allocations among the Hedge Funds to become disproportionate or unbalanced with respect to the Index Sponsor's allocation models or strategies. Investment Strategies Although it is anticipated that the strategies described below will represent the primary strategies expected to be included in the Index, the Index Sponsor will not be limited in the types of Hedge Funds that it may select or the types of activities in which they may engage. Accordingly, the Index Sponsor, in its sole and absolute discretion, may consider allocations to Hedge Funds that pursue a wider range of investments or other market strategies, including activities not described herein, if he deems it appropriate for reaching the objectives and goals of the Index. The classification of Hedge Funds included in the Index and the strategy definitions are based on the subjective judgement of the Index Sponsor which may differ from strategy definitions in the market. The following strategy descriptions are summaries only and do not provide detailed descriptions of each strategy. Equity Hedged Fundamental Conservative A typical fundamental conservative manager makes both long and short stock selection through research on the individual companies. The process is generally 'bottom-up'; that is, stocks are added to the portfolio on the basis of the opportunity for price movement of the individual company. The vast span of equities globally creates an opportunity for these managers to attempt to take advantage of their proprietary company research and analysis at the individual stock level. The difference between the long and short portfolio is the fund's net exposure, which typically is an indicator of market risk (Beta) that is assumed by the manager. The fund's short portfolio may vary greatly and is both a tactical expression of the manager's market outlook and a reflection of their conviction in the bottom -up stock selection opportunities. Long portfolios generally run more fully invested with variations driven by the underlying risk/reward opportunities and market dynamics light correlation levels and volatility. Conservative funds tend to be less concentrated, either by sector, position size, market capitalization, beta mismatches, style or net market exposure. However, a distinguishing feature of the conservative classification is the manager's attempt to reduce market risk at all times by maintaining a lower net exposure, generally between 0% and 60% net long. While these net exposure ranges are not hard limits, managers may on exception, opportunistically expand beyond these ranges for short periods of time if market conditions and risk management dictate in their view. Related stocks / i.e. pairs trading is a type of market neutral equity strategy and would fall into the fundamental conservative category. In this approach, companies that are related to one another (by reason of engaging in similar activities and having comparable corporate structures) are grouped together. Stock price movements may move these relationships out of alignment, whether by reason of a corporate action, market event or simply high equity market volatility. These related stocks may often demonstrate mean reversion characteristics, that is, they have a tendency to return to the previous equilibrium level. The trading strategies employed to potentially benefit from these anomalies involve a combination of quantitative and qualitative techniques. If the process is primarily qualitative, then these managers would fall into the fundamental conservative grouping; if the process is primarily quantitative, we would classify the strategy as Relative Value: Quantitative Equity. Fundamental Aggressive Similar to fundamental conservative managers, a typical fundamental aggressive manager makes both long and short stock selection through bottom-up research on individual companies. Aggressive funds tend to be more concentrated, than their more conservative peers. Aggressive managers are more likely to have directional skews in their portfolios to either sector, market capitalization, geography, or factor/style. Furthermore, aggressive funds may occasionally or regularly amplify their market risk exposure by exceeding net market exposure of 100% net long or by being net short with conviction. 24

25 Although some of the fundamental aggressive managers essentially take a passive 'deep value' approach to investing on the long side, others may take an activist approach to their investments. An activist investor often seeks to create the catalyst for stock price movement. Activist strategies are broadly defined as either operational or financial, depending on the intention and expertise of the managers. Implementation varies from friendly, behind the scenes approaches to hostile, public battles with management teams and corporate boards. For this reason, some activist strategies may result in more concentrated portfolios and be longer term in nature. Such funds typically have a long biased un-hedged approach. Event Driven approaches involve directional long and short investing in public companies that are undergoing some corporate event with a definitive catalyst and timetable. These catalysts may include spin-offs, restructurings, stock buybacks, management changes or other well-defined events. The approach tends to have a value bias as the complexity surrounding events may create a discount to market peers not undergoing similar situations. Some event styles have a long-biased, un-hedged approach, which may offer significant upside return potential but can also exhibit significant market correlation and Beta especially in times of stress. Opportunistic Trading This strategy refers to the active trading of long and short equity positions based on short-term, catalyst-driven or flow-driven opportunities in the equity markets. This strategy is often marked by the prevalence of using sector baskets, exchange traded funds and equity indices and often leads to dramatic variability in a managers underlying net exposure. Given that the portfolio turnover is quite high, leverage is typically lower than in most of the other equity sub-strategies, though position concentration may be higher. Relative Value Capital Structure / Volatility Arbitrage This strategy generally seeks to benefit from anomalies in the relative value of different securities or issues within a single company's capital structure. Convertible bond arbitrage is a classic way of expressing this strategy. A convertible bond is a hybrid product combining a bond with an imbedded warrant that permits conversion to the issuer's common stock at some fixed exchange rate. The 'plain vanilla' version of the strategy involves investing in the convertible securities of companies and then shorting the underlying common stock as a hedge. Managers within the strategy vary in terms of what drives returns, but the primary differentiator is the level of credit risk in the portfolio. Other typical types of capital structure relative value trades include senior versus subordinated debt and cash bonds versus CDS (basis trades). Trades may also be catalyst-driven, involving corporate events, such as convertible bond buybacks, convertible bond putbacks, equity exchanges, and M&A driven trades with capital structure implications. Managers will often seek to hedge exposure to a variety of other factors not related to the specific mispricing. Volatility Arbitrage involves using options and the underlying securities in an attempt to capture mis-pricings in option markets. Volatility strategies can be employed across various asset classes. In general, the primary driver of returns is the volatility differential between the options and the actual price movement less the transactions cost. For example, in equity-oriented volatility arbitrage, the manager analyses the relationship between actual stock price movement and the volatility that is implied by the options on the stock. If the options are deemed to be cheap, the manager buys options on a market neutral basis and then re-hedges the strategy as the underlying stock moves, to maintain neutrality. If options are deemed to be expensive, the options are sold, the premium is taken in and the strategy is re-hedged with stock movement. Quantitative ('Quant') Equity As statistical arbitrage and other systematic long/short approaches evolved over time, managers employing them began to overlap to such a degree that the Index Sponsor decided it was more appropriate to view them together as opposed to separate and distinct. As such, the quantitative equity sub-strategy involves model-driven approaches that utilize one or both of the following approaches: Statistical arbitrage is a model-driven approach that seeks to create diversified, risk-balanced long and short portfolios with the objective of capturing short-term price anomalies in equity markets. Models can either take the form of mean reversion, price momentum or a combination thereof. A 25

26 key driver of performance is the ability to have for backtesting, superior alpha signals, a strong risk management and portfolio management framework, and a robust execution platform. Given the market neutral bias to the approach, the strategy implies a degree of minimization of sector, market capitalization, style, beta and other type of imbalances. Portfolio turnover is typically very high in the strategy. Systematic long/short, which is a model-driven approach to constructing equity long/short portfolios, incorporates fundamental, event, and price data used by traditional stock pickers. These funds' models typically begin by analysing vast amounts of data to determine relevant factors that indicate potential underperformance and outperformance of certain sectors and styles. The holding periods for trades can vary between medium term and longer term horizons. The portfolio turnover tends to be lower than that of statistical arbitrage strategies. The main risk for the style, as is the case in all systems, is a regime shift, which renders past information less meaningful. Merger Arbitrage Merger arbitrageurs seek to capture the price spread between current market prices and the value of securities upon successful completion of a merger. In cash transactions this spread is straightforward, but in stock-for-stock transactions, the spread is created by shorting an appropriate ratio of the acquiring company's stock. The width of the spreads reflects the market's willingness to take on transaction risk. Deals that the market assesses to have a lower probability of closing typically trade with a wider spread than straightforward synergistic mergers with little-to-no regulatory issues. Most managers attempt to control risk by limiting position size, diversifying and conducting thorough due diligence. Few managers solely focus on plain vanilla merger arbitrage anymore; rather, most portfolio managers employing the strategy sit within larger multi-strategy firms. Merger arbitrage often exists as one of several "event driven" strategies where a manager relies on catalysts to unlock value. Generally, these event-driven managers may participate in both hard and soft catalysts, taking a fundamental approach to the investment process, while merger arbitrage is generally focused on hard catalysts. Fixed Income Relative Value The fixed income arbitrageur attempts to profit from price anomalies between related interest rate and currency instruments. Some managers focus exclusively on US or G3 markets (US, UK, and Japan), while others invest across the global capital markets. The goal of most managers in this category is to deliver steady returns with low volatility. Since managers attempt to mitigate directional risk is mitigated by running hedged spreads (long and short, paired positions), leverage may be applied more broadly. These managers will use leverage, sometimes in excess of 10 times NAV, depending on the similarity of the two securities and the liquidity of the invested market. Arbitrageurs seek to exploit yield spread dislocations, often implemented through buying of higher yielding securities and selling similar securities with lower yields, but will trade in the opposite direction if spreads are abnormally narrow. Fixed income arbitrage can include interest rate swap arbitrage, US and non-us government bond arbitrage, forward yield curve arbitrage, basis trading (i.e. cash versus futures, currency basis swaps), or a combination of each. Potential risks to the strategy include counterparty risk, margin calls, increased haircuts, market illiquidity, and deleveraging from other fixed income market participants. Greater use of leverage usage may compound the risk to certain managers in this strategy. Agency MBS In traditional Agency Mortgage Backed Security (MBS) arbitrage, funds seek to invest in high quality securities with no credit risk (US government agency mortgage, Treasury), hedging out interest rate risk to earn excess spread on the security. Other funds employ relative value pair strategies using agency mortgage pass-throughs and specified pools in an attempt to take advantage of pricing dislocations in the market. Examples of agency mortgage-backed securities include Fannie Mae and Freddie Mac issued MBS and Ginnie Mae guaranteed MBS, created from real estate mortgage investment conduits (REMICs) or collateralized mortgage obligations (CMOs). Typical instruments traded in the agency MBS space include mortgage pass-throughs and their derivatives, such as floaters, inverse floaters, interest-only (IO) strips, principal-only (PO) strips, and inverse interest-only (inverse IO) strips. 26

27 Credit / Income Corporate Long/Short Corporate long/short involves investing long and/or short in debt or debt-linked securities on an opportunistic basis. Portfolio turnover, as well as gross and net exposure levels can vary based on the manager and their view of the opportunity set. This strategy may be directionally long or directionally short. Managers may express outright directional views or seek to exploit opportunities across comparable debt securities of different companies or of a single company versus an index. To be implemented successfully, the strategy demands a thorough knowledge of both the fundamental and technical factors that drive debt prices. Distressed These funds invest in the debt or equity securities of firms that are in the midst of financial restructuring, balance sheet re-capitalization, or are trading at stressed or distressed prices in anticipation of such an event. Opportunities in this strategy are closely linked to the level of defaults and credit spreads and hence the business cycle in general. Distressed funds differ in terms of the stage of their investment or the degree to which they become actively involved in the restructuring process. Distressed securities are often inefficiently priced due to their lack of liquidity, the existence of forced sellers and the uncertainty created by the restructuring process. Structured Products As the securitization market expanded from the early 2000s through 2007, some hedge funds began to invest in mortgage securities and other structured products through a variety of approaches. The strategies they implemented were generally focused on credit risk as opposed to interest rate or prepayment risk, which is more the focus of agency-based mortgage-backed strategies. Managers in the strategy will typically perform detailed research on the underlying assets that comprise the structured product as well as research the structure and the terms of the securitization, particularly with reference to the cash flow waterfall, credit enhancement, collateral triggers and control protection. It is important to note the liquidity spectrum is varied for these strategies, ranging from the more liquid (RMBS/CMBS) to less liquid (multi-sector CDOs, non-performing whole loan residential mortgage pools). The Index Sponsor further dissects the universe of structured product strategies into two general groups: Asset-backed securities (ABS) Asset-backed strategies typically emphasize non-agency residential mortgage-backed (RMBS), commercial mortgage-backed (CMBS) securities, and other asset backed securities, (ABS) such as auto loans, home equity loans, credit card receivables, student loans, manufactured housing, aircraft leases, and a variety of other cash-flow producing assets. While shorting these securitizations is typically not possible, managers may utilize residential mortgage-related indices (such as the ABX), commercial mortgage-related indices (such as the CMBX), and CDS (credit default swaps) to hedge broader market risk. Structured corporate credit Structured corporate credit typically focuses on CLOs, CBOs and corporate credit index tranches (e.g. High Yield CDX indices). In these strategies, managers could be either directional or relative value, or both. An example of a directional trade would be a manager purchasing specific tranches of a CLO trading at distressed prices, based upon the expectation that ultimate cash flows will exceed the value of the security at its purchase price. An example of a relative value trade would be a manager taking advantage of technical inefficiencies in the relative pricing of two different tranches of an index, for example (i.e. a calendar trade). While there are specialists in the two sub-sectors listed above, there are also managers that invest across the structured credit universe, which we would categorize as multi-strategy Structured Credit approaches. Reinsurance Reinsurance is an income-based strategy where managers attempt to generate returns by insuring catastrophe and other risks where other insurance (or reinsurance) companies want to offset some of their risk. Reinsurance strategies have historically had little correlation to more traditional capital 27

28 market investments and thus have the potential to be a source of diversification within a portfolio. The risks within a modestly diversified portfolio of reinsurance investments are expected to be largely uncorrelated to each other (i.e. should be little correlation between hurricanes that may impact the US and Japanese earthquakes). Managers may employ a number of different approaches. Traditional Reinsurance (providing insurance to insurance companies) involves engaging in a contract directly with an insurance company where specific risk(s) is assumed and the methodology for triggering a payout is defined in the contract. Retrocession takes this concept one step further by providing reinsurance to reinsurance companies. A series of diverse risks are often bundled together into a single contract; this has the potential to result in pricing advantages that can accrue to both the writers of the contracts (i.e. money managers in this case) and the end users. Managers often invest in both traditional reinsurance and retrocession in a collateralized format where the full amount of capital that is theoretically at risk (known in industry terms as the "limit") is held in a trust account from which losses can be paid. Managers may also utilize Insurance Linked Securities ("ILS") such as Catastrophe Bonds and Industry Loss Warranties. Catastrophe Bonds are issued by insurers and are typically the most liquid instrument but generally offer lower potential returns. Industry Loss Warranties (ILWs) reference the overall loss due to an event at an industry level, rather than for a specific insurer. These instruments trade in swap-like format where protection can be bought and sold. Liquidity is somewhat lower than in the catastrophe bond market, with the potential return and volatility profiles being somewhat higher. Managers will also occasionally use this market to hedge certain risks in their portfolios (i.e. buy protection) that they deem unacceptable. Other There are several other types of income-generating, carry-based strategies that do not fit into one of the above sub-strategy categories. Although they are more niche approaches, the risk/return profile falls within the Credit/Income category and so we reflect them here as opposed to in the Other Niche category. Some multi-strategy Credit managers will employ one or more of these strategies alongside the more dominant Credit/Income strategies. Direct private lending (loan finance, loan-based lending, mezzanine finance, middle-market lending) Asset-backed lending (ABL) PIPES / Reg-D Microfinance Factoring (e.g. receivables/invoice factoring, rents, alternative finance, government attorney fees, etc.) Life insurance premium finance Life/viatical settlements and traded life policies (TLP) Structured settlements (liabilities settlements, e.g. personal injury, workers' compensation, etc.) Film finance Media rights (film, TV, music, games) Patents and royalty streams (e.g. drug royalties) SPACs (special purpose acquisition company) Trading Global Macro Global macro encompasses funds that have the broadest mandate and trade in all asset classes around the world, including but not limited to equity, fixed income, foreign exchange (FX) and commodities. These managers generally focus on underlying macro-economic fundamentals in developing their investment theses. Technical data or money flows may also be considered in 28

29 developing trade themes. The managers establish opportunistic long or short market positions in an attempt to profit from anticipated market moves. Macro managers tend to be highly sophisticated and are generally adept at using derivatives or leverage in an attempt to increase returns while protecting against loss. Similar to those Trading managers operating in the systematic space, macro managers tend to be adept at moving capital to those markets offering the potentially robust opportunity sets. Historically, they also have been able to outperform in periods of market volatility and trending markets. Periods of global central bank activity and monetary intervention are typically favorable environments for this strategy. Historically, the Index Sponsor separated emerging markets as its own sub-strategy, given the sufficiently independent risk profile we believed these strategies used to maintain. However, the expansion of market linkages across developed and emerging economies has broadened the overall investment landscape for managers across all strategies in a meaningful way. The influence of the BRIC nations (Brazil, Russia, India and China) and the rising importance of G20 economies can be measured in the size and scope of their populations, GDP and foreign exchange reserve positions. The investment flow of funds to the developing markets also reflects the modernization of their financial markets, stability of fiscal position and more stable political infrastructure. Finally, the financial turmoil in Europe has blurred the credit rating landscape of sovereigns; effectively widening the universe for discretionary managers. Given these developments, for managers that invest materially in emerging markets, the Index Sponsor believes it is now more appropriate to categorize them based upon the assets traded and the investment strategy employed (Equity Hedged, Credit, Relative Value, or Trading). As such, managers that invest across asset classes in emerging markets, generally with a top-down trading-oriented approach will be categorized as global macro. Systematic Systematic traders, many of whom are also known as commodity trading advisers (CTAs), typically trade listed financial and commodity futures and interbank markets around the world. These managers utilize highly sophisticated technical models to analyse price and market data in order to identify trading opportunities. There are three types of systematic traders: trend-following, non-trend following, and systematic macro. Trend-following traders seek to profit from sustained price movement in any direction by focusing on medium to longer-term price behaviour. Non-trend following traders typically employ shorter-term momentum, mean reversion, volatility breakout, pattern recognition and counter-trend models. Systematic macro traders use econometric variables representing inflation and growth from both a value and/or a momentum perspective. Portfolio construction varies greatly across the different funds, and each manager's approach to market diversification, asset allocation, contract weightings and leverage might differ in the effort to maximize risk-adjusted returns. Historically, market volatility has benefited the performance of CTAs, particularly those managers operating in the short-term, non-trend following strategy. Commodities Commodity markets exhibited dramatic growth over the last decade, pre-dominantly driven by increasing global demand, due to significant emerging markets development. New technologies, applied to satisfy the ever rising demand for commodities, have resulted in a dynamically changing supply/demand picture, offering manifold trading opportunities for specialized market participants. Managers in this strategy utilize both directional and relative value approaches in an attempt to capture the opportunity set. 'The funds' market sector exposure may vary greatly across energies, grains & oilseeds, so-called "softs" (such as cocoa, coffee, cotton, orange juice or sugar), and industrial and precious metals. Idiosyncratic supply/demand dynamics can drive markets, with factors such as weather patterns, planting acreage, energy supply disruptions, and exploration influencing market prices. The managers typically employ a discretionary approach to this single asset class by using both macro and micro variables to build portfolios. Multi-Strategy Multi-Strategy Some hedge funds invest in a combination of strategies, often as a result of commonalties in the research and trading talent required for successful execution of the strategies. These funds allocate capital opportunistically among strategies believed to offer a suitable risk-adjusted return going forward. Multi-strategy funds can be relatively attractive by incorporating this flexibility through strategy diversification and asset allocation. 29

30 In some cases, multi-strategy funds may be structured with individual portfolio managers having autonomous control over specific strategies, while receiving a specified risk allocation at the aggregated fund level. In other cases, one or more primary portfolio manager may treat the various strategies less like separate funds and more like one cohesive unit. Regardless of their structure, one of the benefits of multi-strategy funds is that they seek to provide investors is the ability to shift capital rapidly across various strategies in response to changes in the opportunity sets while maintaining a competitive edge and sector expertise. Further, financing costs may be reduced by the ability to borrow at a lower rate for the fund as a whole versus individual strategies. This potential benefit may also create potential additional risks, if certain riskier and more volatile strategies (a classic example would be commodity trading) are not properly ring fenced through a separate legal structure. Fund of Funds This category is used to define an investment vehicle that allocates capital across multiple investment managers and/or vehicles. The Index Sponsor divides the universe of fund of funds into three types: 1) Broad Based Diversified; 2) Broad Based Neutral; and 3) Strategy/Region Specific. Other Niche This category contains investment approaches that are outside of the mainstream hedge fund strategies listed above. While some industry participants consider niche strategies as "hedge funds", others might argue that such approaches belong in an entirely separate asset class. This is especially true for borderline strategies, including certain private equity and real estate dealings. Besides funds dedicated to these fringe strategies, the Index Sponsor has seen a fair number of traditional hedge funds dabbling in niche approaches, and thus developed a separate category for them. Below is a summary list of the types of strategies that would currently fall into this category. Please note the list is not exhaustive and can be expected to change over time. Further, some of the categories may overlap. Hopefully this list provides a general picture of the types of investment approaches that would fall into the category. Emissions trading Equipment leasing / venture leasing Infrastructure investing Litigation (including tort liability insurance) Natural resources Private Equity Real Estate (e.g. land, buildings, etc.) Clean/Renewable energy (investing/trading in water, wind, solar, etc.) Timber Wine Risk Parity There has been a recent trend in the industry for investors to allocate increasingly to Risk Parity or Risk Premia Parity strategies, often including them within their Hedge Fund or Alternative buckets. In general, Risk Parity managers typically actively rebalance allocations to a diverse set of assets in an attempt to take advantage of market pricing anomalies. The approach focuses on a high level of diversification within the portfolio but generally maintains a long-bias. Risk Parity generally focuses on the passive allocation of risk, rather than of capital, in an attempt to provide a higher Sharpe ratio alternative to the traditional 60% stock / 40% bond portfolio through the use of a wider range of uncorrelated assets, low leverage, and low equity risk. These approaches, while certainly an alternative to traditional asset allocation, are not hedge fund strategies. 30

31 Liquidating / Side Pockets This category comprises exposure remaining to funds after a redemption notice has been placed and reached value date. The remaining exposure is typically less liquid in nature and often invested in private equity, real estate, or litigation claims that may take an unspecified amount of time to exit. Although these types of securities are among the most common remaining investments we see post-redemption, the underlying holdings can vary broadly. VIII. Adjustments The Index Sponsor is solely charged with constructing and rebalancing the Index in its reasonable discretion. In the event that Index Components are altered by virtue of corporate actions, insolvency, dissolution or nationalisation of any Index Component the Index Sponsor will evaluate such changes and use its reasonable judgment to maximise the level of the Index in rebalancing the Index. The Index Sponsor may also adjust the Index Fees or the calculation method thereof in its reasonable discretion if it considers an adjustment as necessary. The Subfund is not sponsored, endorsed, sold or promoted by the Index Sponsor or the Index Calculation Agent. Neither the Index Sponsor nor the Index Calculation Agent does make any representation or warranty, express or implied, to the Subfund's investors or any member of the public regarding the advisability of investing in securities generally or in the Subfund shares particularly. The Index Sponsor composes and the Index Calculation Agent calculates the Index without regard to the Subfund shares. Neither the Index Sponsor nor the Index Calculation Agent is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Subfund shares to be issued or in the determination or calculation of the equation by which the Subfund shares are to be converted into cash. Neither the Index Sponsor nor the Index Calculation Agent has any obligation or liability in connection with the administration, marketing or trading of the Subfund shares. 31

32 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND DIVERSIFIED CHF This specific section describes the particulars of the Subfund SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified CHF and is part of the general sales prospectus. Therefore, all information given herein should be considered in conjunction with this general prospectus. Profile of the typical investors The Subfund is suitable for investors with a relatively long investment horizon who consider investments in this Subfund as a convenient way of participating in the performance of the Key Multi-Manager Hedge Fund Diversified CHF Index (the "Index"). The Index reflects the performance of a notional portfolio comprised primarily of hedge funds (single manager and fund of hedge funds) and certain financial instruments as further described below. The performance of the Subfund is determined by the performance of the Index. If the level of the Index increases from Launch Date, then this will result in a comparable increase in the performance of the Subfund; conversely if the level of the Index decreases from Launch Date, then this will result in a comparable decrease in the performance of the Subfund. The strategy as described herein is a high risk investment which does not provide any right of repayment of capital invested and as such, should the Index Components (as defined below) not perform favourably, then investors will incur a partial or total loss of capital invested. Shares of the Subfund are exclusively available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. The Fund reserves the right to compulsorily redeem shares that are not held in accordance with the aforementioned requirements or for other regulatory, legal or tax obligations of the Subfund. Those shares will be redeemed at the prevailing net asset value per share. Investment objective The investment objective of the Subfund is to generate capital appreciation by providing investors with a return linked to the performance of the Key Multi-Manager Hedge Fund Diversified CHF Index, a diversified hedge fund index, as further described below. Investment policy The Subfund will principally invest in equity and debt securities issued by corporate entities domiciled in any OECD country and listed or traded on regulated markets of an OECD country (the "Investment Portfolio"), and for the purpose of meeting its investment objective the Subfund will enter into a performance swap agreement (the "Swap Agreement") negotiated at arm's length with UBS AG (London branch), with another counterparty the obligations of which under the Swap Agreement are guaranteed by UBS AG or with another first class financial institution specialised in this type of transactions (the "Swap Counterparty"). Under the terms of the Swap Agreement, the Swap Counterparty delivers to the Subfund exposure to the Index (as described below) (the "Investment Strategy") and the Subfund delivers to the Swap Counterparty a total return exposure to the Investment Portfolio. As of 3 rd November 2010 the Swap Counterparty changed from UBS AG (London branch) to STAR Compass plc, with all obligations under the Swap Agreement being guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. STAR Compass plc is a special purpose vehicle (in the form of a public limited company) established under the laws of Ireland and in relation to this transaction, its sole purpose is to act as swap counterparty and securities lending counterparty to various Subfunds of the Fund. The Subfund may hold liquid assets on an ancillary basis. The Subfund may not invest directly in other undertakings for collective investment in transferable securities (UCITS) and/or open-ended undertakings for collective investment (UCI). 32

33 The Subfund will only utilise leverage to a limited extent by which the exposure of the Subfund will not exceed 225% of the NAV when calculated applying the gross method in accordance with Article 7 of Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 and 125% of the NAV when calculated applying the commitment method in accordance with Article 8 of Commission Delegated Regulation (EU) No 231/2013 of 19 December The Subfund will enter into securities lending transactions in order to generate additional income with UBS AG, Zurich or such other counterparty in accordance with the requirements and regulations of the CSSF and of which obligations under the relevant securities lending agreement are guaranteed by UBS AG or such other counterparty specialised in this type of transactions (the "Securities Lending Counterparty"). As of 3 rd November 2010 the Securities Lending Counterparty changed from UBS AG, Zurich to STAR Compass plc with all obligations under the Securities Lending Agreement guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. The Swap Agreement will incorporate the terms of and be governed by a master agreement based on the standard 1992 ISDA Master Agreement governed and construed in accordance with English law and published by the International Swaps and Derivatives Association, Inc. The Swap Agreement will be valued on a consistent and monthly basis by the calculation agent ("Swap Calculation Agent") being UBS AG (London branch) or such other party as accepted by the Board of Directors from time to time, in accordance with the prevailing market parameters and valuations. The valuation methodology is outlined below. The Swap Counterparty will provide a trading price at which the Subfund can increase or decrease the Swap Agreement notional amount. Such a facility will be available on each Valuation Day when requested by the Portfolio Manager. The notional amount of the Swap Agreement will be the proceeds raised at the Launch Date and, in the case of subsequent subscriptions and/or redemptions, the notional amount will be adjusted accordingly. The Swap Agreement may be terminated or otherwise cancelled in accordance with its terms. The Swap Agreement will be entered into for a 5 year term as outlined therein. Thereafter it will be extended for consecutive 5 year periods, subject to the consent of the Board of Directors of the Fund and the Swap Counterparty at the end of each period (each such expiry date also being a relevant "Maturity Date") and the end of the last such period being the final maturity date (the "Final Maturity Date"). The Swap Counterparty has the option to early terminate the Swap Agreement in various circumstances upon the provision of adequate notice to the Subfund; in such circumstances, the early termination date would become the Final Maturity Date. The Swap Agreement neutralises the performance of the Investment Portfolio. Consequently, any income (including dividends) and capital gains from the Investment Portfolio are delivered to the Swap Counterparty under the Swap Agreement and will not be paid to investors in the Subfund. Risk Profile: The Subfund replicates the performance of a hedge fund index. It is therefore exposed via the Swap Agreement to less liquid financial instruments, a wide range of asset classes and potentially leverage in some of the index components. A significant portion of the Subfund is exposed to less liquid instruments, whose prices could fluctuate in certain market conditions. This potential for higher volatility has determined that the Subfund be classified in a high risk category. Interim Swap Flows: In accordance with the Swap Agreement, and for the first time on 6th January 2009 and thereafter on the 3rd Subfund Business Day of each quarter until the Final Maturity Date: The Swap Counterparty will pay to the Subfund an amount, which corresponds to all fees and operating charges and expenses incurred by the Subfund as referred to in the section "Fees and Expenses" below. The Subfund will pay to the Swap Counterparty the income received on the Investment Portfolio and on any ancillary liquid assets. 33

34 Maturity Swap Flows: At the end of the relevant term, amounts to be paid out under the Swap Agreement are determined on the basis of the following formula: Amount payable = outstanding Notional Amount on Final Maturity Date * (ISm IPm) where: ISm = performance of the Investment Strategy in CHF (consisting of exposure to the Index calculated on the basis of the liquidation proceeds that the Swap Counterparty would actually receive in respect of the hedge position under the Swap Agreement by redeeming or selling such hedge position, as determined by the Swap Calculation Agent; or, if agreed by the Fund and Swap Counterparty, an amount equal to the estimated level of the Index as determined by the Swap Calculation Agent) at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. IPm = performance of the Investment Portfolio in CHF at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. If the amount is positive, then the Swap Counterparty will pay the amount to the Subfund. If the amount is negative then the Subfund will pay the amount to the Swap Counterparty. Valuation of Swap Agreement and its effects on the performance of the Subfund Before each Maturity Date, except for decreases of the notional amount, no payment is made to the Subfund in relation to the performance of the Investment Strategy. The performance of the Investment Strategy is taken into account in the meantime by virtue of the Swap Agreement in the calculation of the Net Asset Value per share of the Subfund. Accordingly, the valuation of the Swap Agreement determines the performance of the Subfund. On any Valuation Day after the Launch Date but before the Maturity Date, the value of the Swap Agreement is determined as follows: Outstanding Notional Amount on the relevant Valuation Day * (ISi IPi) ISi = the estimated performance of the Investment Strategy in CHF (consisting of exposure to the Index) at close of business on that Valuation Day in relation to the initial value when the relevant agreement commenced, as determined by the Swap Calculation Agent. For the avoidance of doubt the estimated performance of the Investment Strategy will be calculated based on the latest estimated valuations of the Index Components (as defined below) multiplied by their weights provided on or before the relevant Valuation Day and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as at the Valuation Day (and not on the final Index level which is calculated on a one month delayed basis as outlined below) as determined by the Swap Calculation Agent on that Valuation Day. IPi = performance of the Investment Portfolio at close of business on the relevant Valuation Day in relation to the initial value when the relevant agreement commenced. Guarantee The irrevocable and unconditional Guarantee was issued on the 3rd November 2010 by UBS AG (London branch), 1 Finsbury Avenue, London EC2M 2PP (the "Guarantor"). UBS AG (London branch) is the London branch of UBS AG, a company incorporated under the laws of Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel, Switzerland and Bahnhofstrasse 45, CH-8098 Zurich, Switzerland. The Guarantor irrevocably and unconditionally guarantees to the Subfund the due and punctual observance and performance by STAR Compass plc under the Securities Lending Agreement and Swap Agreement and agrees to pay to the Subfund from time to time on demand any and every sum or sums of money from time to time due and payable (but unpaid) by STAR Compass plc under or pursuant to the Securities Lending Agreement or Swap Agreement. The Guarantee exclusively aims at covering the Subfund's counterparty risk on STAR Compass plc and the Subfund's risk on the failure of STAR Compass plc to perform its obligations under the 34

35 Securities Lending Agreement and the Swap Agreement. The Guarantee does not guarantee any investment returns upon redemption or at Maturity Date. Market Making UBS AG will make a market in the shares of the Subfund for investors who wish to realise their investment outside of the normal subscription and redemption cycle (as further described below under "Secondary market"). Key Multi-Manager Hedge Fund Diversified CHF Index The Index is a CHF denominated index which reflects the performance of notional index components comprising (i) various private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the "Financial Instruments" (as described below), (iii) the Cash Position (as described below) and (iv) certain CHF/USD-Hedging Arrangements (as described below), (which together with the Hedge Funds, the Financial Instruments and the Cash Position, shall be referred to as the "Index Components"). The level of the Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). Index Sponsor and Index Calculation Agent: UBS Switzerland AG created the Index and is responsible for the selection, rebalancing as well as the management of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). Each of the Index Sponsor and Index Calculation Agent may delegate all or parts of its duties to other group entities within the UBS Group or a third party. Further details on the Index are included in the Appendix below. Collateral In order to reduce the credit risk exposure of the Subfund to the Swap Counterparty and the Securities Lending Counterparty (together the "Counterparty"), the Counterparty will provide the Subfund with collateral which should at least correspond to 90% of the Net Asset Value of the Subfund on any Valuation Day. This collateral will consist of eligible assets in accordance with the requirements and regulations of the CSSF and may include units of funds of hedge funds and claims against protected custody accounts opened with a regulated custodian in which the collateral assets are held. Should the Subfund exercise economic ownership control over collateral such collateral shall be subject to section 17. "INVESTMENT GUIDELINES". Collateral received will not be reinvested or otherwise reused. Risk Considerations Investment risk: no capital protection: the Subfund is a high-risk investment and employs no capital protection techniques or capital guarantees. Accordingly, investors are not entitled to repayment of the capital invested. The full amount of an investor's subscription is at risk and may be lost. Investment risk: achievement of investment objective: the investment objective of the Subfund is to generate growth in value. The return of the Subfund will be linked to the return of the estimated Index level as determined by the Swap Calculation Agent subject to certain adjustments or, at the Final Maturity Date, to the final Index level. There can be no assurance that the Index level will increase in value, and accordingly there is no assurance that the Subfund's investment objective will be attained. Investment risk: alternative investment index risk: the return of the Subfund will be linked to the return of the estimated Index level as swap underlying. Investors in the Subfund are therefore exposed to general risks inherent in the Hedge Funds, as well as specific risks associated with the Index. Such risks include but are not limited to the following: The risk that the Index Sponsor is not effective in selecting appropriate Hedge Funds components that will generate positive returns over the long term. 35

36 The risk that the Hedge Funds may suspend the calculation of their net asset values which could impact the calculation of the Index level or estimated Index level as relevant and could lead to a suspension of subscriptions and redemptions of the Subfund shares. Hedge funds are generally considered to be unregulated investment vehicles. They may sell securities short, use significant levels of leverage, invest in various asset classes and instrument types including derivatives and commodities, whether traded on a regulated market or over the counter, and may not be required to diversify their investments. Accordingly, investments in hedge funds are generally considered to have a greater degree of risk than investments in regulated funds. To the extent that the Hedge Funds invest in the securities markets of developing countries, the political, regulatory and economic risks inherent in investments in emerging markets' securities are significant and may differ in kind and degree from the risks presented by investments in the world's major securities markets. These may include greater price volatility, substantially less liquidity and controls on foreign investment and limitations on repatriation of invested capital. The risk that the Index or any of the Hedge Funds diverge from their stated investment objectives and take on greater than expected levels of investment risk. The risk that some or all of the investments are illiquid. Accordingly, some or all the Hedge Funds may be unable to redeem from and/or sell the underlying investments in a timely manner which may affect the liquidity of the Subfund. The risk of incorrect or stale investment values. The Hedge Funds and their investments may include assets which are not traded on an exchange or regulated market. Accordingly, their values may be difficult to determine and may be based on models or quotes provided by the relevant manager. These values may be incorrect or stale and may not reflect fair value. Lack of operating history of managers. The Index may include Hedge Funds whose managers have no, or a very short, performance history. Such investments may involve greater risks than those with more established managers. Operational risks of the managers, including inadequate back office functions, trade processing, accounting, administration, risk management, valuation services and reporting. Reliance on key personnel in the Hedge Funds components selection process. The loss of key personnel at both the Index Sponsor and the Hedge Funds could materially and negatively impact the value of the Index. Limited capacity of managers. In order to deliver positive returns, some managers close their funds to new subscriptions once their fund has reached a certain size. The Index may be unable to reference underlying funds at all times, and therefore from time to time, the Index may in part also reference cash or money market instruments. Risk of lack of regulatory oversight. The Hedge Funds are domiciled in countries providing significant investment discretion and which are generally considered to be lightly regulated. For example, the Hedge Funds are generally not required to deposit their assets with an independent custodian bank. Instead, such assets may be deposited with brokers or other intermediaries who do not provide for segregation of client assets. The Net Asset Value of the Subfund will be affected by various levels of fees, including fees at the level of the Subfund, the Index and the Index Components. These fees may include asset-based as well as performance fees. Consequently, performance fees may be charged in periods when the Net Asset Value of the Subfund has fallen. Additionally, performance fees may be paid on unrealised gains which in fact are never realised. Foreign currency risk: The Hedge Funds are mostly denominated in USD. The Hedge Funds in turn may invest in assets denominated in various currencies. The Index is initially calculated in USD, and an adjustment is made to reflect the effect of currency hedging between USD and CHF. It is not intended that the currency hedging of the Index will be 100% effective. The level of the Index and the return to investors in the Subfund could be adversely affected not only by hedging costs and changes 36

37 in exchange rates but also by local exchange control regulations and other limitations, including currency exchange limitations and political and economic developments in the relevant countries. Liquidity Risk: The risk that the Fund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares. Collateral Risk - The Fund has made all reasonable endeavours to ensure the collateral is enforceable under the relevant laws and regulations. However, there is a risk that as a result of a change in, or amendment to, the applicable laws and regulations, the collateral may become unenforceable. Valuation risk estimated Index level: the main determinant of the monthly Net Asset Value per share of the Subfund is the level of the Index on the Valuation Day. The final Index level is provided monthly by the Index Sponsor, typically within a month after the relevant Valuation Day. In order to calculate the value of the Swap Agreement on any Valuation Day (other than the Final Maturity Date) at which the Subfund can trade with the Swap Counterparty, the estimated Index level will be determined by the Swap Calculation Agent based on estimated values of the Hedge Funds provided to the Swap Counterparty by the managers or administrators of the Hedge Funds on or before the Valuation Day and may be adjusted to reflect expected changes to the estimated valuations as at the Valuation Day; where the values of any Hedge Funds are not available or, in the opinion of the Swap Calculation Agent, are otherwise unreliable or unrepresentative, the Swap Calculation Agent may estimate in good faith the value of such Hedge Funds in order to determine the estimated value of the Index on the Valuation Day. The value of the Index used in determining the Net Asset Value per share of the Subfund may differ from the final Index level for the relevant month as provided by the Index Sponsor. In such circumstances, the value of the Swap Agreement and the Net Asset Value per share of the Subfund will not be revised or otherwise amended to reflect any such difference. Valuation risk final Index level: The Net Asset Value per share of the Subfund at the Final Maturity Date will be based on the final Index level as calculated by the Index Calculation Agent. In valuing the Hedge Funds, the Index Calculation Agent may need to rely on financial information provided by the managers of the Hedge Funds themselves. Independent valuation sources such as exchange listing may not be available for the Hedge Funds of the Index. The net asset value of the Hedge Funds may be finalized using estimated values provided by the managers or administrators of the Hedge Funds. In most cases, the Index Calculation Agent will have no ability to assess the accuracy of the valuations received. In certain cases, the values provided by the managers or administrators of the Hedge Funds may subsequently be amended; e.g. as a result of adjustments identified as part of the annual audit of the underlying schemes. In such circumstances, the value of the Index and the Net Asset Value per share of the Subfund at the Final Maturity Date will not be revised or otherwise amended to reflect any such difference. Effect of Substantial Redemptions: A number of events could trigger substantial redemptions from a Hedge Fund. Actions taken to meet substantial redemption requests could result in a decrease in prices of financial instruments. The overall value of Hedge Funds may also decrease because the liquidation value of certain assets may be materially less than their mark-to-market value. Hedge Funds may be forced to sell their more liquid positions, may need to maintain greater amounts of cash and cash-equivalent investments than they would otherwise maintain and may also be restricted in their ability to obtain financing or derivatives counterparties needed for certain investment and trading strategies. Settlement of redemption amounts prior to the Final Maturity Date: redemption proceeds will generally be paid no later than 2 Subfund Business Days following the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. Settlement of redemption amounts on the Final Maturity Date: redemption proceeds will generally be paid after one calendar month plus 5 Subfund Business Days following the Final Maturity Date. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. 37

38 Early Maturity: Under the terms of the Swap Agreement, the Swap Counterparty may terminate the Swap Agreement on a calendar quarter-end prior to the Maturity Date. In such circumstances, the date of the early termination would become the Final Maturity Date of the Subfund, and the Subfund would terminate unless the Subfund enters into another swap agreement with another counterparty. The Swap Counterparty must give at least 100 calendar days' notice to the Subfund prior to an early termination date. Index disruption: If the Swap Calculation Agent determines the Index has been replaced with another index, or the Index is likely to cease to be calculated by the Index Calculation Agent or maintained by the Index Sponsor, then the Swap Counterparty and the Subfund may agree to use another index, and the terms of the Swap Agreement may be amended accordingly. Alternatively, the Swap Agreement may be terminated and accordingly the Subfund would terminate as well as set out above unless the Subfund enters into another swap agreement with another counterparty. Counterparty Risk: the Subfund is exposed to the risk that the Swap Counterparty (together with the Guarantor) may default on its obligations to perform under the Swap Agreement and that the Securities Lending Counterparty (together with the Guarantor) may default on its obligations to deliver equivalent collateral. In assessing this risk, investors should recognise that the Swap Counterparty will pledge collateral to ensure that the net credit risk of the Subfund to the Swap Counterparty will not exceed 10% of the Net Asset Value of the Subfund; and the Securities Lending Counterparty will pledge collateral equivalent to the value of the securities under loan. In circumstances where UBS AG (or another single counterparty) is both the Swap Counterparty and the Securities Lending Counterparty, then the net exposure to UBS AG, or another single counterparty, will be collateralised such that the net credit risk to the relevant counterparty will not exceed 10% of the overall net exposure to that counterparty. Taxation: Potential shareholders should seek information on the taxation laws and regulations in force and, where appropriate, seek advice on the subscription, purchase, possession and sale of shares at their place of residence. Further information on taxation is provided in the section "Taxation" of Section II. Use of Derivatives: The Swap Agreement is a structured derivative transaction as part of the investment strategy. While the prudent use of such a derivative can be beneficial, derivatives also involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Structured derivative transactions are complex and may involve a high degree of loss. The aim of the Swap Agreement is to deliver exposure to the Investment Strategy and as such, the use of the Swap Agreement is not speculative in nature. Alternative Investments: The Subfund may take advantage of opportunities with respect to certain other alternative instruments that are not presently contemplated for use by the Subfund or that are currently not available, but that may be developed, to the extent such opportunities are both consistent with the investment objective of the Subfund and legally permissible for the Subfund. Certain alternative instruments may be subject to various types of risks, including market risk, liquidity risk, the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty, legal risk and operations risk. Avoidance of conflicts of interest: The units within the UBS Group who are providing services to the Subfund operate as independent entities and in order to avoid possible conflicts of interest, all transactions between these entities and the Subfund are undertaken at arm's length prices, always keeping in mind the best interest of the shareholders. In particular, the estimated level of the Index on any Valuation Day prior to the Final Maturity Date will be determined by the Swap Calculation Agent based on estimated values for the Index Components and agreed by the Index Sponsor, both of whom may be different entities or divisions within UBS AG. In the normal course of business, UBS Group and/or its directors, officers and employees may have or may have had interests in the Hedge Funds. Such activity may or may not affect the value of the Index and Subfund. Although the Index Sponsor has agreed to use its best efforts in managing the Index, the Index Sponsor and its principals, members and affiliates (collectively the "Index Sponsor Parties") are not required to devote full time or any material portion of their time to managing the Index. The Index Sponsor is the investment adviser to a number of investment funds, including funds with investment objectives similar or substantially similar to those of the Index, and the Index Sponsor Parties advise 38

39 and may advise additional clients, some of which hold or may hold the same investments as are included in the Index. The Index Sponsor may in the future sponsor other indices similar to the Index. UBS Group may receive management fees, performance fees and other fees, if applicable, for such portion of the Index allocated to Index Components managed by any member of the UBS Group, which may constitute a significant percentage of the Index. Accordingly, in determining Index allocations, the Index Sponsor is subject to a conflict of interest because such allocation will result in higher amounts being allocated or paid to the UBS Group than if the Index was allocated exclusively to managers not affiliated with the UBS Group. Competition: Certain markets in which Hedge Funds may invest are extremely competitive for attractive investment opportunities. Thus, the managers of such Hedge Funds might not be able to identify or successfully pursue attractive investment opportunities in such environments and, as a result, there may be reduced expected investment returns. Economic conditions: Changes in economic conditions, including, for example, interest rates, employment conditions, competition, technological developments, political and diplomatic events and trends, and tax laws can affect substantially and adversely the business and prospects of the Hedge Funds. None of these conditions is within the control of the managers of such Hedge Funds and/or Index Sponsor and no assurances can be given that the managers of such Hedge Funds and/or Index Sponsor will anticipate these developments. The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Subfund. Prospective investors should read the prospectus and the articles of incorporation of the Fund and consult with their own advisers before deciding whether to invest in the Subfund. Investments in the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified CHF General Information Reference currency: CHF. This is the currency in which the Net Asset Value per share of the Subfund is calculated. The Swap Agreement is denominated in CHF. The Index is initially calculated in USD, and an adjustment is made to reflect the effect of currency hedging between USD and CHF. It is not intended that the currency hedging will be 100% effective. In addition, the Index Components, and in turn their underlying investments, may be denominated in currencies other than USD and CHF. Allocation of income: this Subfund will pursue an accumulation policy. Valuation Day: the Net Asset Value per share will be calculated as of the third last bank business day of each month (i.e. each day on which banks are open during normal business hours) in London, Zurich and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich and Luxembourg. "Non-statutory rest days" are days on which several banks and financial institutions are closed in London, Zurich and Luxembourg. The Board of Directors may, at its sole discretion, decide to fix one or more extraordinary Valuation Day(s) or alter the cut-off point for dealing instructions in order to better deal with subscriptions and redemptions in the Subfund. Any decision to fix an extraordinary Valuation Day will be notified to shareholders. In order to cover any costs associated with subscriptions and redemptions, and if in the interest of the Subfund's shareholders, the Board of Directors may decide to apply an extraordinary charge to the value of the subscriptions and redemptions and to reflect this extraordinary charge in the Net Asset Value of the Subfund. Issue of shares: shares may be issued monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to increase the notional of the Swap Agreement on a Valuation Day, then subscription applications of shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may 39

40 be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a subscription of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to increase the notional amount of the Swap Agreement, the subscription order may be rejected by the Subfund. In such case, the Subfund will execute the subscription order on the next Valuation Day on which the Swap Counterparty is prepared to increase the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward subscription applications to the Administrative Agent. No issue will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". Shares will be issued as non-certificated registered shares, unless otherwise decided by the Board of Directors. Upon request and against payment by the shareholder of all incurred expenses, share certificates may be issued in physical form. The Board of Directors reserves the right to issue share certificates in denominations of one or more shares, however fractions of shares will not be issued in certificated form. Global share certificates will not be issued. Redemption of shares: shares may be redeemed monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to decrease the notional of the Swap Agreement on a Valuation Day, then redemption applications relating to shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a redemption of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to decrease the notional amount of the Swap Agreement, the redemption order may be rejected by the Subfund. In such case, the Subfund will execute the redemption order on the next Valuation Day on which the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward redemption applications to the Administrative Agent. No redemption will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". In addition, the Board of Directors is empowered to: a) Reject a subscription application at its discretion and to discretionarily decide to accept subscription requests on any other Valuation Day; b) At any time redeem shares of the Subfund held by shareholders who are not qualified to purchase or hold shares of the Subfund. Such redeemed shares are reimbursed to the shareholders and thereby cease to be valid. Subfund Business Day: days on which the TARGET system is open and normal bank business days (i.e. each day on which banks are open during normal business hours) in London, Zurich, New York, Cayman Islands and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich, New York, Cayman Islands and Luxembourg. "Non-statutory rest days" are days, on which several banks and financial institutions are closed in London, Zurich, New York, Cayman Islands and Luxembourg. Secondary market: UBS AG (the "market-maker") will make a market in the shares of the Subfund. Shareholders may sell shares to the market-maker on each business day. The price at which shares can be traded with the market-maker may differ from the most recent Net Asset Value of the Subfund. 40

41 Pursuant to a Market Maker Agreement between the market-maker and the Fund, the market-maker may decide not to buy shares of the Subfund in the secondary market if the market-maker determines, in its sole discretion, that one of the following extraordinary events has occurred: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) the stock exchanges or markets on which the valuation of a major part of the Fund's assets is based or when the foreign exchange markets corresponding to the currencies in which the Net Asset Value or a considerable portion of the Subfund's assets are denominated, are closed, except on regular public holidays, or when trading on such a market is limited or suspended or temporarily exposed to severe fluctuations; political, economic, military or other emergencies beyond the control, liability and influence of the Fund make it impossible to access the Subfund's assets under normal conditions or such access would be detrimental to the interests of the shareholders; disruptions in the communications network or any other reason make it impossible to calculate with sufficient exactitude the value of a considerable part of the Subfund's net assets; limitations on exchange operations or other transfers of assets render it impracticable for the Fund to execute business transactions, or where purchases and sales of the Subfund's assets cannot be effected at the normal conversion rates; when for any other reason the prices of any investments owned by the Fund cannot promptly or accurately be ascertained; upon the publication of a notice convening a general meeting of shareholders for the purpose of resolving the winding-up of the Fund; a violation by the Fund or change of any material terms of the prospectus or constitutional documents which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; any restriction or limitation or suspension or deferral or delay of redemptions of, or subscriptions for, shares in the Subfund (including, without limitation, any partial payment of redemption proceeds or the introduction or increase of any associated fee, cost or expense, the introduction or use of gating or a side pocket, or any restructuring, reorganisation or action that has a similar impact to gating or a side pocket), or any mandatory redemption of shares of the Subfund; any review or investigation of the activities of the Fund or the Subfund by a relevant regulator, in connection with suspected or alleged wrongdoing or breach of any rule or regulation, or other similar reason, or any disciplinary action taken by such regulator in connection therewith which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; if as a consequence of shareholders of the Fund selling shares of the Subfund to the market-maker, the market-maker would become the beneficial owner of 25% or more of the shares of the Subfund; any winding-up, liquidation of, or any termination or any loss of regulatory approval, licence or registration of, the Portfolio Manager, or any merger, de-merger, winding-up or liquidation of or affecting the Fund or the Subfund; any arrangement between the market-maker and the Fund or the Subfund including arrangements relating to subscriptions for, and redemptions of, shares in the Subfund, is changed or terminated; and/or (m) the Fund or the Subfund becomes party to any litigation or dispute which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Sub-fund. Specific reasons for the suspension of the Net Asset Value calculation and/or issue, conversion and redemption of shares: Notwithstanding the reasons set out in Section II "Suspension of the Net Asset Value calculation and of the issue, conversion and redemption of share" the Subfund may temporarily suspend calculation of the Net Asset Value per share of the 41

42 Subfund and/or the issue and redemption of shares when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to restrictions on subscriptions or redemptions of the entirety of or some of the hedging positions. Subject to an extraordinary event, including without limitation, liquidation or force majeure, the Subfund will ensure that investor's shares will be redeemed within 12 months following the request for redemption but in no case later than within 36 months. UBS Group: UBS AG together with its branches and affiliates (which shall for this purpose mean any entity owned by and/or under common ownership or control of UBS Group AG.) Portfolio Manager: UBS Asset Management (UK) Ltd. The Portfolio Manager is part of UBS Asset Management, a business group of UBS AG. The Portfolio Manager is regulated by the UK Financial Conduct Authority. Launch Date: 16 October 2008 Share classes The Board of Directors can issue several classes of shares for the Subfund. Currently, the following share class is offered: I-class available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. Fees and Expenses The Subfund will bear all the costs incurred in connection with the management, administration, portfolio management of the Subfund's assets (the "Flat Fee"), which will be calculated based on the Net Asset Value of the Subfund and in total will not exceed 0.45% per annum of the Net Asset Value per share and be payable on a quarterly basis. The Depositary will receive a fee that will not exceed 0.05% per annum of the Net Asset Value per share calculated and payable on a quarterly basis. In addition, the Subfund shall bear the expenses (the "Additional Expenses") as described in Section II 12. Charges and Expenses. As described above, the Swap Counterparty pays the Subfund on a quarterly basis an amount corresponding to the aforementioned fees and costs and all additional costs incurred by the Subfund. Fees which are borne by the investor directly are the following: Issuing commission of up to 3% of the issue price per share; Redemption charge of up to 0.5% of the Net Asset Value per share to be redeemed, which may be increased up to 5% in periods of increased volatility of the Index Components or in the event that the Subfund experiences significant redemptions. Subscriptions On the Launch Date, the shares of the Subfund may be subscribed at a price calculated based on the latest estimated valuations of the Index Components multiplied by their weights provided on or before the Launch Date and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as of the Launch Date as determined by the Swap Calculation Agent on that date plus any stamp duties and fees. Investors may settle the subscription 'in-kind'. After the Launch Date, the issue price is based on the Net Asset Value per share. Any taxes, commissions and other fees that apply to investors in the different countries in which shares may be sold will also be charged in addition to the Net Asset Value per share. Sales agencies may charge investors an issuing commission of up to 3% of the issue price per share. 42

43 Example 1 sales commission applied in addition to investment amount Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares subscribed Total amount of subscription EUR 10,300 EUR 10,000 Example 2 sales commission applied to initial investment Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares issued Total subscription amount EUR 10,000 EUR 10,000 Subscriptions for shares in the Subfund are accepted by the Fund as well as by the sales agencies and paying agents, which forward them to the Fund. Subscriptions received on any Subfund Business Day prior to the time stated under "Issue of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent, earlier cut-off times may apply for submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. The issue price of the Subfund shares is paid no later than two Subfund Business Days following the relevant Valuation Day into the account at the Depositary in favour of the Subfund. In addition, the Fund may issue fractional shares up to three decimal places. However, no certificates are issued for these fractional shares. They are credited to the shareholder via an entry in the securities custody account of his or her choice. Fractions of shares do not confer the right to vote at general meetings, but will grant entitlement to a distribution or a proportionate distribution of the liquidation proceeds in the case where the Subfund is dissolved. In certain circumstances during the first six months after Launch Date, at the discretion of the Board of Directors, the Subfund may process subscriptions on a Subfund Business Day which is not a Valuation Day. In such cases, the assets and liabilities of the Subfund will be valued on that Subfund Business Day. Redemptions Redemption applications, accompanied by any certificates that might have been issued, are accepted by the Fund as well as at the sales agencies and paying agents, which forward them to the Fund. Applications for redemption received on any Subfund Business Day prior to the time stated under "Redemption of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent earlier 43

44 cut-off times may apply for the submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. In general, the value of redeemed Subfund shares is paid out no later than two Subfund Business Days after the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself and has not received redemption proceeds for whatever reasons with respect to its hedge, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. In addition, legal provisions, such as foreign exchange controls or restrictions on capital movements, or other circumstances beyond the control of the Depositary, may make it impossible to transfer the redemption amount to the country in which the redemption application was submitted. Any taxes, commissions and other fees incurred in the countries in which Fund shares may be sold will also be charged. The price, at which shares in the Subfund are redeemed, shall be calculated according to the Net Asset Value per share of the Subfund and of the relevant share class. In the event of an excessively large volume of redemption applications, the Board of Directors may decide to delay execution of the redemption applications until the corresponding assets of the Fund have been sold without unnecessary delay. Should such a measure be necessary, all redemption applications received on the same day will be calculated at the same price. In calculating the redemption price, the Subfund may on any Valuation Day when there are redemptions adjust the redemption price by deducting an amount of up to 0.5% from the Net Asset Value per share to be redeemed. However, in periods of increased volatility of the Index Components and/or in the event that the Subfund experiences significant redemptions such deduction may be increased up to 5% of the Net Asset Value per share. Example 3 redemption charge applied to redemption of shares Example where no redemption charge is applied Example where redemption charge of 0.5% is applied Example where redemption charge of 5% is applied Number of shares redeemed Net asset value per share EUR 100 EUR 100 EUR 100 Redemption charge (in %) 0% 0.5% 5.0% Redemption price per share EUR 100 EUR 99.5 EUR 95 Total redemption proceeds EUR 10,000 EUR 9,950 EUR 9,500 Conversions Conversions of shares into other Subfunds' shares of the Fund may be permitted. 44

45 Past performance The chart shows the investment returns of the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified CHF I-class calculated as a percentage of the change in Net Asset Value over the previous year. In general any past performance takes account of all ongoing charges but not the entry charge/issuing commission. The past performance is not an indicator for the future performance. The share class was launched on The past performance is calculated in CHF. 45

46 APPENDIX: INDEX DESCRIPTION Neither the Index Sponsor nor the Index Calculation Agent guarantees the accuracy and/or the completeness of the Index or any data included therein, and neither of them shall have any liability for any errors, omissions, or interruptions therein. Neither the Index Sponsor nor the Index Calculation Agent does make any warranty, express or implied, as to the performance of the Subfund, investors or any other person or entity from the use of the Index or any data included therein. Neither the Index Sponsor nor the Index Calculation Agent makes any express or implied warranties and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall either of the Index Sponsor or the Index Calculation Agent have any liability for any lost profits or indirect, punitive, special or consequential damages, even if notified of the possibility thereof. I. Background to the Index The Key Multi-Manager Hedge Fund Diversified CHF Index (the "Index") is a CHF denominated index which reflects the performance of (i) various private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the "Financial Instruments"), (iii) the Cash Position (as described below) and (iv) certain CHF/USD-Hedging Arrangements (as described below; which together with the Hedge Funds, the Financial Instruments, the Cash Position and the CHF/USD-Hedging Arrangements shall be referred to as the "Index Components"). The level of the CHF denominated Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). UBS Switzerland AG is responsible for the selection of the Index Components as well as the composition, management and rebalancing of the Index (the "Index Calculation Agent" or "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). It is at the full discretion of each of the Index Sponsor and the Index Calculation Agent to delegate their respective duties and rights related to the selection of the Index Components and to the composition, management, calculation and rebalancing of the Index, entirely or partially to another affiliated or non-affiliated party. The objective of the Index is to achieve a long-term appreciation. The Index seeks to achieve performance results that are less volatile in both rising and falling markets than direct exposure to traditional markets by selecting Index Components that utilize hedged strategies, among others. This is to be aimed for by diversifying both the approach according to which the Index mirrors investments in assets, i.e. Index Components and the respective types of instruments. The Hedge Funds included in the Index have broad flexibility to take long or short positions, employ leverage and use derivative instruments. The Index Sponsor will consider including in the Index Hedge Funds operating in all global markets. The Index Sponsor may include a revenue participation in Hedge Fund management companies within the Index. The Index may also include Hedge Funds which may be managed and/or owned by the Index Sponsor, the Index Calculation Agent or any of their affiliates. The Index was created on 31 May 2005 with an opening Index level of 1, points and may be rebalanced at any date thereafter (each an "Index Rebalancing Date"). The Index Sponsor may on any Index Rebalancing Date, in its reasonable discretion, change the composition of the Index or the weightings of existing Index Components (such change hereinafter called "Rebalancing") subsequent to the initial composition of the Index in line with the objectives and goals of the Index. On each Index Rebalancing Date on which a change in the composition of the Index is made, the Index will be adjusted by assigning new weightings to one or more of the Index Components subject to the condition that the level of the Index after the change is effected is the same as the level of the Index before the change. In other words, no change in the level of the Index occurs on the Index Rebalancing Date as a result of changes to the composition of the Index. II. Cash Position The Index will include as an Index Component a "Cash Position" which reflects the holding of cash, 46

47 money market instruments or cash obligations. The Cash Position can also reflect the application of leverage, in which case the Cash Position may mirror a negative cash balance and may reflect the cost of such leverage in the returns of such Cash Position. Accordingly, the Cash Position may be a negative amount at such times that borrowing exceeds cash holdings. III. Expenses and Index Fees The Index is calculated net of certain fees, costs and expenses commonly to be associated with establishing and maintaining a portfolio similar to the notional portfolio mirrored by the Index, as determined by the Index Calculation Agent in its reasonable discretion, including, without limitation, investment, research, legal, accounting, administration, custodial and professional expenses (collectively, the "Expenses"). In addition, the Index Fees (as defined below) will be deducted when calculating the level of the Index. The Index Fees are applied to the value in CHF of the Weighted Closing Valuations of the Index Components (including the CHF/USD - Hedging Arrangements) and consist of: (i) (ii) IV. an index management and calculation fee of 0.90% per annum of the value (in CHF) of the Weighted Closing Valuations of the Index Components at the end of each calendar month (calculated and deducted on a monthly basis) (the "Index Management and Calculation Fee"); and a quarterly index performance fee of 5.00% of the increase in value (in CHF) of the Weighted Closing Valuations of the Index Components during each calendar quarter (after deduction of the aforementioned Index Calculation Fee) (calculated and accrued monthly, with a final determination at the end of each calendar quarter) (the "Index Performance Fee", together with the Index Calculation Fee, the "Index Fees"). CHF/USD-Hedging Arrangements The Index will include as an Index Component the "CHF/USD-Hedging Arrangements". As it is anticipated that substantially all of the Hedge Funds will be denominated in USD, the Index Sponsor will enter into CHF/USD-Hedging Arrangements. The Index Sponsor will, pursuant to the CHF/USD-Hedging Arrangements, make a reasonable attempt to offset, but not eliminate, the CHF/US exposure of the Index resulting from those Index Components that are denominated in USD. The level of the Index will be increased or decreased, as the case may be, by any income, loss, costs and expenses attributable to the currency conversions and any other transactions constituting the CHF/USD-Hedging Arrangements. Pursuant to the CHF/USD-Hedging Arrangements, to the extent reasonably practicable, the Index Sponsor will use reasonable efforts to convert weightings to the Index Components between CHF and USD at the spot rate. In addition, to the extent reasonably practicable, non-chf exposure of the Index Components is periodically hedged back to CHF by means of notional forward currency contracts. The CHF/USD-Hedging Arrangements will be maintained, evaluated, and employed based on the estimated level of the CHF/USD exposure of the Index Components at the time of periodic currency hedging. There can be no assurance that the CHF/USD-Hedging Arrangements will be successful or will not themselves generate significant losses. Although the CHF/USD-Hedging Arrangements will be adjusted periodically, the CHF/USD-Hedging Arrangements will not necessarily at any time hedge the entire CHF/USD exposure of the relevant Index Components to changes in the exchange rate. Such Index Components' unhedged exposure to changes in the exchange rate may be significant. V. Index Calculation UBS Switzerland AG as Index Sponsor selects the Index Components and is responsible for the weightings, re-weightings and changes to the Index Components. The Index Calculation Agent calculates the level of the Index as at any given Index Valuation Date. Each of the Index Sponsor and the Index Calculation Agent may, at its discretion and under its own responsibility, delegate some or all of their respective duties to another party, which may be affiliated to or independent of the Index Sponsor and/or the Index Calculation Agent. "Index Valuation Date" means the last calendar day of each month. The first Index Valuation Date was 30 June On every Index Calculation Date, the Index Calculation Agent will calculate the official closing level of the Index as at the applicable Index Valuation Date. The "Index Calculation Date" relating to an Index Valuation Date is the last Index 47

48 Business Day of the month immediately following that Index Valuation Date or such earlier date following the relevant Index Valuation Date as the Index Calculation Agent may determine. The first Index Calculation Date was on 29 July "Index Business Day" means any calendar day (except Saturday and Sunday) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the Cayman Islands, Zurich, Switzerland and New York, the USA. The level of the Index is based on the performance of the Index Components in CHF from the previous Index Valuation Date to the present Index Valuation Date, less the Index Fees and Expenses. The following formula will be used by the Index Calculation Agent on a monthly basis in order to calculate levels of the Index. Index (t) = Index (t-1) * {CHF Value (t) / CHF Value (t-1) } where: (the interval between t and t-1 refers to the period of one month) Index (t) : Index (t-1) : The closing level of the Index as at the Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date. The closing level of the Index as at the Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant Index Calculation Date,. CHF Value (t) : The sum of the Weighted Closing Valuations in CHF of the Index Components as at Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date, minus Index Fees and Expenses. CHF Value (t - 1) : The sum of the Weighted Closing Valuations in CHF of the Index Components as at Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant previous Index Calculation Date, minus Index Fees and Expenses. Index Valuation The Index Valuation Date in month t. Date (t) Index Valuation The Index Valuation Date in month t-1 Date (t-1) Weighted Closing Valuations: The last valuation of each Index Component, including the most recent estimated unaudited valuations of each Hedge Fund and the CHF/USD Hedging Arrangements, as provided by the managers or/and the administrators of the Hedge Funds making up the Index to the Index Calculation Agent on or before the relevant Index Calculation Date, multiplied by their respective weightings as at the relevant Index Valuation Date. If information concerning the last official valuation of an Index Component as at an Index Valuation Date is not received by the Index Calculation Agent prior to and including the relevant Index Calculation Date, the Index Calculation Agent shall use best efforts to determine in its reasonable discretion the Index Component's value using the last available valuation, the net asset value estimated by the Index Calculation Agent, current market conditions or any other available information as its basis. Such determination will serve as the basis for the Index Calculation Agent's further calculations. The above procedure will also be applied when the Index Calculation Agent needs to determine in its reasonable discretion the last official valuation of an Index Component that, at some relevant point in time, cannot be redeemed against payment of cash or material assets. 48

49 VI. Index Component Selection The Index Sponsor will follow certain general guidelines in choosing the Hedge Funds as Index Components. While the Index Sponsor will attempt to apply such guidelines consistently, the guidelines involve the application of subjective and qualitative criteria and therefore the selection of the Index Components is a fundamentally subjective process. The use of the selection guidelines may be adjusted by the Index Sponsor in its reasonable discretion in line with the objectives and goals of the Index. The Index Sponsor or its delegate will conduct a number of onsite and offsite interviews with the investment managers or investment advisers of prospective Index Components and substantial other due diligence prior to making a selection. The goal of the due diligence process is to evaluate the candidates on a wide range of criteria. By combining historical quantitative analysis with a sound knowledge of these key qualitative attributes, the Index Sponsor will attempt to forecast the proposed Index Components' potential for generating sustainable positive risk-adjusted returns under a wide variety of market conditions. When selecting the Index Components, the Index Sponsor shall always consider whether the Index Components can meet certain criteria. The criteria include, but are not limited to: 1. The manager of the Index Component should display an employment background with a reasonable amount of relevant experience in the specialty of the strategy employed. 2. The manager of the Index Component should have proper risk control policies and procedures that are consistent with meeting the investment goals of the Index. 3. The manager of the Index Component should have the proper research and operational infrastructure to conduct its business properly. 4. The manager of the Index Component should employ a strategy where, in the opinion of the Index Sponsor, reasonable risk-return parameters exist. 5. The Index Sponsor should be able to classify the investment strategy pursued by the Index Component under the basic investment strategy categories it utilizes. VII. Constructing the Index The Index Sponsor will seek to construct a portfolio of Index Components that is broadly diversified and has low correlation to traditional benchmarks. The Index Sponsor will seek to use a variety of Index Components that trade in diverse markets, utilize different trading strategies, construct varying types of portfolios and layer capital in a manner that is consistent with the risks embedded in their trading philosophy. The Index Sponsor will then assign percentage weights (the sum of all weights being equal to 100%) to each Index Component subject to the following restrictions being satisfied on any Index Valuation Date: 1. The minimum number of Hedge Funds will at all times be equal or higher than The value of any single Hedge Fund should generally not be more than 20% of the aggregate Weighted Closing Valuations on any given Index Valuation Date; however, if as a result of extreme positive performance an Index Component the value of any single Hedge Fund exceeds this level, an adjustment in the allocation will be made as soon as practicable. 3. Hedge Funds selected for inclusion within the Index will be grouped based on the particular strategy each of them pursues. The aggregate weights of the Index Components falling into the respective strategy at any given Valuation Date shall be as follows: 49

50 Strategy Lower Limit Upper Limit Equity Hedged 0% 70% Credit /Income 0% 50% Relative Value 0% 50% Trading 0% 50% Others 0% 15% Cash and cash equivalents -25% 25% The above guidelines are intended to be general and the Index Sponsor may vary them where appropriate. Monitoring of Hedge Funds and Reallocation. The Index Sponsor will monitor Hedge Funds through a combination of periodic net asset value updates, position reports and correspondence and meetings with managers of the Hedge Funds. The Index Sponsor will also rely on its experience to make qualitative assessments about the current risk conditions that each Hedge Fund and the overall Index may face. The performance of each Hedge Fund will be compared with the performance of other hedge funds which utilise the same or similar strategies (and who may or may not at that time be in the Index). Reasons for reducing or withdrawing entirely an allocation to a Hedge Fund may include, without limitation: i. the identification by the Index Sponsor of an alternative Hedge Fund which in the opinion of the Index Sponsor will improve the performance of the Index; ii. iii. iv. a change in the Hedge Fund's strategy or personnel; a significant change in the amount of assets under the Hedge Fund's management; a decline in performance relative to the performance of other hedge funds using the same investment strategy; v. any other circumstance or reason affecting the composition of the Index such as legal, regulatory or any other requirements as determined by the Index Sponsor; vi. vii. viii. VIII. a decline in the potential for gains on investment in the Hedge Funds market niche; a failure of a Hedge Fund to meet expectations of or adhere to restrictions on activities established by the Index Sponsor; or relative gains or losses in the accounts of different Hedge Funds that cause the Index Sponsor's allocations among the Hedge Funds to become disproportionate or unbalanced with respect to the Index Sponsor's allocation models or strategies. Investment Strategies Although it is anticipated that the strategies described below will represent the primary strategies expected to be included in the Index, the Index Sponsor will not be limited in the types of Hedge Funds that it may select or the types of activities in which they may engage. Accordingly, the Index Sponsor, in its sole and absolute discretion, may consider allocations to Hedge Funds that pursue a wider range of investments or other market strategies, including activities not described herein, if he deems it appropriate for reaching the objectives and goals of the Index. The classification of Hedge Funds included in the Index and the strategy definitions are based on the subjective judgment of the Index Sponsor which may differ from strategy definitions in the market. The following strategy descriptions are summaries only and do not provide detailed descriptions of each strategy. Equity Hedged Fundamental Conservative A typical fundamental conservative manager makes both long and short stock selection through research on the individual companies. The process is generally 'bottom-up'; that is, stocks are added to the portfolio on the basis of the opportunity for price movement of the individual company. The vast span of equities globally creates an opportunity for these managers to attempt to take advantage of their proprietary company research and analysis at the individual stock level. The 50

51 difference between the long and short portfolio is the fund's net exposure, which typically is an indicator of market risk (Beta) that is assumed by the manager. The fund's short portfolio may vary greatly and is both a tactical expression of the manager's market outlook and a reflection of their conviction in the bottom -up stock selection opportunities. Long portfolios generally run more fully invested with variations driven by the underlying risk/reward opportunities and market dynamics light correlation levels and volatility. Conservative funds tend to be less concentrated, either by sector, position size, market capitalization, beta mismatches, style or net market exposure. However, a distinguishing feature of the conservative classification is the manager's attempt to reduce market risk at all times by maintaining a lower net exposure, generally between 0% and 60% net long. While these net exposure ranges are not hard limits, managers may on exception, opportunistically expand beyond these ranges for short periods of time if market conditions and risk management dictate in their view. Related stocks / i.e. pairs trading is a type of market neutral equity strategy and would fall into the fundamental conservative category. In this approach, companies that are related to one another (by reason of engaging in similar activities and having comparable corporate structures) are grouped together. Stock price movements may move these relationships out of alignment, whether by reason of a corporate action, market event or simply high equity market volatility. These related stocks may often demonstrate mean reversion characteristics; that is, they have a tendency to return to the previous equilibrium level. The trading strategies employed to potentially benefit from these anomalies involve a combination of quantitative and qualitative techniques. If the process is primarily qualitative, then these managers would fall into the fundamental conservative grouping; if the process is primarily quantitative, we would classify the strategy as Relative Value: Quantitative Equity. Fundamental Aggressive Similar to fundamental conservative managers, a typical fundamental aggressive manager makes both long and short stock selection through bottom-up research on individual companies. Aggressive funds tend to be more concentrated than their more conservative peers. Aggressive managers are more likely to have directional skews in their portfolios to either sector, market capitalization, geography, or factor/style. Furthermore, aggressive funds may occasionally or regularly amplify their market risk exposure by exceeding net market exposure of 100% net long or by being net short with conviction. Although some of the fundamental aggressive managers essentially take a passive "'deep value"' approach to investing on the long side, others may take an activist approach to their investments. An activist investor often seeks to create the catalyst for stock price movement. Activist strategies are broadly defined as either operational or financial, depending on the intention and expertise of the managers. Implementation varies from friendly, behind the scenes approaches to hostile, public battles with management teams and corporate boards. For this reason, some activist strategies may result in more concentrated portfolios and be longer term in nature. Such funds typically have a long biased un-hedged approach. Event Driven approaches involve directional long and short investing in public companies that are undergoing some corporate event with a definitive catalyst and timetable. These catalysts may include spin-offs, restructurings, stock buybacks, management changes or other well-defined events. The approach tends to have a value bias as the complexity surrounding events may create a discount to market peers not undergoing similar situations. Some event styles have a long-biased, un-hedged approach, which may offer significant upside return potential but can also exhibit significant market correlation and Beta especially in times of stress. Opportunistic Trading This strategy refers to the active trading of long and short equity positions based on short-term, catalyst-driven or flow-driven opportunities in the equity markets. This strategy is often marked by the prevalence of using sector baskets, exchange traded funds and equity indices and often leads to dramatic variability in a managers underlying net exposure. Given that the portfolio turnover is quite high, leverage is typically lower than in most of the other equity sub-strategies, though position concentration may be higher. 51

52 Relative Value Capital Structure / Volatility Arbitrage This strategy generally seeks to benefit from anomalies in the relative value of different securities or issues within a single company's capital structure. Convertible bond arbitrage is a classic way of expressing this strategy. A convertible bond is a hybrid product combining a bond with an imbedded warrant that permits conversion to the issuer's common stock at some fixed exchange rate. The 'plain vanilla' version of the strategy involves investing in the convertible securities of companies and then shorting the underlying common stock as a hedge. Managers within the strategy vary in terms of what drives returns, but the primary differentiator is the level of credit risk in the portfolio. Other typical types of capital structure relative value trades include senior versus subordinated debt and cash bonds versus CDS (basis trades). Trades may also be catalyst-driven, involving corporate events, such as convertible bond buybacks, convertible bond putbacks, equity exchanges, and M&A driven trades with capital structure implications. Managers will often seek to hedge exposure to a variety of other factors not related to the specific mispricing. Volatility Arbitrage involves using options and the underlying securities in an attempt to capture mis-pricings in option markets. Volatility strategies can be employed across various asset classes. In general, the primary driver of returns is the volatility differential between the options and the actual price movement less the transactions cost. For example, in equity-oriented volatility arbitrage, the manager analyses the relationship between actual stock price movement and the volatility that is implied by the options on the stock. If the options are deemed to be cheap, the manager buys options on a market neutral basis and then re-hedges the strategy as the underlying stock moves, to maintain neutrality. If options are deemed to be expensive, the options are sold, the premium is taken in and the strategy is re-hedged with stock movement. Quantitative ('Quant') Equity As statistical arbitrage and other systematic long/short approaches evolved over time, managers employing them began to overlap to such a degree that the Index Sponsor decided it was more appropriate to view them together as opposed to separate and distinct. As such, the quantitative equity sub-strategy involves model-driven approaches that utilize one or both of the following approaches: Statistical arbitrage is a model-driven approach that seeks to create diversified, risk-balanced long and short portfolios with the objective of capturing short-term price anomalies in equity markets. Models can either take the form of mean reversion, price momentum or a combination thereof. A key driver of performance is the ability to have for backtesting, superior alpha signals, a strong risk management and portfolio management framework, and a robust execution platform. Given the market neutral bias to the approach, the strategy implies a degree of minimization of sector, market capitalization, style, beta and other type of imbalances. Portfolio turnover is typically very high in the strategy. Systematic long/short, which is a model-driven approach to constructing equity long/short portfolios, incorporates fundamental, event, and price data used by traditional stock pickers. These funds' models typically begin by analysing vast amounts of data to determine relevant factors that indicate potential underperformance and outperformance of certain sectors and styles. The holding periods for trades can vary between medium term and longer term horizons. The portfolio turnover tends to be lower than that of statistical arbitrage strategies. The main risk for the style, as is the case in all systems, is a regime shift, which renders past information less meaningful. Merger Arbitrage Merger arbitrageurs seek to capture the price spread between current market prices and the value of securities upon successful completion of a merger. In cash transactions this spread is straightforward, but in stock-for-stock transactions, the spread is created by shorting an appropriate ratio of the acquiring company's stock. The width of the spreads reflects the market's willingness to take on transaction risk. Deals that the market assesses to have a lower probability of closing typically trade with a wider spread than straightforward synergistic mergers with little-to-no regulatory issues. Most managers attempt to control risk by limiting position size, diversifying and conducting thorough due diligence. 52

53 Few managers solely focus on plain vanilla merger arbitrage anymore; rather, most portfolio managers employing the strategy sit within larger multi-strategy firms. Merger arbitrage often exists as one of several "event driven" strategies where a manager relies on catalysts to unlock value. Generally, these event-driven managers may participate in both hard and soft catalysts, taking a fundamental approach to the investment process, while merger arbitrage is generally focused on hard catalysts. Fixed Income Relative Value The fixed income arbitrageur attempts to profit from price anomalies between related interest rate and currency instruments. Some managers focus exclusively on US or G3 markets (US, UK, and Japan), while others invest across the global capital markets. The goal of most managers in this category is to deliver steady returns with low volatility. Since managers attempt to mitigate directional risk is mitigated by running hedged spreads (long and short, paired positions), leverage may be applied more broadly. These managers will use leverage, sometimes in excess of 10 times NAV, depending on the similarity of the two securities and the liquidity of the invested market. Arbitrageurs seek to exploit yield spread dislocations, often implemented through buying of higher yielding securities and selling similar securities with lower yields, but will trade in the opposite direction if spreads are abnormally narrow. Fixed income arbitrage can include interest rate swap arbitrage, US and non-us government bond arbitrage, forward yield curve arbitrage, basis trading (i.e. cash versus futures, currency basis swaps), or a combination of each. Potential risks to the strategy include counterparty risk, margin calls, increased haircuts, market illiquidity, and deleveraging from other fixed income market participants. Greater use of leverage usage may compound the risk to certain managers in this strategy. Agency MBS In traditional Agency Mortgage Backed Security (MBS) arbitrage, funds seek to invest in high quality securities with no credit risk (US government agency mortgage, Treasury), hedging out interest rate risk to earn excess spread on the security. Other funds employ relative value pair strategies using agency mortgage pass-throughs and specified pools in an attempt to take advantage of pricing dislocations in the market. Examples of agency mortgage-backed securities include Fannie Mae and Freddie Mac issued MBS and Ginnie Mae guaranteed MBS, created from real estate mortgage investment conduits (REMICs) or collateralized mortgage obligations (CMOs). Typical instruments traded in the agency MBS space include mortgage pass-throughs and their derivatives, such as floaters, inverse floaters, interest-only (IO) strips, principal-only (PO) strips, and inverse interest-only (inverse IO) strips. Credit / Income Corporate Long/Short Corporate long/short involves investing long and/or short in debt or debt-linked securities on an opportunistic basis. Portfolio turnover, as well as gross and net exposure levels can vary based on the manager and their view of the opportunity set. This strategy may be directionally long or directionally short. Managers may express outright directional views or seek to exploit opportunities across comparable debt securities of different companies or of a single company versus an index. To be implemented successfully, the strategy demands a thorough knowledge of both the fundamental and technical factors that drive debt prices. Distressed These funds invest in the debt or equity securities of firms that are in the midst of financial restructuring, balance sheet re-capitalization, or are trading at stressed or distressed prices in anticipation of such an event. Opportunities in this strategy are closely linked to the level of defaults and credit spreads and hence the business cycle in general. Distressed funds differ in terms of the stage of their investment or the degree to which they become actively involved in the restructuring process. Distressed securities are often inefficiently priced due to their lack of liquidity, the existence of forced sellers and the uncertainty created by the restructuring process. Structured Products As the securitization market expanded from the early 2000s through 2007, some hedge funds began to invest in mortgage securities and other structured products through a variety of approaches. The 53

54 strategies they implemented were generally focused on credit risk as opposed to interest rate or prepayment risk, which is more the focus of agency-based mortgage-backed strategies. Managers in the strategy will typically perform detailed research on the underlying assets that comprise the structured product as well as research the structure and the terms of the securitization, particularly with reference to the cash flow waterfall, credit enhancement, collateral triggers and control protection. It is important to note the liquidity spectrum is varied for these strategies, ranging from the more liquid (RMBS/CMBS) to less liquid (multi-sector CDOs, non-performing whole loan residential mortgage pools). The Index Sponsor further dissects the universe of structured product strategies into two general groups: Asset-backed securities (ABS) Asset-backed strategies typically emphasize non-agency residential mortgage-backed (RMBS), commercial mortgage-backed (CMBS) securities, and other asset backed securities (ABS) such as auto loans, home equity loans, credit card receivables, student loans, manufactured housing, aircraft leases, and a variety of other cash-flow producing assets. While shorting these securitizations is typically not possible, managers may utilize residential mortgage-related indices (such as the ABX), commercial mortgage-related indices (such as the CMBX), and CDS (credit default swaps) to hedge broader market risk. Structured corporate credit Structured corporate credit typically focuses on CLOs, CBOs and corporate credit index tranches (e.g. High Yield CDX indices). In these strategies, managers could be either directional or relative value, or both. An example of a directional trade would be a manager purchasing specific tranches of a CLO trading at distressed prices, based upon the expectation that ultimate cash flows will exceed the value of the security at its purchase price. An example of a relative value trade would be a manager taking advantage of technical inefficiencies in the relative pricing of two different tranches of an index, for example (i.e. a calendar trade). While there are specialists in the two sub-sectors listed above, there are also managers that invest across the structured credit universe, which we would categorize as multi-strategy Structured Credit approaches. Reinsurance Reinsurance is an income-based strategy where managers attempt to generate returns by insuring catastrophe and other risks where other insurance (or reinsurance) companies want to offset some of their risk. Reinsurance strategies have historically had little correlation to more traditional capital market investments and thus have the potential to be a source of diversification within a portfolio. The risks within a modestly diversified portfolio of reinsurance investments are expected to be largely uncorrelated to each other (i.e. should be little correlation between hurricanes that may impact the US and Japanese earthquakes). Managers may employ a number of different approaches. Traditional Reinsurance (providing insurance to insurance companies) involves engaging in a contract directly with an insurance company where specific risk(s) is assumed and the methodology for triggering a payout is defined in the contract. Retrocession takes this concept one step further by providing reinsurance to reinsurance companies. A series of diverse risks are often bundled together into a single contract; this has the potential to result in pricing advantages that can accrue to both the writers of the contracts (i.e. money managers in this case) and the end users. Managers often invest in both traditional reinsurance and retrocession in a collateralized format where the full amount of capital that is theoretically at risk (known in industry terms as the "limit") is held in a trust account from which losses can be paid. Managers may also utilize Insurance Linked Securities ("ILS") such as Catastrophe Bonds and Industry Loss Warranties. Catastrophe Bonds are issued by insurers and are typically the most liquid instrument but generally offer lower potential returns. Industry Loss Warranties (ILWs) reference the overall loss due to an event at an industry level, rather than for a specific insurer. These instruments trade in swap-like format where protection can be bought and sold. Liquidity is somewhat lower than in the catastrophe bond market, with the potential return and volatility profiles being somewhat higher. Managers will also occasionally use this market to hedge certain risks in their portfolios (i.e. buy protection) that they deem unacceptable. 54

55 Other There are several other types of income-generating, carry-based strategies that do not fit into one of the above sub-strategy categories. Although they are more niche approaches, the risk/return profile falls within the Credit/Income category and so we reflect them here as opposed to in the Other Niche category. Some multi-strategy Credit managers will employ one or more of these strategies alongside the more dominant Credit/Income strategies. Trading Direct private lending (loan finance, loan-based lending, mezzanine finance, middle-market lending) Asset-backed lending (ABL) PIPES / Reg-D Microfinance Factoring (e.g. receivables/invoice factoring, rents, alternative finance, government attorney fees, etc.) Life insurance premium finance Life/viatical settlements and traded life policies (TLP) Structured settlements (liabilities settlements, e.g. personal injury, workers' compensation, etc.) Film finance Media rights (film, TV, music, games) Patents and royalty streams (e.g. drug royalties) SPACs (special purpose acquisition company) Global Macro Global macro encompasses funds that have the broadest mandate and trade in all asset classes around the world, including but not limited to equity, fixed income, foreign exchange (FX) and commodities. These managers generally focus on underlying macro-economic fundamentals in developing their investment theses. Technical data or money flows may also be considered in developing trade themes. The managers establish opportunistic long or short market positions in an attempt to profit from anticipated market moves. Macro managers tend to be highly sophisticated and are generally adept at using derivatives or leverage in an attempt to increase returns while protecting against loss. Similar to those Trading managers operating in the systematic space, macro managers tend to be adept at moving capital to those markets offering potentially robust opportunity sets. Historically, they also have been able to outperform in periods of market volatility and trending markets. Periods of global central bank activity and monetary intervention are typically favorable environments for this strategy. Historically, the Index Sponsor separated emerging markets as its own sub-strategy, given the sufficiently independent risk profile we believed these strategies used to maintain. However, the expansion of market linkages across developed and emerging economies has broadened the overall investment landscape for managers across all strategies in a meaningful way. The influence of the BRIC nations (Brazil, Russia, India and China) and the rising importance of G20 economies can be measured in the size and scope of their populations, GDP and foreign exchange reserve positions. The investment flow of funds to the developing markets also reflects the modernization of their financial markets, stability of fiscal position and more stable political infrastructure. Finally, the financial turmoil in Europe has blurred the credit rating landscape of sovereigns; effectively widening the universe for discretionary managers. Given these developments, for managers that invest materially in emerging markets, the Index Sponsor believes it is now more appropriate to categorize them based upon the assets traded and the investment strategy employed (Equity Hedged, Credit, Relative Value, or Trading). As such, managers that invest across asset classes in emerging markets, generally with a top-down trading-oriented approach will be categorized as global macro. 55

56 Systematic Systematic traders, many of whom are also known as commodity trading advisers (CTAs), typically trade listed financial and commodity futures and interbank markets around the world. These managers utilize highly sophisticated technical models to analyse price and market data in order to identify trading opportunities. There are three types of systematic traders: trend-following, non-trend following, and systematic macro. Trend-following traders seek to profit from sustained price movement in any direction by focusing on medium to longer-term price behaviour. Non-trend following traders typically employ shorter-term momentum, mean reversion, volatility breakout, pattern recognition and counter-trend models. Systematic macro traders use econometric variables representing inflation and growth from both a value and/or a momentum perspective. Portfolio construction varies greatly across the different funds, and each manager's approach to market diversification, asset allocation, contract weightings and leverage might differ in the effort to maximize risk-adjusted returns. Historically, market volatility has benefited the performance of CTAs, particularly those managers operating in the short-term, non-trend following strategy. Commodities Commodity markets exhibited dramatic growth over the last decade, pre-dominantly driven by increasing global demand due to significant emerging markets development. New technologies, applied to satisfy the ever rising demand for commodities, have resulted in a dynamically changing supply/demand picture, offering manifold trading opportunities for specialized market participants. Managers in this strategy utilize both directional and relative value approaches in an attempt to capture the opportunity set. The funds' market sector exposure may vary greatly across energies, grains & oilseeds, so-called "softs" (such as cocoa, coffee, cotton, orange juice or sugar), and industrial and precious metals. Idiosyncratic supply/demand dynamics can drive markets, with factors such as weather patterns, planting acreage, energy supply disruptions, and exploration influencing market prices. The managers typically employ a discretionary approach to this single asset class by using both macro and micro variables to build portfolios. Multi-Strategy Multi-Strategy Some hedge funds invest in a combination of strategies, often as a result of commonalties in the research and trading talent required for successful execution of the strategies. These funds allocate capital opportunistically among strategies believed to offer a suitable risk-adjusted return going forward. Multi-strategy funds can be relatively attractive by incorporating this flexibility through strategy diversification and asset allocation. In some cases, multi-strategy funds may be structured with individual portfolio managers having autonomous control over specific strategies, while receiving a specified risk allocation at the aggregated fund level. In other cases, one or more primary portfolio manager may treat the various strategies less like separate funds and more like one cohesive unit. Regardless of their structure, one of the benefits of multi-strategy funds is that they seek to provide investors is the ability to shift capital rapidly across various strategies in response to changes in the opportunity sets while maintaining a competitive edge and sector expertise. Further, financing costs may be reduced by the ability to borrow at a lower rate for the fund as a whole versus individual strategies. This potential benefit may also create potential additional risks, if certain riskier and more volatile strategies (a classic example would be commodity trading) are not properly ring fenced through a separate legal structure. Fund of Funds This category is used to define an investment vehicle that allocates capital across multiple investment managers and/or vehicles. The Index Sponsor divides the universe of fund of funds into three types: 1) Broad Based Diversified; 2) Broad Based Neutral; and 3) Strategy/Region Specific. Other Niche This category contains investment approaches that are outside of the mainstream hedge fund strategies listed above. While some industry participants consider niche strategies as "hedge funds", others might argue that such approaches belong in an entirely separate asset class. This is especially 56

57 true for borderline strategies, including certain private equity and real estate dealings. Besides funds dedicated to these fringe strategies, the Index Sponsor has seen a fair number of traditional hedge funds dabbling in niche approaches, and thus developed a separate category for them. Below is a summary list of the types of strategies that would currently fall into this category. Please note the list is not exhaustive and can be expected to change over time. Further, some of the categories may overlap. Hopefully this list provides a general picture of the types of investment approaches that would fall into the category. Emissions trading Equipment leasing / venture leasing Infrastructure investing Litigation (including tort liability insurance) Natural resources Private Equity Real Estate (e.g. land, buildings, etc.) Clean/Renewable energy (investing/trading in water, wind, solar, etc.) Timber Wine Risk Parity There has been a recent trend in the industry for investors to allocate increasingly to Risk Parity or Risk Premia Parity strategies, often including them within their Hedge Fund or Alternative buckets. In general, Risk Parity managers typically actively rebalance allocations to a diverse set of assets in an attempt to take advantage of market pricing anomalies. The approach focuses on a high level of diversification within the portfolio but generally maintains a long-bias. Risk Parity generally focuses on the passive allocation of risk, rather than of capital, in an attempt to provide a higher Sharpe ratio alternative to the traditional 60% stock / 40% bond portfolio through the use of a wider range of uncorrelated assets, low leverage, and low equity risk. These approaches, while certainly an alternative to traditional asset allocation, are not hedge fund strategies. Liquidating / Side Pockets This category comprises exposure remaining to funds after a redemption notice has been placed and reached value date. The remaining exposure is typically less liquid in nature and often invested in private equity, real estate, or litigation claims that may take an unspecified amount of time to exit. Although these types of securities are among the most common remaining investments we see post-redemption, the underlying holdings can vary broadly. IX. Adjustments The Index Sponsor is solely charged with constructing and rebalancing the Index in its reasonable discretion. In the event that Index Components are altered by virtue of corporate actions, insolvency, dissolution or nationalisation of any Index Component the Index Sponsor will evaluate such changes and use its reasonable judgement to maximise the level of the Index in rebalancing the Index. The Index Sponsor may also adjust the Index Fees or the calculation method thereof in its reasonable discretion if it considers an adjustment as necessary. The Subfund is not sponsored, endorsed, sold or promoted by the Index Sponsor or the Index Calculation Agent. Neither the Index Sponsor nor the Index Calculation Agent does make any representation or warranty, express or implied, to the Subfund's investors or any member of the public regarding the advisability of investing in securities generally or in the Subfund shares particularly. The Index Sponsor composes and the Index Calculation Agent calculates the Index without regard to the Subfund shares. Neither the Index Sponsor nor the Index Calculation Agent is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Subfund shares to be issued or in the determination or calculation of the equation by which the Subfund shares are to be converted into cash. Neither the Index Sponsor 57

58 nor the Index Calculation Agent has any obligation or liability in connection with the administration, marketing or trading of the Subfund shares. 58

59 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND DIVERSIFIED EUR This specific section describes the particulars of the Subfund SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified EUR and is part of the general sales prospectus. Therefore, all information given herein should be considered in conjunction with this general prospectus. Profile of the typical investors The Subfund is suitable for investors with a relatively long investment horizon who consider investments in this Subfund as a convenient way of participating in the performance of the Key Multi-Manager Hedge Fund Diversified EUR Index (the "Index"). The Index reflects the performance of a notional portfolio comprised primarily of hedge funds (single manager and fund of hedge funds) and certain financial instruments as further described below. The performance of the Subfund is determined by the performance of the Index. If the level of the Index increases from Launch Date, then this will result in a comparable increase in the performance of the Subfund; conversely if the level of the Index decreases from Launch Date, then this will result in a comparable decrease in the performance of the Subfund. The strategy as described herein is a high risk investment which does not provide any right of repayment of capital invested and as such, should the Index Components (as defined below) not perform favourably, then investors will incur a partial or total loss of capital invested. Shares of the Subfund are exclusively available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. The Fund reserves the right to compulsorily redeem shares that are not held in accordance with the aforementioned requirements or for other regulatory, legal or tax obligations of the Subfund. Those shares will be redeemed at the prevailing net asset value per share. Investment objective The investment objective of the Subfund is to generate capital appreciation by providing investors with a return linked to the performance of the Key Multi-Manager Hedge Fund Diversified EUR Index, a diversified hedge fund index, as further described below. Investment policy The Subfund will principally invest in equity and debt securities issued by corporate entities domiciled in any OECD country and listed or traded on regulated markets of an OECD country (the "Investment Portfolio"), and for the purpose of meeting its investment objective the Subfund will enter into a performance swap agreement (the "Swap Agreement") negotiated at arm's length with UBS AG (London branch), with another counterparty the obligations of which under the Swap Agreement are guaranteed by UBS AG or with another first class financial institution specialised in this type of transactions (the "Swap Counterparty"). Under the terms of the Swap Agreement, the Swap Counterparty delivers to the Subfund exposure to the Index (as described below) (the "Investment Strategy") and the Subfund delivers to the Swap Counterparty a total return exposure to the Investment Portfolio. As of 3 rd November 2010 the Swap Counterparty changed from UBS AG (London branch) to STAR Compass plc, with all obligations under the Swap Agreement being guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. STAR Compass plc is a special purpose vehicle (in the form of a public limited company) established under the laws of Ireland and in relation to this transaction, its sole purpose is to act as swap counterparty and securities lending counterparty to various Subfunds of the Fund. The Subfund may hold liquid assets on an ancillary basis. The Subfund may not invest directly in other undertakings for collective investment in transferable securities (UCITS) and/or open-ended undertakings for collective investment (UCI). 59

60 The Subfund will only utilise leverage to a limited extent by which the exposure of the Subfund will not exceed 225% of the NAV when calculated applying the gross method in accordance with Article 7 of Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 and 125% of the NAV when calculated applying the commitment method in accordance with Article 8 of Commission Delegated Regulation (EU) No 231/2013 of 19 December The Subfund will enter into securities lending transactions in order to generate additional income with UBS AG, Zurich or such other counterparty in accordance with the requirements and regulations of the CSSF and of which obligations under the relevant securities lending agreement are guaranteed by UBS AG or such other counterparty specialised in this type of transactions (the "Securities Lending Counterparty"). As of 3 rd November 2010 the Securities Lending Counterparty changed from UBS AG, Zurich to STAR Compass plc with all obligations under the Securities Lending Agreement guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. The Swap Agreement will incorporate the terms of and be governed by a master agreement based on the standard 1992 ISDA Master Agreement governed and construed in accordance with English law and published by the International Swaps and Derivatives Association, Inc. The Swap Agreement will be valued on a consistent and monthly basis by the calculation agent ("Swap Calculation Agent") being UBS AG (London branch), in accordance with the prevailing market parameters and valuations. The valuation methodology is outlined below. The Swap Counterparty will provide a trading price at which the Subfund can increase or decrease the Swap Agreement notional amount. Such a facility will be available on each Valuation Day when requested by the Portfolio Manager. The notional amount of the Swap Agreement will be the proceeds raised at the Launch Date and, in the case of subsequent subscriptions and/or redemptions, the notional amount will be adjusted accordingly. The Swap Agreement may be terminated or otherwise cancelled in accordance with its terms. The Swap Agreement will be entered into for a 5 year term as outlined therein. Thereafter it will be extended for consecutive 5 year periods, subject to the consent of the Board of Directors of the Fund and the Swap Counterparty at the end of each period (each such expiry date also being a relevant "Maturity Date") and the end of the last such period being the final maturity date (the "Final Maturity Date"). The Swap Counterparty has the option to early terminate the Swap Agreement in various circumstances upon the provision of adequate notice to the Subfund; in such circumstances, the early termination date would become the Final Maturity Date. The Swap Agreement neutralises the performance of the Investment Portfolio. Consequently, any income (including dividends) and capital gains from the Investment Portfolio are delivered to the Swap Counterparty under the Swap Agreement and will not be paid to investors in the Subfund. Risk Profile: The Subfund replicates the performance of a hedge fund index. It is therefore exposed via the Swap Agreement to less liquid financial instruments, a wide range of asset classes and potentially leverage in some of the index components. A significant portion of the Subfund is exposed to less liquid instruments, whose prices could fluctuate in certain market conditions. This potential for higher volatility has determined that the Subfund be classified in a high risk category. Interim Swap Flows: In accordance with the Swap Agreement, and for the first time on 6th January 2009 and thereafter on the 3rd Subfund Business Day of each quarter until the Final Maturity Date: The Swap Counterparty will pay to the Subfund an amount, which corresponds to all fees and operating charges and expenses incurred by the Subfund as referred to in the section "Fees and Expenses" below. The Subfund will pay to the Swap Counterparty the income received on the Investment Portfolio and on any ancillary liquid assets. 60

61 Maturity Swap Flows: At the end of the relevant term, amounts to be paid out under the Swap Agreement are determined on the basis of the following formula: Amount payable = outstanding Notional Amount on Final Maturity Date * (ISm IPm) where: ISm = performance of the Investment Strategy in EUR (consisting of exposure to the Index calculated on the basis of the liquidation proceeds that the Swap Counterparty would actually receive in respect of the hedge position under the Swap Agreement by redeeming or selling such hedge position, as determined by the Swap Calculation Agent; or, if agreed by the Fund and Swap Counterparty, an amount equal to the estimated level of the Index as determined by the Swap Calculation Agent) at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. IPm = performance of the Investment Portfolio in EUR at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. If the amount is positive, then the Swap Counterparty will pay the amount to the Subfund. If the amount is negative then the Subfund will pay the amount to the Swap Counterparty. Valuation of Swap Agreement and its effects on the performance of the Subfund Before each Maturity Date, except for decreases of the notional amount, no payment is made to the Subfund in relation to the performance of the Investment Strategy. The performance of the Investment Strategy is taken into account in the meantime by virtue of the Swap Agreement in the calculation of the Net Asset Value per share of the Subfund. Accordingly, the valuation of the Swap Agreement determines the performance of the Subfund. On any Valuation Day after the Launch Date but before the Maturity Date, the value of the Swap Agreement is determined as follows: Outstanding Notional Amount on the relevant Valuation Day * (ISi IPi) ISi = the estimated performance of the Investment Strategy in EUR (consisting of exposure to the Index) at close of business on that Valuation Day in relation to the initial value when the relevant agreement commenced, as determined by the Swap Calculation Agent. For the avoidance of doubt the estimated performance of the Investment Strategy will be calculated based on the latest estimated valuations of the Index Components (as defined below) multiplied by their weights provided on or before the relevant Valuation Day and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as at the Valuation Day (and not on the final Index level which is calculated on a one month delayed basis as outlined below) as determined by the Swap Calculation Agent on that Valuation Day. IPi = performance of the Investment Portfolio at close of business on the relevant Valuation Day in relation to the initial value when the relevant agreement commenced. Guarantee The irrevocable and unconditional Guarantee was issued on the 3rd November 2010 by UBS AG (London branch), 1 Finsbury Avenue, London EC2M 2PP (the "Guarantor"). UBS AG (London branch) is the London branch of UBS AG, a company incorporated under the laws of Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel, Switzerland and Bahnhofstrasse 45, CH-8098 Zurich, Switzerland. The Guarantor irrevocably and unconditionally guarantees to the Subfund the due and punctual observance and performance by STAR Compass plc under the Securities Lending Agreement and Swap Agreement and agrees to pay to the Subfund from time to time on demand any and every sum or sums of money from time to time due and payable (but unpaid) by STAR Compass plc under or pursuant to the Securities Lending Agreement or Swap Agreement. The Guarantee exclusively aims at covering the Subfund's counterparty risk on STAR Compass plc and the Subfund's risk on the failure of STAR Compass plc to perform its obligations under the 61

62 Securities Lending Agreement and the Swap Agreement. The Guarantee does not guarantee any investment returns under redemption or at Maturity Date. Market Making UBS AG will make a market in the shares of the Subfund to investors who wish to realise their investment outside of the normal subscription and redemption cycle (as further described below under "Secondary market"). Key Multi-Manager Hedge Fund Diversified EUR Index The Index is a Euro-denominated index which reflects the performance of notional index components comprising (i) various private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the Financial Instruments (as described below), (iii) the Cash Position (as described below) and (iv) certain EUR/USD-Hedging Arrangements (as described below), (which together with the Hedge Funds, the Financial Instruments and the Cash Position, shall be referred to as the "Index Components"). The level of the Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). Index Sponsor and Index Calculation Agent: UBS Switzerland AG created the Index and is responsible for the selection, rebalancing as well as the management of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). Each of the Index Sponsor and Index Calculation Agent may delegate all or parts of its duties to other group entities within the UBS Group or a third party. Further details on the Index are included in the Appendix below. Collateral In order to reduce the credit risk exposure of the Subfund to the Swap Counterparty and the Securities Lending Counterparty (together the "Counterparty"), the Counterparty will provide the Subfund with collateral which should at least correspond to 90% of the Net Asset Value of the Subfund on any Valuation Day. This collateral will consist of eligible assets in accordance with the requirements and regulations of the CSSF and may include units of funds of hedge funds and claims against protected custody accounts opened with a regulated custodian in which the collateral assets are held. Should the Subfund exercise economic ownership control over collateral such collateral shall be subject to section 17. "INVESTMENT GUIDELINES". Collateral received will not be reinvested or otherwise reused. Risk Considerations Index Sponsor risk: The Index Sponsor does not guarantee the accuracy and/or the completeness of the Index or any data included therein, and it shall have no liability for any errors, omissions, or interruptions therein. The Index Sponsor does not make any warranty, express or implied, as to results to be obtained by the Subfund, investors or any other person or entity from the use of the Index or any data included therein. The Index Sponsor does not make any express or implied warranties and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall the Index Sponsor have any liability for any lost profits or indirect, punitive, special or consequential damages, even if notified of the possibility thereof. Investment risk: no capital protection: the Subfund employs no capital protection techniques or capital guarantees. Accordingly, the full amount of an investor's subscription is at risk and may be lost. Investment risk: achievement of investment objective: the investment objective of the Subfund is to generate growth in value. The return of the Subfund will be linked to the return of the estimated Index level as determined by the Swap Calculation Agent subject to certain adjustments or, at the Final Maturity Date, to the final Index level. There can be no assurance that the Index level will 62

63 increase in value, and accordingly there is no assurance that the Subfund's investment objective will be attained. Investment risk: alternative investment index risk: the return of the Subfund will be linked to the return of the estimated Index level as swap underlying. Investors in the Subfund are therefore exposed to general risks inherent in the Hedge Funds, as well as specific risks associated with the Index. Such risks include but are not limited to the following: The risk that the Index Sponsor is not effective in selecting appropriate Hedge Funds components that will generate positive returns over the long term. The risk that the Hedge Funds may suspend the calculation of their net asset values which could impact the calculation of the Index level or estimated Index level as relevant and could lead to a suspension of subscriptions and redemptions of the Subfund shares. Hedge funds are generally considered to be unregulated investment vehicles. They may sell securities short, use significant levels of leverage, invest in various asset classes and instrument types including derivatives and commodities, whether traded on a regulated market or over the counter, and may not be required to diversify their investments. Accordingly, investments in hedge funds are generally considered to have a greater degree of risk than investments in regulated funds. To the extent that the Hedge Funds invest in the securities markets of developing countries, the political, regulatory and economic risks inherent in investments in emerging markets' securities are significant and may differ in kind and degree from the risks presented by investments in the world's major securities markets. These may include greater price volatility, substantially less liquidity and controls on foreign investment and limitations on repatriation of invested capital. The risk that the Index or any of the Hedge Funds diverge from their stated investment objectives and take on greater than expected levels of investment risk. The risk that some or all of the investments are illiquid. Accordingly, some or all the Hedge Funds may be unable to redeem from and/or sell the underlying investments in a timely manner which may affect the liquidity of the Subfund. The risk of incorrect or stale investment values. The Hedge Funds and their investments may include assets which are not traded on an exchange or regulated market. Accordingly, their values may be difficult to determine and may be based on models or quotes provided by the relevant manager. These values may be incorrect or stale and may not reflect fair value. Lack of operating history of managers. The Index may include Hedge Funds whose managers have no, or a very short, performance history. Such investments may involve greater risks than those with more established managers. Operational risks of the managers, including inadequate back office functions, trade processing, accounting, administration, risk management, valuation services and reporting. Reliance on key personnel in the Hedge Funds components selection process. The loss of key personnel at both the Index Sponsor and the Hedge Funds could materially and negatively impact the value of the Index. Limited capacity of managers. In order to deliver positive returns, some managers close their funds to new subscriptions once their fund has reached a certain size. The Index may be unable to reference underlying funds at all times, and therefore from time to time, the Index may in part also reference cash or money market instruments. Risk of lack of regulatory oversight. The Hedge Funds are domiciled in countries providing significant investment discretion and which are generally considered to be lightly regulated. For example, the Hedge Funds are generally not required to deposit their assets with an independent custodian bank. Instead, such assets may be deposited with brokers or other intermediaries who do not provide for segregation of client assets. The Net Asset Value of the Subfund will be affected by various levels of fees, including fees at the level of the Subfund, the Index and the Index Components. These fees may include 63

64 asset-based as well as performance fees. Consequently, performance fees may be charged in periods when the Net Asset Value of the Subfund has fallen. Additionally, performance fees may be paid on unrealised gains which in fact are never realised. Foreign currency risk: The Hedge Funds are mostly denominated in USD. The Hedge Funds in turn may invest in assets denominated in various currencies. The Index is initially calculated in USD, and an adjustment is made to reflect the effect of currency hedging between USD and EUR. It is not intended that the currency hedging of the Index will be 100% effective. The level of the Index and the return to investors in the Subfund could be adversely affected not only by hedging costs and changes in exchange rates but also by local exchange control regulations and other limitations, including currency exchange limitations and political and economic developments in the relevant countries. Liquidity Risk: The risk that the Fund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares. Valuation risk estimated Index level: the main determinant of the monthly Net Asset Value per share of the Subfund is the level of the Index on the Valuation Day. The final Index level is provided monthly by the Index Sponsor, typically within a month after the relevant Valuation Day. In order to calculate the value of the Swap Agreement on any Valuation Day (other than the Final Maturity Date) at which the Subfund can trade with the Swap Counterparty, the estimated Index level will be determined by the Swap Calculation Agent based on estimated values of the Hedge Funds provided to the Swap Counterparty by the managers or administrators of the Hedge Funds on or before the Valuation Day and may be adjusted to reflect expected changes to the estimated valuations as at the Valuation Day; where the values of any Hedge Funds are not available or, in the opinion of the Swap Calculation Agent, are otherwise unreliable or unrepresentative, the Swap Calculation Agent may estimate in good faith the value of such Hedge Funds in order to determine the estimated value of the Index on the Valuation Day. The value of the Index used in determining the Net Asset Value per share of the Subfund may differ from the final Index level for the relevant month as provided by the Index Sponsor. In such circumstances, the value of the Swap Agreement and the Net Asset Value per share of the Subfund will not be revised or otherwise amended to reflect any such difference. Valuation risk final Index level: The Net Asset Value per share of the Subfund at the Final Maturity Date will be based on the final Index level as calculated by the Index Calculation Agent. In valuing the Hedge Funds, the Index Calculation Agent may need to rely on financial information provided by the managers of the Hedge Funds themselves. Independent valuation sources such as exchange listing may not be available for the Hedge Funds of the Index. The net asset value of the Hedge Funds may be finalized using estimated values provided by the managers or administrators of the Hedge Funds. In most cases, the Index Calculation Agent will have no ability to assess the accuracy of the valuations received. In certain cases, the values provided by the managers or administrators of the Hedge Funds may subsequently be amended; e.g. as a result of adjustments identified as part of the annual audit of the underlying schemes. In such circumstances, the value of the Index and the Net Asset Value per share of the Subfund at the Final Maturity Date will not be revised or otherwise amended to reflect any such difference. Effect of Substantial Redemptions: A number of events could trigger substantial redemptions from a Hedge Fund. Actions taken to meet substantial redemption requests could result in a decrease in prices of financial instruments. The overall value of Hedge Funds may also decrease because the liquidation value of certain assets may be materially less than their mark-to-market value. Hedge Funds may be forced to sell their more liquid positions, may need to maintain greater amounts of cash and cash-equivalent investments than they would otherwise maintain and may also be restricted in their ability to obtain financing or derivatives counterparties needed for certain investment and trading strategies. Settlement of redemption amounts prior to the Final Maturity Date: redemption proceeds will generally be paid 2 Subfund Business Days following the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. 64

65 Settlement of redemption amounts on the Final Maturity Date: redemption proceeds will generally be paid after one calendar month plus 5 Subfund Business Days following the Final Maturity Date. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. Early Maturity: Under the terms of the Swap Agreement, the Swap Counterparty may terminate the Swap Agreement on a calendar quarter-end prior to the Maturity Date. In such circumstances, the date of the early termination would become the Final Maturity Date of the Subfund, and the Subfund would terminate unless the Subfund enters into another swap agreement with another counterparty. The Swap Counterparty must give at least 100 calendar days' notice to the Subfund prior to an early termination date. Index disruption: If the Swap Calculation Agent determines the Index has been replaced with another index, or the Index is likely to cease to be calculated by the Index Calculation Agent or maintained by the Index Sponsor, then the Swap Counterparty and the Subfund may agree to use another index, and the terms of the Swap Agreement may be amended accordingly. Alternatively, the Swap Agreement may be terminated and accordingly the Subfund would terminate as well as set out above unless the Subfund enters into another swap agreement with another counterparty. Counterparty Risk: the Subfund is exposed to the risk that the Swap Counterparty (together with the Guarantor) may default on its obligations to perform under the Swap Agreement and that the Securities Lending Counterparty (together with the Guarantor) may default on its obligations to deliver equivalent collateral. In assessing this risk, investors should recognise that the Swap Counterparty will pledge collateral to ensure that the net credit risk of the Subfund to the Swap Counterparty will not exceed 10% of the Net Asset Value of the Subfund; and the Securities Lending Counterparty will pledge collateral equivalent to the value of the securities under loan. In circumstances where UBS AG (or another single counterparty) is both the Swap Counterparty and the Securities Lending Counterparty, then the net exposure to UBS AG, or another single counterparty, will be collateralised such that the net credit risk to the relevant counterparty will not exceed 10% of the overall net exposure to that counterparty. Taxation: Potential shareholders should seek information on the taxation laws and regulations in force and, where appropriate, seek advice on the subscription, purchase, possession and sale of shares at their place of residence. Further information on taxation is provided in the section "Taxation" of Section II. Use of Derivatives: The Swap Agreement is a structured derivative transaction as part of the investment strategy. While the prudent use of such a derivative can be beneficial, derivatives also involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Structured derivative transactions are complex and may involve a high degree of loss. The aim of the Swap Agreement is to deliver exposure to the Investment Strategy and as such, the use of the Swap Agreement is not speculative in nature. Alternative Investments: The Subfund may take advantage of opportunities with respect to certain other alternative instruments that are not presently contemplated for use by the Subfund or that are currently not available, but that may be developed, to the extent such opportunities are both consistent with the investment objective of the Subfund and legally permissible for the Subfund. Certain alternative instruments may be subject to various types of risks, including market risk, liquidity risk, the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty, legal risk and operations risk. Avoidance of conflicts of interest: The units within the UBS Group who are providing services to the Subfund operate as independent entities and in order to avoid possible conflicts of interest, all transactions between these entities and the Subfund are undertaken at arm's length prices, always keeping in mind the best interest of the shareholders. In particular, the estimated level of the Index on any Valuation Day prior to the Final Maturity Date will be determined by the Swap Calculation Agent based on estimated values for the Index Components and agreed by the Index Sponsor, both of whom may be different entities or divisions within the UBS Group. 65

66 In the normal course of business, UBS Group and/or its directors, officers and employees may have or may have had interests in the Hedge Funds. Such activity may or may not affect the value of the Index and Subfund. Although the Index Sponsor has agreed to use its best efforts in managing the Index, the Index Sponsor and its principals, members and affiliates (collectively the "Index Sponsor Parties") are not required to devote full time or any material portion of their time to managing the Index. The Index Sponsor is the investment adviser to a number of investment funds, including funds with investment objectives similar or substantially similar to those of the Index, and the Index Sponsor Parties advise and may advise additional clients, some of which hold or may hold the same investments as are included in the Index. The Index Sponsor may in the future sponsor other indices similar to the Index. UBS Group may receive management fees, performance fees and other fees, if applicable, for such portion of the Index allocated to Index Components managed by any member of the UBS Group, which may constitute a significant percentage of the Index. Accordingly, in determining Index allocations, the Index Sponsor is subject to a conflict of interest because such allocation will result in higher amounts being allocated or paid to the UBS Group than if the Index was allocated exclusively to managers not affiliated with the UBS Group. Competition: Certain markets in which Hedge Funds may invest are extremely competitive for attractive investment opportunities. Thus, the managers of such Hedge Funds might not be able to identify or successfully pursue attractive investment opportunities in such environments and, as a result, there may be reduced expected investment returns. Economic conditions: Changes in economic conditions, including, for example, interest rates, employment conditions, competition, technological developments, political and diplomatic events and trends, and tax laws can affect substantially and adversely the business and prospects of the Hedge Funds. None of these conditions is within the control of the managers of such Hedge Funds and/or Index Sponsor and no assurances can be given that the managers of such Hedge Funds and/or Index Sponsor will anticipate these developments. The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Subfund. Prospective investors should read the prospectus and the articles of incorporation of the Fund and consult with their own advisers before deciding whether to invest in the Subfund. Investments in the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified EUR General Information Reference currency: EUR. This is the currency in which the Net Asset Value per share of the Subfund is calculated. The Swap Agreement is denominated in EUR. The Index is initially calculated in USD, and an adjustment is made to reflect the effect of currency hedging between USD and EUR. It is not intended that the currency hedging will be 100% effective. In addition, the Index Components, and in turn their underlying investments, may be denominated in currencies other than USD and EUR. Allocation of income: this Subfund will pursue an accumulation policy. Valuation Day: the Net Asset Value per share will be calculated as of the third last bank business day of each month (i.e. each day on which banks are open during normal business hours) in London, Zurich and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich and Luxembourg. "Non-statutory rest days" are days on which several banks and financial institutions are closed in London, Zurich and Luxembourg. The Board of Directors may, at its sole discretion, decide to fix one or more extraordinary Valuation Day(s) or alter the cut-off point for dealing instructions in order to better deal with subscriptions and redemptions in the Subfund. Any decision to fix an extraordinary Valuation Day will be notified to shareholders. In order to cover any costs associated with subscriptions and redemptions, and if in the interest of the Subfund's shareholders, the Board of Directors may decide to apply an extraordinary charge to the value of the subscriptions and redemptions and to reflect this extraordinary charge in the Net Asset Value of the Subfund. 66

67 Issue of shares: shares may be issued monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to increase the notional of the Swap Agreement on a Valuation Day, then subscription applications of shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a subscription of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to increase the notional amount of the Swap Agreement, the subscription order may be rejected by the Subfund. In such case, the Subfund will execute the subscription order on the next Valuation Day on which the Swap Counterparty is prepared to increase the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward subscription applications to the Administrative Agent. No issue will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". Shares will be issued as non-certificated registered shares, unless otherwise decided by the Board of Directors. Upon request and against payment by the shareholder of all incurred expenses, share certificates may be issued in physical form. The Board of Directors reserves the right to issue share certificates in denominations of one or more shares, however fractions of shares will not be issued in certificated form. Global share certificates will not be issued. Redemption of shares: shares may be redeemed monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to decrease the notional of the Swap Agreement on a Valuation Day, then redemption applications relating to shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a redemption of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to decrease the notional amount of the Swap Agreement, the redemption order may be rejected by the Subfund. In such case, the Subfund will execute the redemption order on the next Valuation Day on which the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward redemption applications to the Administrative Agent. No redemption will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". In addition, the Board of Directors is empowered to: a) Reject a subscription application at its discretion and to discretionarily decide to accept subscription requests on any other Valuation Day; b) At any time redeem shares of the Subfund held by shareholders who are not qualified to purchase or hold shares of the Subfund. Such redeemed shares are reimbursed to the shareholders and thereby cease to be valid. Subfund Business Day: days on which the TARGET system is open and normal bank business days (i.e. each day on which banks are open during normal business hours) in London, Zurich, 67

68 New York, Cayman islands and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich, New York, Cayman Islands and Luxembourg. "Non-statutory rest days" are days, on which several banks and financial institutions are closed in London, Zurich, New York, Cayman Islands and Luxembourg. Secondary market: UBS AG (the "market-maker") will make a market in the shares of the Subfund. Shareholders may sell shares to the market-maker on each business day. The price at which shares can be traded with the market-maker may differ from the most recent Net Asset Value of the Subfund. Pursuant to a Market Maker Agreement between the market-maker and the Fund, the market-maker may decide not to buy shares of the Subfund in the secondary market if the market-maker determines, in its sole discretion, that one of the following extraordinary events has occurred: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) the stock exchanges or markets on which the valuation of a major part of the Fund's assets is based or when the foreign exchange markets corresponding to the currencies in which the Net Asset Value or a considerable portion of the Subfund's assets are denominated, are closed, except on regular public holidays, or when trading on such a market is limited or suspended or temporarily exposed to severe fluctuations; political, economic, military or other emergencies beyond the control, liability and influence of the Fund make it impossible to access the Subfund's assets under normal conditions or such access would be detrimental to the interests of the shareholders; disruptions in the communications network or any other reason make it impossible to calculate with sufficient exactitude the value of a considerable part of the Subfund's net assets; limitations on exchange operations or other transfers of assets render it impracticable for the Fund to execute business transactions, or where purchases and sales of the Subfund's assets cannot be effected at the normal conversion rates; when for any other reason the prices of any investments owned by the Fund cannot promptly or accurately be ascertained; upon the publication of a notice convening a general meeting of shareholders for the purpose of resolving the winding-up of the Fund; a violation by the Fund or change of any material terms of the prospectus or constitutional documents which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; any restriction or limitation or suspension or deferral or delay of redemptions of, or subscriptions for, shares in the Subfund (including, without limitation, any partial payment of redemption proceeds or the introduction or increase of any associated fee, cost or expense, the introduction or use of gating or a side pocket, or any restructuring, reorganisation or action that has a similar impact to gating or a side pocket), or any mandatory redemption of shares of the Subfund; any review or investigation of the activities of the Fund or the Subfund by a relevant regulator, in connection with suspected or alleged wrongdoing or breach of any rule or regulation, or other similar reason, or any disciplinary action taken by such regulator in connection therewith which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; if as a consequence of shareholders of the Fund selling shares of the Subfund to the market-maker, the market-maker would become the beneficial owner of 25% or more of the shares of the Subfund; any winding-up, liquidation of, or any termination or any loss of regulatory approval, licence or registration of, the Portfolio Manager, or any merger, de-merger, winding-up or liquidation of or affecting the Fund or the Subfund; 68

69 (l) any arrangement between the market-maker and the Fund or the Subfund including arrangements relating to subscriptions for, and redemptions of, shares in the Subfund, is changed or terminated; and/or (m) the Fund or the Subfund becomes party to any litigation or dispute which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Sub-fund. Specific reasons for the suspension of the Net Asset Value calculation and/or issue, conversion and redemption of shares: Notwithstanding the reasons set out in Section II "Suspension of the Net Asset Value calculation and of the issue, conversion and redemption of share" the Subfund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to restrictions on subscriptions or redemptions of the entirety of or some of the hedging positions. Subject to an extraordinary event, including without limitation, liquidation or force majeure, the Subfund will ensure that investor's shares will be redeemed within 12 months following the request for redemption but in no case later than within 36 months. UBS Group: UBS AG together with its branches and affiliates (which shall for this purpose mean any entity owned by and/or under common ownership or control of UBS Group AG.) Portfolio Manager: UBS Asset Management (UK) Ltd. The Portfolio Manager is part of UBS Asset Management, a business group of UBS AG. The Portfolio Manager is regulated by the UK Financial Conduct Authority. Launch Date: 16 October 2008 Share classes The Board of Directors can issue several classes of shares for the Subfund. Currently, the following share class is offered: I-class available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. Fees and Expenses The Subfund will bear all the costs incurred in connection with the management, administration, portfolio management of the Subfund's assets (the "Flat Fee" ), which will be calculated based on the Net Asset Value of the Subfund and in total will not exceed 0.45% per annum of the Net Asset Value per share and be payable on a quarterly basis. The Depositary will receive a fee that will not exceed 0.05% per annum of the Net Asset Value per share calculated and payable on a quarterly basis. In addition, the Subfund shall bear the expenses (the "Additional Expenses") as described in Section II 12. Charges and Expenses. As described above, the Swap Counterparty pays the Subfund on a quarterly basis an amount corresponding to the aforementioned fees and costs and all additional costs incurred by the Subfund. Fees which are borne by the investor directly are the following: Issuing commission of up to 3% of the issue price per share; Redemption charge of up to 0.5% of the Net Asset Value per share to be redeemed, which may be increased up to 5% in periods of increased volatility of the Index Components or in the event that the Subfund experiences significant redemptions. 69

70 Subscriptions On the Launch Date the shares of the Subfund may be subscribed at a price calculated based on the latest estimated valuations of the Index Components multiplied by their weights provided on or before the Launch Date and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as of the Launch Date 2008 as determined by the Swap Calculation Agent on that date plus any stamp duties and fees. Investors may settle the subscription 'in-kind'. After the Launch Date, the issue price is based on the Net Asset Value per share. Any taxes, commissions and other fees that apply to investors in the different countries in which shares may be sold will also be charged in addition to the Net Asset Value per share. Sales agencies may charge investors an issuing commission of up to 3% of the issue price per share. Example 1 sales commission applied in addition to investment amount Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares subscribed Total amount of subscription EUR 10,300 EUR 10,000 Example 2 sales commission applied to initial investment Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares issued Total subscription amount EUR 10,000 EUR 10,000 Subscriptions for shares in the Subfund are accepted by the Fund as well as by the sales agencies and paying agents, which forward them to the Fund. Subscriptions received on any Subfund Business Day prior to the time stated under "Issue of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent, earlier cut-off times may apply for submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. The issue price of the Subfund shares is paid no later than two Subfund Business Days following the relevant Valuation Day into the account at the Depositary in favour of the Subfund. In addition, the Fund may issue fractional shares up to three decimal places. However, no certificates are issued for these fractional shares. They are credited to the shareholder via an entry in the securities custody account of his or her choice. Fractions of shares do not confer the right to vote at general meetings, but will grant entitlement to a distribution or a proportionate distribution of the liquidation proceeds in the case where the Subfund is dissolved. In certain circumstances during the first six months after Launch Date, at the discretion of the Board of Directors, the Subfund may process subscriptions on a Subfund Business Day which is not a 70

71 Valuation Day. In such cases, the assets and liabilities of the Subfund will be valued on that Subfund Business Day. Redemptions Redemption applications, accompanied by any certificates that might have been issued, are accepted by the Fund as well as at the sales agencies and paying agents, which forward them to the Fund. Applications for redemption received on any Subfund Business Day prior to the time stated under "Redemption of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent earlier cut-off times may apply for the submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. In general, the value of redeemed Subfund shares is paid out no later than two Subfund Business Days after the Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself and has not received redemption proceeds for whatever reasons with respect to its hedge, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. In addition, legal provisions, such as foreign exchange controls or restrictions on capital movements, or other circumstances beyond the control of the Depositary, may make it impossible to transfer the redemption amount to the country in which the redemption application was submitted. Any taxes, commissions and other fees incurred in the countries in which Fund shares may be sold will also be charged. The price, at which shares in the Subfund are redeemed, shall be calculated according to the Net Asset Value per share of the Subfund and of the relevant share class. In the event of an excessively large volume of redemption applications, the Board of Directors may decide to delay execution of the redemption applications until the corresponding assets of the Fund have been sold without unnecessary delay. Should such a measure be necessary, all redemption applications received on the same day will be calculated at the same price. In calculating the redemption price, the Subfund may on any Valuation Day when there are redemptions adjust the redemption price by deducting an amount of up to 0.5% from the Net Asset Value per share to be redeemed. However, in periods of increased volatility of the Index Components and/or in the event that the Subfund experiences significant redemptions such deduction may be increased up to 5% of the Net Asset Value per share. Example 3 redemption charge applied to redemption of shares Example where no redemption charge is applied Example where redemption charge of 0.5% is applied Example where redemption charge of 5% is applied Number of shares redeemed Net asset value per share EUR 100 EUR 100 EUR 100 Redemption charge (in %) 0% 0.5% 5.0% Redemption price per share EUR 100 EUR 99.5 EUR 95 Total redemption proceeds EUR 10,000 EUR 9,950 EUR 9,500 Conversions Conversions of shares into other Subfunds' shares of the Fund may be permitted. 71

72 Past performance The chart shows the investment returns of the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Diversified EUR I-class calculated as a percentage of the change in Net Asset Value over the previous year. In general any past performance takes account of all ongoing charges but not the entry charge/issuing commission. The past performance is not an indicator for the future performance. The share class was launched on The past performance is calculated in EUR. 72

73 APPENDIX: INDEX DESCRIPTION Neither the Index Sponsor nor the Index Calculation Agent guarantees the accuracy and/or the completeness of the Index or any data included therein, and neither of them shall have any liability for any errors, omissions, or interruptions therein. Neither the Index Sponsor nor the Index Calculation Agent does make any warranty, express or implied, as to the performance of the Subfund, investors or any other person or entity from the use of the Index or any data included therein. Neither the Index Sponsor nor the Index Calculation Agent makes any express or implied warranties and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall either of the Index Sponsor or the Index Calculation Agent have any liability for any lost profits or indirect, punitive, special or consequential damages, even if notified of the possibility thereof. I. Background to the Index The Key Multi-Manager Hedge Fund Diversified EUR Index (the "Index") is a Euro denominated index which reflects the performance of (i) various private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the "Financial Instruments"), (iii) the Cash Position (as described below) and (iv) certain EUR/USD-Hedging Arrangements (as described below; which together with the Hedge Funds, the Financial Instruments, the Cash Position and the EUR/USD-Hedging Arrangements shall be referred to as the "Index Components"). The level of the EUR denominated Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). UBS Switzerland AG is responsible for the selection of the Index Components as well as the composition, management and rebalancing of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent "). It is at the full discretion of each of the Index Sponsor and the Index Calculation Agent to delegate their respective duties and rights related to the selection of the Index Components and to the composition, management, calculation and rebalancing of the Index, entirely or partially to another affiliated or non-affiliated party. The objective of the Index is to achieve a long-term appreciation. The Index seeks to achieve performance results that are less volatile in both rising and falling markets than direct exposure to traditional markets by selecting Index Components that utilize hedged strategies, among others. This is to be aimed for by diversifying both the approach according to which the Index mirrors investments in assets, i.e. Index Components and the respective types of instruments. The Hedge Funds included in the Index have broad flexibility to take long or short positions, employ leverage and use derivative instruments. The Index Sponsor will consider including in the Index Hedge Funds operating in all global markets. The Index Sponsor may include a revenue participation in Hedge Fund management companies within the Index. The Index may also include Hedge Funds which may be managed and/or owned by the Index Sponsor, the Index Calculation Agent or any of their affiliates. The Index was created on 31 May 2005 with an opening Index level of 1, points and may be rebalanced at any date thereafter (each an "Index Rebalancing Date"). The Index Sponsor may on any Index Rebalancing Date, in its reasonable discretion, change the composition of the Index or the weightings of existing Index Components (such change hereinafter called "Rebalancing") subsequent to the initial composition of the Index in line with the objectives and goals of the Index. On each Index Rebalancing Date on which a change in the composition of the Index is made, the Index will be adjusted by assigning new weightings to one or more of the Index Components subject to the condition that the level of the Index after the change is effected is the same as the level of the Index before the change. In other words, no change in the level of the Index occurs on the Index Rebalancing Date as a result of changes to the composition of the Index. II. Cash Position The Index will include as an Index Component a "Cash Position" which reflects the holding of cash, 73

74 money market instruments or cash obligations. The Cash Position can also reflect the application of leverage, in which case the Cash Position may mirror a negative cash balance and may reflect the cost of such leverage in the returns of such Cash Position. Accordingly, the Cash Position may be a negative amount at such times that borrowing exceeds cash holdings. III. Expenses and Index Fees The Index is calculated net of certain fees, costs and expenses commonly to be associated with establishing and maintaining a portfolio similar to the notional portfolio mirrored by the Index, as determined by the Index Calculation Agent in its reasonable discretion, including, without limitation, investment, research, legal, accounting, administration, custodial and professional expenses (collectively, the "Expenses"). In addition, the Index Fees (as defined below) will be deducted when calculating the level of the Index. The Index Fees are applied to the value in EUR of the Weighted Closing Valuations of the Index Components (including the EUR/USD - Hedging Arrangements) and consist of: (i) (ii) IV. an index management and calculation fee of 0.90% per annum of the value (in EUR) of the Weighted Closing Valuations of the Index Components at the end of each calendar month (calculated and deducted on a monthly basis) (the "Index Management and Calculation Fee"); and a quarterly index performance fee of 5.00% of the increase in value (in EUR) of the Weighted Closing Valuations of the Index Components during each calendar quarter (after deduction of the aforementioned Index Calculation Fee) (calculated and accrued monthly, with a final determination at the end of each calendar quarter) (the "Index Performance Fee", together with the Index Calculation Fee, the "Index Fees"). EUR/USD-Hedging Arrangements The Index will include as an Index Component the "EUR/USD-Hedging Arrangements". As it is anticipated that substantially all of the Hedge Funds will be denominated in USD, the Index Sponsor will enter into EUR/USD-Hedging Arrangements. The Index Sponsor will, pursuant to the EUR/USD-Hedging Arrangements, make a reasonable attempt to offset, but not eliminate, the EUR/US exposure of the Index resulting from those Index Components that are denominated in USD. The level of the Index will be increased or decreased, as the case may be, by any income, loss, costs and expenses attributable to the currency conversions and any other transactions constituting the EUR/USD-Hedging Arrangements. Pursuant to the EUR/USD-Hedging Arrangements, to the extent reasonably practicable, the Index Sponsor will use reasonable efforts to convert weightings to the Index Components between EUR and USD at the spot rate. In addition, to the extent reasonably practicable, non-eur exposure of the Index Components is periodically hedged back to EUR by means of notional forward currency contracts. The EUR/USD-Hedging Arrangements will be maintained, evaluated, and employed based on the estimated level of the EUR/USD exposure of the Index Components at the time of periodic currency hedging. There can be no assurance that the EUR/USD-Hedging Arrangements will be successful or will not themselves generate significant losses. Although the EUR/USD-Hedging Arrangements will be adjusted periodically, the EUR/USD-Hedging Arrangements will not necessarily at any time hedge the entire EUR/USD exposure of the relevant Index Components to changes in the exchange rate. Such Index Components' unhedged exposure to changes in the exchange rate may be significant. V. Index Calculation UBS Switzerland AG as Index Sponsor selects the Index Components and is responsible for the weightings, re-weightings and changes to the Index Components. The Index Calculation Agent calculates the level of the Index as at any given Index Valuation Date. Each of the Index Sponsor and the Index Calculation Agent may, at its discretion and under its own responsibility, delegate some or all of their respective duties to another party, which may be affiliated to or independent of the Index Sponsor and/or the Index Calculation Agent. "Index Valuation Date" means the last calendar day of each month. The first Index Valuation Date was 30 June On every Index Calculation Date, the Index Calculation Agent will calculate the official closing level of the Index as at the applicable Index Valuation Date. The "Index Calculation Date" relating to an Index Valuation Date is the last Index 74

75 Business Day of the month immediately following that Index Valuation Date or such earlier date following the relevant Index Valuation Date as the Index Calculation Agent may determine. The first Index Calculation Date was on 29 July "Index Business Day" means any calendar day (except Saturday and Sunday) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the Cayman Islands, Zurich, Switzerland and New York, the USA. The level of the Index is based on the performance of the Index Components in EUR from the previous Index Valuation Date to the present Index Valuation Date, less the Index Fees and Expenses. The following formula will be used by the Index Calculation Agent on a monthly basis in order to calculate levels of the Index. Index (t) = Index (t-1) * {EUR Value (t) / EUR Value (t-1) } where: (the interval between t and t-1 refers to the period of one month) Index (t) : Index (t-1) : EUR Value (t) : EUR Value (t - 1) : The closing level of the Index as at the Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date. The closing level of the Index as at the Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant Index Calculation Date,. The sum of the Weighted Closing Valuations in EUR of the Index Components as at Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date, minus Index Fees and Expenses. The sum of the Weighted Closing Valuations in EUR of the Index Components as at Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant previous Index Calculation Date, minus Index Fees and Expenses. Index Valuation The Index Valuation Date in month t. Date (t) Index Valuation The Index Valuation Date in month t-1 Date (t-1) Weighted Closing Valuations: The last valuation of each Index Component, including the most recent estimated unaudited valuations of each Hedge Fund and the EUR/USD Hedging Arrangements, as provided by the managers or/and the administrators of the Hedge Funds making up the Index to the Index Calculation Agent on or before the relevant Index Calculation Date, multiplied by their respective weightings as at the relevant Index Valuation Date. If information concerning the last official valuation of an Index Component as at an Index Valuation Date is not received by the Index Calculation Agent prior to and including the relevant Index Calculation Date, the Index Calculation Agent shall use best efforts to determine in its reasonable discretion the Index Component's value using the last available valuation, the net asset value estimated by the Index Calculation Agent, current market conditions or any other available information as its basis. Such determination will serve as the basis for the Index Calculation Agent's further calculations. The above procedure will also be applied when the Index Calculation Agent needs to determine in its reasonable discretion the last official valuation of an Index Component that, at some relevant point in time, cannot be redeemed against payment of cash or material assets. 75

76 VI. Index Component Selection The Index Sponsor will follow certain general guidelines in choosing the Hedge Funds as Index Components. While the Index Sponsor will attempt to apply such guidelines consistently, the guidelines involve the application of subjective and qualitative criteria and therefore the selection of the Index Components is a fundamentally subjective process. The use of the selection guidelines may be adjusted by the Index Sponsor in its reasonable discretion in line with the objectives and goals of the Index. The Index Sponsor or its delegate will conduct a number of onsite and offsite interviews with the investment managers or investment advisers of prospective Index Components and substantial other due diligence prior to making a selection. The goal of the due diligence process is to evaluate the candidates on a wide range of criteria. By combining historical quantitative analysis with a sound knowledge of these key qualitative attributes, the Index Sponsor will attempt to forecast the proposed Index Components' potential for generating sustainable positive risk-adjusted returns under a wide variety of market conditions. When selecting the Index Components, the Index Sponsor shall always consider whether the Index Components can meet certain criteria. The criteria include, but are not limited to: 1. The manager of the Index Component should display an employment background with a reasonable amount of relevant experience in the specialty of the strategy employed. 2. The manager of the Index Component should have proper risk control policies and procedures that are consistent with meeting the investment goals of the Index. 3. The manager of the Index Component should have the proper research and operational infrastructure to conduct its business properly. 4. The manager of the Index Component should employ a strategy where, in the opinion of the Index Sponsor, reasonable risk-return parameters exist. 5. The Index Sponsor should be able to classify the investment strategy pursued by the Index Component under the basic investment strategy categories it utilizes. VII. Constructing the Index The Index Sponsor will seek to construct a portfolio of Index Components that is broadly diversified and has low correlation to traditional benchmarks. The Index Sponsor will seek to use a variety of Index Components that trade in diverse markets, utilize different trading strategies, construct varying types of portfolios and layer capital in a manner that is consistent with the risks embedded in their trading philosophy. The Index Sponsor will then assign percentage weights (the sum of all weights being equal to 100%) to each Index Component subject to the following restrictions being satisfied on any Index Valuation Date: 1. The minimum number of Hedge Funds will at all times be equal or higher than The value of any single Hedge Fund should generally not be more than 20% of the aggregate Weighted Closing Valuations on any given Index Valuation Date; however, if as a result of extreme positive performance an Index Component the value of any single Hedge Fund exceeds this level, an adjustment in the allocation will be made as soon as practicable. 3. Hedge Funds selected for inclusion within the Index will be grouped based on the particular strategy each of them pursues. The aggregate weights of the Index Components falling into the respective strategy at any given Valuation Date shall be as follows: 76

77 Strategy Lower Limit Upper Limit Equity Hedged 0% 70% Credit /Income 0% 50% Relative Value 0% 50% Trading 0% 50% Others 0% 15% Cash and cash equivalents -25% 25% The above guidelines are intended to be general and the Index Sponsor may vary them where appropriate. Monitoring of Hedge Funds and Reallocation. The Index Sponsor will monitor Hedge Funds through a combination of periodic net asset value updates, position reports and correspondence and meetings with managers of the Hedge Funds. The Index Sponsor will also rely on its experience to make qualitative assessments about the current risk conditions that each Hedge Fund and the overall Index may face. The performance of each Hedge Fund will be compared with the performance of other hedge funds which utilise the same or similar strategies (and who may or may not at that time be in the Index). Reasons for reducing or withdrawing entirely an allocation to a Hedge Fund may include, without limitation: i. the identification by the Index Sponsor of an alternative Hedge Fund which in the opinion of the Index Sponsor will improve the performance of the Index; ii. iii. iv. a change in the Hedge Fund's strategy or personnel; a significant change in the amount of assets under the Hedge Fund's management; a decline in performance relative to the performance of other hedge funds using the same investment strategy; v. any other circumstance or reason affecting the composition of the Index such as legal, regulatory or any other requirements as determined by the Index Sponsor; vi. vii. viii. VIII. a decline in the potential for gains on investment in the Hedge Funds market niche; a failure of a Hedge Fund to meet expectations of or adhere to restrictions on activities established by the Index Sponsor; or relative gains or losses in the accounts of different Hedge Funds that cause the Index Sponsor's allocations among the Hedge Funds to become disproportionate or unbalanced with respect to the Index Sponsor's allocation models or strategies. Investment Strategies Although it is anticipated that the strategies described below will represent the primary strategies expected to be included in the Index, the Index Sponsor will not be limited in the types of Hedge Funds that it may select or the types of activities in which they may engage. Accordingly, the Index Sponsor, in its sole and absolute discretion, may consider allocations to Hedge Funds that pursue a wider range of investments or other market strategies, including activities not described herein, if he deems it appropriate for reaching the objectives and goals of the Index. The classification of Hedge Funds included in the Index and the strategy definitions are based on the subjective judgment of the Index Sponsor which may differ from strategy definitions in the market. The following strategy descriptions are summaries only and do not provide detailed descriptions of each strategy. Equity Hedged Fundamental Conservative A typical fundamental conservative manager makes both long and short stock selection through research on the individual companies. The process is generally 'bottom-up'; that is, stocks are added to the portfolio on the basis of the opportunity for price movement of the individual company. The vast span of equities globally creates an opportunity for these managers to attempt to take advantage of their proprietary company research and analysis at the individual stock level. The 77

78 difference between the long and short portfolio is the fund's net exposure, which typically is an indicator of market risk (Beta) that is assumed by the manager. The fund's short portfolio may vary greatly and is both a tactical expression of the manager's market outlook and a reflection of their conviction in the bottom -up stock selection opportunities. Long portfolios generally run more fully invested with variations driven by the underlying risk/reward opportunities and market dynamics light correlation levels and volatility. Conservative funds tend to be less concentrated, either by sector, position size, market capitalization, beta mismatches, style or net market exposure. However, a distinguishing feature of the conservative classification is the manager's attempt to reduce market risk at all times by maintaining a lower net exposure, generally between 0% and 60% net long. While these net exposure ranges are not hard limits, managers may on exception, opportunistically expand beyond these ranges for short periods of time if market conditions and risk management dictate in their view. Related stocks / i.e. pairs trading is a type of market neutral equity strategy and would fall into the fundamental conservative category. In this approach, companies that are related to one another (by reason of engaging in similar activities and having comparable corporate structures) are grouped together. Stock price movements may move these relationships out of alignment, whether by reason of a corporate action, market event or simply high equity market volatility. These related stocks may often demonstrate mean reversion characteristics; that is, they have a tendency to return to the previous equilibrium level. The trading strategies employed to potentially benefit from these anomalies involve a combination of quantitative and qualitative techniques. If the process is primarily qualitative, then these managers would fall into the fundamental conservative grouping; if the process is primarily quantitative, we would classify the strategy as Relative Value: Quantitative Equity. Fundamental Aggressive Similar to fundamental conservative managers, a typical fundamental aggressive manager makes both long and short stock selection through bottom-up research on individual companies. Aggressive funds tend to be more concentrated than their more conservative peers. Aggressive managers are more likely to have directional skews in their portfolios to either sector, market capitalization, geography, or factor/style. Furthermore, aggressive funds may occasionally or regularly amplify their market risk exposure by exceeding net market exposure of 100% net long or by being net short with conviction. Although some of the fundamental aggressive managers essentially take a passive 'deep value' approach to investing on the long side, others may take an activist approach to their investments. An activist investor often seeks to create the catalyst for stock price movement. Activist strategies are broadly defined as either operational or financial, depending on the intention and expertise of the managers. Implementation varies from friendly, behind the scenes approaches to hostile, public battles with management teams and corporate boards. For this reason, some activist strategies may result in more concentrated portfolios and be longer term in nature. Such funds typically have a long biased un-hedged approach. Event Driven approaches involve directional long and short investing in public companies that are undergoing some corporate event with a definitive catalyst and timetable. These catalysts may include spin-offs, restructurings, stock buybacks, management changes or other well-defined events. The approach tends to have a value bias as the complexity surrounding events may create a discount to market peers not undergoing similar situations. Some event styles have a long-biased, un-hedged approach, which may offer significant upside return potential but can also exhibit significant market correlation and Beta especially in times of stress. Opportunistic Trading This strategy refers to the active trading of long and short equity positions based on short-term, catalyst-driven or flow-driven opportunities in the equity markets. This strategy is often marked by the prevalence of using sector baskets, exchange traded funds and equity indices and often leads to dramatic variability in a managers underlying net exposure. Given that the portfolio turnover is quite high, leverage is typically lower than in most of the other equity sub-strategies, though position concentration may be higher. 78

79 Relative Value Capital Structure / Volatility Arbitrage This strategy generally seeks to benefit from anomalies in the relative value of different securities or issues within a single company's capital structure. Convertible bond arbitrage is a classic way of expressing this strategy. A convertible bond is a hybrid product combining a bond with an imbedded warrant that permits conversion to the issuer's common stock at some fixed exchange rate. The 'plain vanilla' version of the strategy involves investing in the convertible securities of companies and then shorting the underlying common stock as a hedge. Managers within the strategy vary in terms of what drives returns, but the primary differentiator is the level of credit risk in the portfolio. Other typical types of capital structure relative value trades include senior versus subordinated debt and cash bonds versus CDS (basis trades). Trades may also be catalyst-driven, involving corporate events, such as convertible bond buybacks, convertible bond putbacks, equity exchanges, and M&A driven trades with capital structure implications. Managers will often seek to hedge exposure to a variety of other factors not related to the specific mispricing. Volatility Arbitrage involves using options and the underlying securities in an attempt to capture mis-pricings in option markets. Volatility strategies can be employed across various asset classes. In general, the primary driver of returns is the volatility differential between the options and the actual price movement less the transactions cost. For example, in equity-oriented volatility arbitrage, the manager analyses the relationship between actual stock price movement and the volatility that is implied by the options on the stock. If the options are deemed to be cheap, the manager buys options on a market neutral basis and then re-hedges the strategy as the underlying stock moves, to maintain neutrality. If options are deemed to be expensive, the options are sold, the premium is taken in and the strategy is re-hedged with stock movement. Quantitative ('Quant') Equity As statistical arbitrage and other systematic long/short approaches evolved over time, managers employing them began to overlap to such a degree that the Index Sponsor decided it was more appropriate to view them together as opposed to separate and distinct. As such, the quantitative equity sub-strategy involves model-driven approaches that utilize one or both of the following approaches: Statistical arbitrage is a model-driven approach that seeks to create diversified, risk-balanced long and short portfolios with the objective of capturing short-term price anomalies in equity markets. Models can either take the form of mean reversion, price momentum or a combination thereof. A key driver of performance is the ability to have for backtesting, superior alpha signals, a strong risk management and portfolio management framework, and a robust execution platform. Given the market neutral bias to the approach, the strategy implies a degree of minimization of sector, market capitalization, style, beta and other type of imbalances. Portfolio turnover is typically very high in the strategy. Systematic long/short, which is a model-driven approach to constructing equity long/short portfolios, incorporates fundamental, event, and price data used by traditional stock pickers. These funds' models typically begin by analysing vast amounts of data to determine relevant factors that indicate potential underperformance and outperformance of certain sectors and styles. The holding periods for trades can vary between medium term and longer term horizons. The portfolio turnover tends to be lower than that of statistical arbitrage strategies. The main risk for the style, as is the case in all systems, is a regime shift, which renders past information less meaningful. Merger Arbitrage Merger arbitrageurs seek to capture the price spread between current market prices and the value of securities upon successful completion of a merger. In cash transactions this spread is straightforward, but in stock-for-stock transactions, the spread is created by shorting an appropriate ratio of the acquiring company's stock. The width of the spreads reflects the market's willingness to take on transaction risk. Deals that the market assesses to have a lower probability of closing typically trade with a wider spread than straightforward synergistic mergers with little-to-no regulatory issues. Most managers attempt to control risk by limiting position size, diversifying and conducting thorough due diligence. 79

80 Few managers solely focus on plain vanilla merger arbitrage anymore; rather, most portfolio managers employing the strategy sit within larger multi-strategy firms. Merger arbitrage often exists as one of several "event driven" strategies where a manager relies on catalysts to unlock value. Generally, these event-driven managers may participate in both hard and soft catalysts, taking a fundamental approach to the investment process, while merger arbitrage is generally focused on hard catalysts. Fixed Income Relative Value The fixed income arbitrageur attempts to profit from price anomalies between related interest rate and currency instruments. Some managers focus exclusively on US or G3 markets (US, UK, and Japan), while others invest across the global capital markets. The goal of most managers in this category is to deliver steady returns with low volatility. Since managers attempt to mitigate directional risk is mitigated by running hedged spreads (long and short, paired positions), leverage may be applied more broadly. These managers will use leverage, sometimes in excess of 10 times NAV, depending on the similarity of the two securities and the liquidity of the invested market. Arbitrageurs seek to exploit yield spread dislocations, often implemented through buying of higher yielding securities and selling similar securities with lower yields, but will trade in the opposite direction if spreads are abnormally narrow. Fixed income arbitrage can include interest rate swap arbitrage, US and non-us government bond arbitrage, forward yield curve arbitrage, basis trading (i.e. cash versus futures, currency basis swaps), or a combination of each. Potential risks to the strategy include counterparty risk, margin calls, increased haircuts, market illiquidity, and deleveraging from other fixed income market participants. Greater use of leverage usage may compound the risk to certain managers in this strategy. Agency MBS In traditional Agency Mortgage Backed Security (MBS) arbitrage, funds seek to invest in high quality securities with no credit risk (US government agency mortgage, Treasury), hedging out interest rate risk to earn excess spread on the security. Other funds employ relative value pair strategies using agency mortgage pass-throughs and specified pools in an attempt to take advantage of pricing dislocations in the market. Examples of agency mortgage-backed securities include Fannie Mae and Freddie Mac issued MBS and Ginnie Mae guaranteed MBS, created from real estate mortgage investment conduits (REMICs) or collateralized mortgage obligations (CMOs). Typical instruments traded in the agency MBS space include mortgage pass-throughs and their derivatives, such as floaters, inverse floaters, interest-only (IO) strips, principal-only (PO) strips, and inverse interest-only (inverse IO) strips. Credit / Income Corporate Long/Short Corporate long/short involves investing long and/or short in debt or debt-linked securities on an opportunistic basis. Portfolio turnover, as well as gross and net exposure levels can vary based on the manager and their view of the opportunity set. This strategy may be directionally long or directionally short. Managers may express outright directional views or seek to exploit opportunities across comparable debt securities of different companies or of a single company versus an index. To be implemented successfully, the strategy demands a thorough knowledge of both the fundamental and technical factors that drive debt prices. Distressed These funds invest in the debt or equity securities of firms that are in the midst of financial restructuring, balance sheet re-capitalization, or are trading at stressed or distressed prices in anticipation of such an event. Opportunities in this strategy are closely linked to the level of defaults and credit spreads and hence the business cycle in general. Distressed funds differ in terms of the stage of their investment or the degree to which they become actively involved in the restructuring process. Distressed securities are often inefficiently priced due to their lack of liquidity, the existence of forced sellers and the uncertainty created by the restructuring process. Structured Products As the securitization market expanded from the early 2000s through 2007, some hedge funds began to invest in mortgage securities and other structured products through a variety of approaches. The 80

81 strategies they implemented were generally focused on credit risk as opposed to interest rate or prepayment risk, which is more the focus of agency-based mortgage-backed strategies. Managers in the strategy will typically perform detailed research on the underlying assets that comprise the structured product as well as research the structure and the terms of the securitization, particularly with reference to the cash flow waterfall, credit enhancement, collateral triggers and control protection. It is important to note the liquidity spectrum is varied for these strategies, ranging from the more liquid (RMBS/CMBS) to less liquid (multi-sector CDOs, non-performing whole loan residential mortgage pools). The Index Sponsor further dissects the universe of structured product strategies into two general groups: Asset-backed securities (ABS) Asset-backed strategies typically emphasize non-agency residential mortgage-backed (RMBS), commercial mortgage-backed (CMBS) securities, and other asset- backed securities (ABS) such as auto loans, home equity loans, credit card receivables, student loans, manufactured housing, aircraft leases, and a variety of other cash-flow producing assets. While shorting these securitizations is typically not possible, managers may utilize residential mortgage-related indices (such as the ABX), commercial mortgage-related indices (such as the CMBX), and CDS (credit default swaps) to hedge broader market risk. Structured corporate credit Structured corporate credit typically focuses on CLOs, CBOs and corporate credit index tranches (e.g. High Yield CDX indices). In these strategies, managers could be either directional or relative value, or both. An example of a directional trade would be a manager purchasing specific tranches of a CLO trading at distressed prices, based upon the expectation that ultimate cash flows will exceed the value of the security at its purchase price. An example of a relative value trade would be a manager taking advantage of technical inefficiencies in the relative pricing of two different tranches of an index, for example (i.e. a calendar trade). While there are specialists in the two sub-sectors listed above, there are also managers that invest across the structured credit universe, which we would categorize as multi-strategy Structured Credit approaches. Reinsurance Reinsurance is an income-based strategy where managers attempt to generate returns by insuring catastrophe and other risks where other insurance (or reinsurance) companies want to offset some of their risk. Reinsurance strategies have historically had little correlation to more traditional capital market investments and thus have the potential to be a source of diversification within a portfolio. The risks within a modestly diversified portfolio of reinsurance investments are expected to be largely uncorrelated to each other (i.e. should be little correlation between hurricanes that may impact the US and Japanese earthquakes). Managers may employ a number of different approaches. Traditional Reinsurance (providing insurance to insurance companies) involves engaging in a contract directly with an insurance company where specific risk(s) is assumed and the methodology for triggering a payout is defined in the contract. Retrocession takes this concept one step further by providing reinsurance to reinsurance companies. A series of diverse risks are often bundled together into a single contract; this has the potential to result in pricing advantages that can accrue to both the writers of the contracts (i.e. money managers in this case) and the end users. Managers often invest in both traditional reinsurance and retrocession in a collateralized format where the full amount of capital that is theoretically at risk (known in industry terms as the "limit") is held in a trust account from which losses can be paid. Managers may also utilize Insurance Linked Securities ("ILS") such as Catastrophe Bonds and Industry Loss Warranties. Catastrophe Bonds are issued by insurers and are typically the most liquid instrument but generally offer lower potential returns. Industry Loss Warranties (ILWs) reference the overall loss due to an event at an industry level, rather than for a specific insurer. These instruments trade in swap-like format where protection can be bought and sold. Liquidity is somewhat lower than in the catastrophe bond market, with the potential return and volatility profiles being somewhat higher. Managers will also occasionally use this market to hedge certain risks in their portfolios (i.e. buy protection) that they deem unacceptable. 81

82 Other There are several other types of income-generating, carry-based strategies that do not fit into one of the above sub-strategy categories. Although they are more niche approaches, the risk/return profile falls within the Credit/Income category and so we reflect them here as opposed to in the Other Niche category. Some multi-strategy Credit managers will employ one or more of these strategies alongside the more dominant Credit/Income strategies. Trading Direct private lending (loan finance, loan-based lending, mezzanine finance, middle-market lending) Asset-backed lending (ABL) PIPES / Reg-D Microfinance Factoring (e.g. receivables/invoice factoring, rents, alternative finance, government attorney fees, etc.) Life insurance premium finance Life/viatical settlements and traded life policies (TLP) Structured settlements (liabilities settlements, e.g. personal injury, workers' compensation, etc.) Film finance Media rights (film, TV, music, games) Patents and royalty streams (e.g. drug royalties) SPACs (special purpose acquisition company) Global Macro Global macro encompasses funds that have the broadest mandate and trade in all asset classes around the world, including but not limited to equity, fixed income, foreign exchange (FX) and commodities. These managers generally focus on underlying macro-economic fundamentals in developing their investment theses. Technical data or money flows may also be considered in developing trade themes. The managers establish opportunistic long or short market positions in an attempt to profit from anticipated market moves. Macro managers tend to be highly sophisticated and are generally adept at using derivatives or leverage in an attempt to increase returns while protecting against loss. Similar to those Trading managers operating in the systematic space, macro managers tend to be adept at moving capital to those markets offering potentially robust opportunity sets. Historically, they also have been able to outperform in periods of market volatility and trending markets. Periods of global central bank activity and monetary intervention are typically favorable environments for this strategy. Historically, the Index Sponsor separated emerging markets as its own sub-strategy, given the sufficiently independent risk profile we believed these strategies used to maintain. However, the expansion of market linkages across developed and emerging economies has broadened the overall investment landscape for managers across all strategies in a meaningful way. The influence of the BRIC nations (Brazil, Russia, India and China) and the rising importance of G20 economies can be measured in the size and scope of their populations, GDP and foreign exchange reserve positions. The investment flow of funds to the developing markets also reflects the modernization of their financial markets, stability of fiscal position and more stable political infrastructure. Finally, the financial turmoil in Europe has blurred the credit rating landscape of sovereigns; effectively widening the universe for discretionary managers. Given these developments, for managers that invest materially in emerging markets, the Index Sponsor believes it is now more appropriate to categorize them based upon the assets traded and the investment strategy employed (Equity Hedged, Credit, Relative Value, or Trading). As such, managers that invest across asset classes in emerging markets, generally with a top-down trading-oriented approach will be categorized as global macro. 82

83 Systematic Systematic traders, many of whom are also known as commodity trading advisers (CTAs), typically trade listed financial and commodity futures and interbank markets around the world. These managers utilize highly sophisticated technical models to analyse price and market data in order to identify trading opportunities. There are three types of systematic traders: trend-following, non-trend following, and systematic macro. Trend-following traders seek to profit from sustained price movement in any direction by focusing on medium to longer-term price behaviour. Non-trend following traders typically employ shorter-term momentum, mean reversion, volatility breakout, pattern recognition and counter-trend models. Systematic macro traders use econometric variables representing inflation and growth from both a value and/or a momentum perspective. Portfolio construction varies greatly across the different funds, and each manager's approach to market diversification, asset allocation, contract weightings and leverage might differ in the effort to maximize risk-adjusted returns. Historically, market volatility has benefited the performance of CTAs, particularly those managers operating in the short-term, non-trend following strategy. Commodities Commodity markets exhibited dramatic growth over the last decade, pre-dominantly driven by increasing global demand due to significant emerging markets development. New technologies, applied to satisfy the ever rising demand for commodities, have resulted in a dynamically changing supply/demand picture, offering manifold trading opportunities for specialized market participants. Managers in this strategy utilize both directional and relative value approaches in an attempt to capture the opportunity set. The funds' market sector exposure may vary greatly across energies, grains & oilseeds, so-called "softs" (such as cocoa, coffee, cotton, orange juice or sugar), and industrial and precious metals. Idiosyncratic supply/demand dynamics can drive markets, with factors such as weather patterns, planting acreage, energy supply disruptions, and exploration influencing market prices. The managers typically employ a discretionary approach to this single asset class by using both macro and micro variables to build portfolios. Multi-Strategy Multi-Strategy Some hedge funds invest in a combination of strategies, often as a result of commonalties in the research and trading talent required for successful execution of the strategies. These funds allocate capital opportunistically among strategies believed to offer a suitable risk-adjusted return going forward. Multi-strategy funds can be relatively attractive by incorporating this flexibility through strategy diversification and asset allocation. In some cases, multi-strategy funds may be structured with individual portfolio managers having autonomous control over specific strategies, while receiving a specified risk allocation at the aggregated fund level. In other cases, one or more primary portfolio manager may treat the various strategies less like separate funds and more like one cohesive unit. Regardless of their structure, one of the benefits of multi-strategy funds is that they seek to provide investors is the ability to shift capital rapidly across various strategies in response to changes in the opportunity sets while maintaining a competitive edge and sector expertise. Further, financing costs may be reduced by the ability to borrow at a lower rate for the fund as a whole versus individual strategies. This potential benefit may also create potential additional risks, if certain riskier and more volatile strategies (a classic example would be commodity trading) are not properly ring fenced through a separate legal structure. Fund of Funds This category is used to define an investment vehicle that allocates capital across multiple investment managers and/or vehicles. The Index Sponsor divides the universe of fund of funds into three types: 1) Broad Based Diversified; 2) Broad Based Neutral; and 3) Strategy/Region Specific. Other Niche This category contains investment approaches that are outside of the mainstream hedge fund strategies listed above. While some industry participants consider niche strategies as "hedge funds", others might argue that such approaches belong in an entirely separate asset class. This is especially 83

84 true for borderline strategies, including certain private equity and real estate dealings. Besides funds dedicated to these fringe strategies, the Index Sponsor has seen a fair number of traditional hedge funds dabbling in niche approaches, and thus developed a separate category for them. Below is a summary list of the types of strategies that would currently fall into this category. Please note the list is not exhaustive and can be expected to change over time. Further, some of the categories may overlap. Hopefully this list provides a general picture of the types of investment approaches that would fall into the category. Emissions trading Equipment leasing / venture leasing Infrastructure investing Litigation (including tort liability insurance) Natural resources Private Equity Real Estate (e.g. land, buildings, etc.) Clean/Renewable energy (investing/trading in water, wind, solar, etc.) Timber Wine Risk Parity There has been a recent trend in the industry for investors to allocate increasingly to Risk Parity or Risk Premia Parity strategies, often including them within their Hedge Fund or Alternative buckets. In general, Risk Parity managers typically actively rebalance allocations to a diverse set of assets in an attempt to take advantage of market pricing anomalies. The approach focuses on a high level of diversification within the portfolio but generally maintains a long-bias. Risk Parity generally focuses on the passive allocation of risk, rather than of capital, in an attempt to provide a higher Sharpe ratio alternative to the traditional 60% stock / 40% bond portfolio through the use of a wider range of uncorrelated assets, low leverage, and low equity risk. These approaches, while certainly an alternative to traditional asset allocation, are not hedge fund strategies. Liquidating / Side Pockets This category comprises exposure remaining to funds after a redemption notice has been placed and reached value date. The remaining exposure is typically less liquid in nature and often invested in private equity, real estate, or litigation claims that may take an unspecified amount of time to exit. Although these types of securities are among the most common remaining investments we see post-redemption, the underlying holdings can vary broadly. IX. Adjustments The Index Sponsor is solely charged with constructing and rebalancing the Index in its reasonable discretion. In the event that Index Components are altered by virtue of corporate actions, insolvency, dissolution or nationalisation of any Index Component the Index Sponsor will evaluate such changes and use its reasonable judgment to maximise the level of the Index in rebalancing the Index. The Index Sponsor may also adjust the Index Fees or the calculation method thereof in its reasonable discretion if it considers an adjustment as necessary. The Subfund is not sponsored, endorsed, sold or promoted by the Index Sponsor or the Index Calculation Agent. Neither the Index Sponsor nor the Index Calculation Agent does make any representation or warranty, express or implied, to the Subfund's investors or any member of the public regarding the advisability of investing in securities generally or in the Subfund shares particularly. The Index Sponsor composes and the Index Calculation Agent calculates the Index without regard to the Subfund shares. Neither the Index Sponsor nor the Index Calculation Agent is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Subfund shares to be issued or in the determination or calculation of the equation by which the Subfund shares are to be converted into cash. Neither the Index Sponsor 84

85 nor the Index Calculation Agent has any obligation or liability in connection with the administration, marketing or trading of the Subfund shares. 85

86 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND FOCUSED EUR This specific section describes the particulars of the Subfund SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused EUR and is part of the general sales prospectus. Therefore, all information given herein should be considered in conjunction with this general prospectus. Profile of the typical investors The Subfund is suitable for investors with a relatively long investment horizon who consider investments in this Subfund as a convenient way of participating in the performance of the Key Multi-Manager Hedge Fund Focused (EUR) Index (the "Index"). The Index reflects the performance of a relatively concentrated notional portfolio comprised primarily of hedge funds (single manager and fund of hedge funds) and certain financial instruments as further described below. The performance of the Subfund is determined by the performance of the Index. If the level of the Index increases from Launch Date, then this will result in a comparable increase in the performance of the Subfund; conversely if the level of the Index decreases from Launch Date, then this will result in a comparable decrease in the performance of the Subfund. The strategy as described herein is a high risk investment which does not provide any right of repayment of capital invested and as such, should the Index Components (as defined below) not perform favourably, then investors will incur a partial or total loss of capital invested. Shares of the Subfund are exclusively available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. The Fund reserves the right to compulsorily redeem shares that are not held in accordance with the aforementioned requirements or for other regulatory, legal or tax obligations of the Subfund. Those shares will be redeemed at the prevailing net asset value per share. Investment objective The investment objective of the Subfund is to generate capital appreciation by providing investors with a return linked to the performance of the Key Multi-Manager Hedge Fund Focused Index (EUR), a concentrated hedge fund index, as further described below. Investment policy The Subfund will principally invest in equity and debt securities issued by corporate entities domiciled in any OECD country and listed or traded on regulated markets of an OECD country (the "Investment Portfolio"), and for the purpose of meeting its investment objective the Subfund will enter into a performance swap agreement (the "Swap Agreement") negotiated at arm's length with a counterparty the obligations of which under the Swap Agreement are guaranteed by UBS AG or with another first class financial institution specialised in this type of transactions (the "Swap Counterparty"). Under the terms of the Swap Agreement, the Swap Counterparty delivers to the Subfund exposure to the Index (as described below) (the "Investment Strategy") and the Subfund delivers to the Swap Counterparty a total return exposure to the Investment Portfolio. As of the Launch Date, all obligations of the Swap Counterparty under the Swap Agreement will be guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. The Subfund may hold liquid assets on an ancillary basis. The Subfund may not invest directly in other undertakings for collective investment in transferable securities (UCITS) and/or open-ended undertakings for collective investment (UCI). The Subfund will only utilise leverage to a limited extent by which the exposure of the Subfund will not exceed 225% of the NAV when calculated applying the gross method in accordance with Article 7 of Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 and 86

87 125% of the NAV when calculated applying the commitment method in accordance with Article 8 of Commission Delegated Regulation (EU) No 231/2013 of 19 December The Subfund will enter into securities lending transactions in order to generate additional income with a counterparty determined by the Board of Directors in accordance with the requirements and regulations of the CSSF and of which obligations under the relevant securities lending agreement are guaranteed by UBS AG (London branch) or such other counterparty specialised in this type of transactions (the "Securities Lending Counterparty"). The Swap Agreement will incorporate the terms of and be governed by a master agreement based on the standard 1992 ISDA Master Agreement governed and construed in accordance with English law and published by the International Swaps and Derivatives Association, Inc. The Swap Agreement will be valued on a consistent and monthly basis by the calculation agent ("Swap Calculation Agent") being UBS AG (London branch) or such other party as accepted by the Board of Directors from time to time, in accordance with the prevailing market parameters and valuations. The valuation methodology is outlined below. The Swap Counterparty will provide a trading price at which the Subfund can increase or decrease the Swap Agreement notional amount. Such a facility will be available on each Valuation Day when requested by the Portfolio Manager. The notional amount of the Swap Agreement will be the proceeds raised at the Launch Date and, in the case of subsequent subscriptions and/or redemptions, the notional amount will be adjusted accordingly. The Swap Agreement may be terminated or otherwise cancelled in accordance with its terms. The Swap Agreement will be entered into for a 5 year term as outlined therein. Thereafter it will be extended for consecutive 5 year periods, subject to the consent of the Board of Directors of the Fund and the Swap Counterparty at the end of each period (each such expiry date also being a relevant "Maturity Date") and the end of the last such period being the final maturity date (the "Final Maturity Date"). The Swap Counterparty has the option to early terminate the Swap Agreement in various circumstances upon the provision of adequate notice to the Subfund; in such circumstances, the early termination date would become the Final Maturity Date. The Swap Agreement neutralises the performance of the Investment Portfolio. Consequently, any income (including dividends) and capital gains from the Investment Portfolio are delivered to the Swap Counterparty under the Swap Agreement and will not be paid to investors in the Subfund. Risk Profile: The Subfund replicates the performance of a hedge fund index. It is therefore exposed via the Swap Agreement to less liquid financial instruments, a wide range of asset classes and potentially leverage in some of the index components. A significant portion of the Subfund is exposed to less liquid instruments, whose prices could fluctuate in certain market conditions. This potential for higher volatility has determined that the Subfund be classified in a high risk category. Interim Swap Flows: In accordance with the Swap Agreement, and for the first time on 17th July 2013 and thereafter on the 3rd Subfund Business Day of each quarter until the Final Maturity Date: The Swap Counterparty will pay to the Subfund an amount, which corresponds to all fees and operating charges and expenses incurred by the Subfund as referred to in the section "Fees and Expenses" below. The Subfund will pay to the Swap Counterparty the income received on the Investment Portfolio and on any ancillary liquid assets. Maturity Swap Flows: At the end of the relevant term, amounts to be paid out under the Swap Agreement are determined on the basis of the following formula: 87

88 Amount payable = outstanding Notional Amount on Final Maturity Date * (ISm IPm) where: ISm = performance of the Investment Strategy in EUR (consisting of exposure to the Index calculated on the basis of the liquidation proceeds that the Swap Counterparty would actually receive in respect of the hedge position under the Swap Agreement by redeeming or selling such hedge position, as determined by the Swap Calculation Agent; or, if agreed by the Fund and Swap Counterparty, an amount equal to the estimated level of the Index as determined by the Swap Calculation Agent) at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. IPm = performance of the Investment Portfolio in EUR at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. If the amount is positive, then the Swap Counterparty will pay the amount to the Subfund. If the amount is negative then the Subfund will pay the amount to the Swap Counterparty. Valuation of Swap Agreement and its effects on the performance of the Subfund Before each Maturity Date, except for decreases of the notional amount, no payment is made to the Subfund in relation to the performance of the Investment Strategy. The performance of the Investment Strategy is taken into account in the meantime by virtue of the Swap Agreement in the calculation of the Net Asset Value per share of the Subfund. Accordingly, the valuation of the Swap Agreement determines the performance of the Subfund. On any Valuation Day after the Launch Date but before the Maturity Date, the value of the Swap Agreement is determined as follows: Outstanding Notional Amount on the relevant Valuation Day * (ISi IPi) ISi = the estimated performance of the Investment Strategy in EUR (consisting of exposure to the Index) at close of business on that Valuation Day in relation to the initial value when the relevant agreement commenced, as determined by the Swap Calculation Agent. For the avoidance of doubt the estimated performance of the Investment Strategy will be calculated based on the latest estimated valuations of the Index Components (as defined below) multiplied by their weights provided on or before the relevant Valuation Day and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as at the Valuation Day (and not on the final Index level which is calculated on a one month delayed basis as outlined below) as determined by the Swap Calculation Agent on that Valuation Day. IPi = performance of the Investment Portfolio at close of business on the relevant Valuation Day in relation to the initial value when the relevant agreement commenced. Guarantee The irrevocable and unconditional Guarantee was issued on the Launch Date by UBS AG (London branch), 1 Finsbury Avenue, London EC2M 2PP (the "Guarantor"). UBS AG (London branch) is the London branch of UBS AG, a company incorporated under the laws of Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel, Switzerland and Bahnhofstrasse 45, CH-8098 Zurich, Switzerland. The Guarantor irrevocably and unconditionally guarantees to the Subfund the due and punctual observance and performance by the Securities Lending and Swap Counterparty under the Securities Lending Agreement and Swap Agreement and agrees to pay to the Subfund from time to time on demand any and every sum or sums of money from time to time due and payable (but unpaid) by the Securities Lending and Swap Counterparty under or pursuant to the Securities Lending Agreement or Swap Agreement. The Guarantee exclusively aims at covering the Subfund's counterparty risk on the Securities Lending and Swap Counterparty and the Subfund's risk on the failure of Securities Lending or Swap Counterparty to perform its obligations under the Securities Lending Agreement and the Swap Agreement. The Guarantee does not guarantee any investment returns upon redemption or at Maturity Date. 88

89 Market Making UBS AG will make a market in the shares of the Subfund for investors who wish to realise their investment outside of the normal subscription and redemption cycle (as further described below under "Secondary market"). Key Multi-Manager Hedge Fund Focused (EUR) Index The Index is a EUR denominated index which reflects the performance of notional index components comprising (i) a limited number of private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the Financial Instruments (as described below), and (iii) the Cash Position and (iv) certain EUR/USD Hedging Arrangements (as described below), (which together with the Hedge Funds, the Financial Instruments and the Cash Position, shall be referred to as the "Index Components"). The level of the Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). Index Sponsor and Index Calculation Agent UBS Switzerland AG created the Index and is responsible for the selection, rebalancing as well as the management of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). Each of the Index Sponsor and Index Calculation Agent may delegate all or parts of its duties to other group entities within the UBS Group or a third party. Further details on the Index are included in the Appendix below. Collateral In order to reduce the credit risk exposure of the Subfund to the Swap Counterparty and the Securities Lending Counterparty (together the "Counterparty"), the Counterparty will provide the Subfund with collateral which should at least correspond to 90% of the total net asset value of the Subfund on any Valuation Day. This collateral will consist of eligible assets in accordance with the requirements and regulations of the CSSF and may include units of funds of hedge funds and claims against protected custody accounts opened with a regulated custodian in which the collateral assets are held. Should the Subfund exercise economic ownership control over collateral such collateral shall be subject to section 17. "INVESTMENT GUIDELINES". Collateral received will not be reinvested or otherwise reused. Risk Considerations Investment risk: no capital protection: the Subfund is a high-risk investment and employs no capital protection techniques or capital guarantees. Accordingly, investors are not entitled to repayment of the capital invested. The full amount of an investor's subscription is at risk and may be lost. Investment risk: achievement of investment objective: the investment objective of the Subfund is to generate growth in value. The return of the Subfund will be linked to the return of the estimated Index level as determined by the Swap Calculation Agent subject to certain adjustments or, at the Final Maturity Date to the final Index level. There can be no assurance that the Index level will increase in value, and accordingly there is no assurance that the Subfund's investment objective will be attained. Investment risk: alternative investment index risk: the return of the Subfund will be linked to the return of the estimated Index level as swap underlying. Investors in the Subfund are therefore exposed to general risks inherent in the Hedge Funds, as well as specific risks associated with the Index. Such risks include but are not limited to the following: The risk that the Index Sponsor is not effective in selecting appropriate Hedge Funds components that will generate positive returns over the long term. The risk that the Index as a result of its limited number of Index Components may be more susceptible to fluctuations in value resulting from adverse economic conditions, changes in the performance of the Index Components or other factors which negatively affect the performance 89

90 of such Index Components than a more diversified index. The Index return will also likely be more volatile. In addition, the expected concentrated nature of the index composition may expose the Subfund to losses disproportionate to market movements in general. The risk that the Hedge Funds may suspend the calculation of their net asset values which could impact the calculation of the Index level or estimated Index level as relevant and could lead to a suspension of subscriptions and redemptions of the Subfund shares. Hedge funds are generally considered to be unregulated investment vehicles. They may sell securities short, use significant levels of leverage, invest in various asset classes and instrument types including derivatives and commodities, whether traded on a regulated market or over the counter, and may not be required to diversify their investments. Accordingly, investments in hedge funds are generally considered to have a greater degree of risk than investments in regulated funds. To the extent that the Hedge Funds invest in the securities markets of developing countries, the political, regulatory and economic risks inherent in investments in emerging markets' securities are significant and may differ in kind and degree from the risks presented by investments in the world's major securities markets. These may include greater price volatility, substantially less liquidity and controls on foreign investment and limitations on repatriation of invested capital. The risk that the Index or any of the Hedge Funds diverge from their stated investment objectives and take on greater than expected levels of investment risk. The risk that some or all of the investments are illiquid. Accordingly, some or all the Hedge Funds may be unable to redeem from and/or sell the underlying investments in a timely manner which may affect the liquidity of the Subfund. The risk of incorrect or stale investment values. The Hedge Funds and their investments may include assets which are not traded on an exchange or regulated market. Accordingly, their values may be difficult to determine and may be based on models or quotes provided by the relevant manager. These values may be incorrect or stale and may not reflect fair value. Lack of operating history of managers. The Index may include Hedge Funds whose managers have no, or a very short, performance history. Such investments may involve greater risks than those with more established managers. Operational risks of the managers, including inadequate back office functions, trade processing, accounting, administration, risk management, valuation services and reporting. Reliance on key personnel in the Hedge Funds components selection process. The loss of key personnel at both the Index Sponsor and the Hedge Funds could materially and negatively impact the value of the Index. Limited capacity of managers. In order to deliver positive returns, some managers close their funds to new subscriptions once their fund has reached a certain size. The Index may be unable to reference underlying funds at all times, and therefore from time to time, the Index may in part also reference cash or money market instruments. Risk of lack of regulatory oversight. The Hedge Funds are domiciled in countries providing significant investment discretion and which are generally considered to be lightly regulated. For example, the Hedge Funds are generally not required to deposit their assets with an independent custodian bank. Instead, such assets may be deposited with brokers or other intermediaries who do not provide for segregation of client assets. The net asset value of the Subfund will be affected by various levels of fees, including fees at the level of the Subfund, the Index and the Index Components. These fees may include asset-based as well as performance fees. Consequently, performance fees may be charged in periods when the total net asset value of the Subfund has fallen. Additionally, performance fees may be paid on unrealised gains which in fact are never realised. Foreign currency risk: The Hedge Funds are mostly denominated in USD. The Hedge Funds in turn may invest in assets denominated in various currencies. The Index is calculated in EUR. The level of the Index and the return to investors in the Subfund could be adversely affected not only by changes 90

91 in exchange rates but also by local exchange control regulations and other limitations, including currency exchange limitations and political and economic developments in the relevant countries. Liquidity Risk: The risk that the Fund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares. Gating Risk: The risk that the Subfund may partially reject redemption orders exceeding a certain percentage of the Subfund's total net asset value when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to gating restrictions. Collateral Risk - The Fund has made all reasonable endeavours to ensure the collateral is enforceable under the relevant laws and regulations. However, there is a risk that as a result of a change in, or amendment to, the applicable laws and regulations, the collateral may become unenforceable. Valuation risk estimated Index level: the main determinant of the monthly Net Asset Value per share of the Subfund is the level of the Index on the Valuation Day. The final Index level is provided monthly by the Index Sponsor, typically within a month after the relevant Valuation Day. In order to calculate the value of the Swap Agreement on any Valuation Day (other than the Final Maturity Date) at which the Subfund can trade with the Swap Counterparty, the estimated Index level will be determined by the Swap Calculation Agent based on estimated values of the Hedge Funds provided to the Swap Counterparty by the managers or administrators of the Hedge Funds on or before the Valuation Day and may be adjusted to reflect expected changes to the estimated valuations as at the Valuation Day; where the values of any Hedge Funds are not available or, in the opinion of the Swap Calculation Agent, are otherwise unreliable or unrepresentative, the Swap Calculation Agent may estimate in good faith the value of such Hedge Funds in order to determine the estimated value of the Index on the Valuation Day. The value of the Index used in determining the Net Asset Value per share of the Subfund may differ from the final Index level for the relevant month as provided by the Index Sponsor. In such circumstances, the value of the Swap Agreement and the Net Asset Value per share of the Subfund will not be revised or otherwise amended to reflect any such difference. Valuation risk final Index level: The Net Asset Value per share of the Subfund at the Final Maturity Date will be based on the final Index level as calculated by the Index Calculation Agent. In valuing the Hedge Funds, the Index Calculation Agent may need to rely on financial information provided by the managers of the Hedge Funds themselves. Independent valuation sources such as exchange listing may not be available for the Hedge Funds of the Index. The net asset value of the Hedge Funds may be finalized using estimated values provided by the managers or administrators of the Hedge Funds. In most cases, the Index Calculation Agent will have no ability to assess the accuracy of the valuations received. In certain cases, the values provided by the managers or administrators of the Hedge Funds may subsequently be amended; e.g. as a result of adjustments identified as part of the annual audit of the underlying schemes. In such circumstances, the value of the Index and the Net Asset Value per share of the Subfund at the Final Maturity Date will not be revised or otherwise amended to reflect any such difference. Effect of Substantial Redemptions: A number of events could trigger substantial redemptions from a Hedge Fund. Actions taken to meet substantial redemption requests could result in a decrease in prices of financial instruments. The overall value of Hedge Funds may also decrease because the liquidation value of certain assets may be materially less than their mark-to-market value. Hedge Funds may be forced to sell their more liquid positions, may need to maintain greater amounts of cash and cash-equivalent investments than they would otherwise maintain and may also be restricted in their ability to obtain financing or derivatives counterparties needed for certain investment and trading strategies. Settlement of redemption amounts prior to the Final Maturity Date: redemption proceeds will generally be paid 2 Subfund Business Days following the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. 91

92 Settlement of redemption amounts on the Final Maturity Date: redemption proceeds will generally be paid after one calendar month plus 5 Subfund Business Days following the Final Maturity Date. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. Early Maturity: Under the terms of the Swap Agreement, the Swap Counterparty may terminate the Swap Agreement on a calendar quarter-end prior to the Maturity Date. In such circumstances, the date of the early termination would become the Final Maturity Date of the Subfund, and the Subfund would terminate unless the Subfund enters into another swap agreement with another counterparty. The Swap Counterparty must give at least 100 calendar days' notice to the Subfund prior to an early termination date. Index disruption: If the Swap Calculation Agent determines the Index has been replaced with another index, or the Index is likely to cease to be calculated by the Index Calculation Agent or maintained by the Index Sponsor, then the Swap Counterparty and the Subfund may agree to use another index, and the terms of the Swap Agreement may be amended accordingly. Alternatively, the Swap Agreement may be terminated and accordingly the Subfund would terminate as well as set out above unless the Subfund enters into another swap agreement with another counterparty. Counterparty Risk: the Subfund is exposed to the risk that the Swap Counterparty (together with the Guarantor) may default on its obligations to perform under the Swap Agreement and that the Securities Lending Counterparty (together with the Guarantor) may default on its obligations to deliver equivalent collateral. In assessing this risk, investors should recognise that the Swap Counterparty will pledge collateral to ensure that the net credit risk of the Subfund to the Swap Counterparty will not exceed 10% of the total net asset value of the Subfund; and the Securities Lending Counterparty will pledge collateral equivalent to the value of the securities under loan. In circumstances where a single counterparty is both the Swap Counterparty and the Securities Lending Counterparty, then the net exposure to it will be collateralised such that the net credit risk to the relevant counterparty will not exceed 10% of the overall net exposure to that counterparty. Taxation: Potential shareholders should seek information on the taxation laws and regulations in force and, where appropriate, seek advice on the subscription, purchase, possession and sale of shares at their place of residence. Further information on taxation is provided in the section "Taxation" of Section II. Use of Derivatives: The Swap Agreement is a structured derivative transaction as part of the investment strategy. While the prudent use of such a derivative can be beneficial, derivatives also involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Structured derivative transactions are complex and may involve a high degree of loss. The aim of the Swap Agreement is to deliver exposure to the Investment Strategy and as such, the use of the Swap Agreement is not speculative in nature. Alternative Investments: The Subfund may take advantage of opportunities with respect to certain other alternative instruments that are not presently contemplated for use by the Subfund or that are currently not available, but that may be developed, to the extent such opportunities are both consistent with the investment objective of the Subfund and legally permissible for the Subfund. Certain alternative instruments may be subject to various types of risks, including market risk, liquidity risk, the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty, legal risk and operations risk. Avoidance of conflicts of interest: The units within the UBS Group who are providing services to the Subfund operate as independent entities and in order to avoid possible conflicts of interest, all transactions between these entities and the Subfund are undertaken at arm's length prices, always keeping in mind the best interest of the shareholders. In particular, the estimated level of the Index on any Valuation Day prior to the Final Maturity Date will be determined by the Swap Calculation Agent based on estimated values for the Index Components and agreed by the Index Sponsor, both of whom may be different entities or divisions within the UBS Group. In the normal course of business, UBS Group and/or its directors, officers and employees may have or may have had interests in the Hedge Funds. Such activity may or may not affect the value of the Index and Subfund. 92

93 Although the Index Sponsor has agreed to use its best efforts in managing the Index, the Index Sponsor and its principals, members and affiliates (collectively the "Index Sponsor Parties") are not required to devote full time or any material portion of their time to managing the Index. The Index Sponsor is the investment adviser to a number of investment funds, including funds with investment objectives similar or substantially similar to those of the Index, and the Index Sponsor Parties advise and may advise additional clients, some of which hold or may hold the same investments as are included in the Index. The Index Sponsor may in the future sponsor other indices similar to the Index. UBS Group may receive management fees, performance fees and other fees, if applicable, for such portion of the Index allocated to Index Components managed by any member of the UBS Group, which may constitute a significant percentage of the Index. Accordingly, in determining Index allocations, the Index Sponsor is subject to a conflict of interest because such allocation will result in higher amounts being allocated or paid to the UBS Group than if the Index was allocated exclusively to managers not affiliated with the UBS Group. Competition: Certain markets in which Hedge Funds may invest are extremely competitive for attractive investment opportunities. Thus, the managers of such Hedge Funds might not be able to identify or successfully pursue attractive investment opportunities in such environments and, as a result, there may be reduced expected investment returns. Economic conditions: Changes in economic conditions, including, for example, interest rates, employment conditions, competition, technological developments, political and diplomatic events and trends, and tax laws can affect substantially and adversely the business and prospects of the Hedge Funds. None of these conditions is within the control of the managers of such Hedge Funds and/or Index Sponsor and no assurances can be given that the managers of such Hedge Funds and/or Index Sponsor will anticipate these developments. The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Subfund. Prospective investors should read the prospectus and the articles of incorporation of the Fund and consult with their own advisers before deciding whether to invest in the Subfund. Investments in the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused EUR General Information Reference currency: EUR. This is the currency in which the Net Asset Value per share of the Subfund is calculated. The Swap Agreement is denominated in EUR. The Index is calculated in EUR. Allocation of income: this Subfund will pursue an accumulation policy. Valuation Day: the Net Asset Value per share will be calculated as of the third last bank business day of each month (i.e. each day on which banks are open during normal business hours) in London, Zurich and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich and Luxembourg. "Non-statutory rest days" are days on which several banks and financial institutions are closed in London, Zurich and Luxembourg. The Board of Directors may, at its sole discretion, decide to fix one or more extraordinary Valuation Day(s) or alter the cut-off point for dealing instructions in order to better deal with subscriptions and redemptions in the Subfund. Any decision to fix an extraordinary Valuation Day will be notified to shareholders. In order to cover any costs associated with subscriptions and redemptions, and if in the interest of the Subfund's shareholders, the Board of Directors may decide to apply an extraordinary charge to the value of the subscriptions and redemptions and to reflect this extraordinary charge in the Net Asset Value of the Subfund. Issue of shares: shares may be issued monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to increase the notional of the Swap Agreement on a Valuation Day, 93

94 then subscription applications of shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a subscription of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to increase the notional amount of the Swap Agreement, the subscription order may be rejected by the Subfund. In such case, the Subfund will execute the subscription order on the next Valuation Day on which the Swap Counterparty is prepared to increase the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward subscription applications to the Administrative Agent. No issue will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". Usually shares will be issued as non-certificated registered shares, unless otherwise decided by the Board of Directors. Upon request and against payment by the shareholder of all incurred expenses, share certificates may be issued in physical form. The Board of Directors reserves the right to issue share certificates in denominations of one or more shares, however fractions of shares will not be issued in certificated form. Global share certificates will not be issued. Redemption of shares: shares may be redeemed monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. Where orders for a redemption of shares in the Subfund have been received for a Valuation Day amounting to more than 10% of the total net asset value of the Subfund, the redemption orders may be partially rejected by the Subfund. In such case, the investors would need to place new redemption orders for the next available Valuation Day. In circumstances where the Swap Counterparty has hedged itself either with the Index Components or otherwise and has received redemption proceeds amounting to more than 10% of the total net asset value of the Subfund, the Subfund will, unless otherwise decided by the Board of Directors, execute redemption orders amounting to more than 10% of the total net asset value of the Subfund, provided that the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement accordingly. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to decrease the notional of the Swap Agreement on a Valuation Day, then redemption applications relating to shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a redemption of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to decrease the notional amount of the Swap Agreement, the redemption order may be rejected by the Subfund. In such case, the Subfund will execute the redemption order on the next Valuation Day on which the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward redemption applications to the Administrative Agent. No redemption will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". In addition, the Board of Directors is empowered to: a) Reject a subscription application at its discretion and to discretionarily decide to accept subscription requests on any other Valuation Day; 94

95 b) At any time redeem shares of the Subfund held by shareholders who are not qualified to purchase or hold shares of the Subfund. Such redeemed shares are reimbursed to the shareholders and thereby cease to be valid. Subfund Business Day: days on which the TARGET system is open and normal bank business days (i.e. each day on which banks are open during normal business hours) in London, Zurich, New York, Cayman Islands and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich, New York, Cayman Islands and Luxembourg. "Non-statutory rest days" are days, on which several banks and financial institutions are closed in London, Zurich, New York, Cayman Islands and Luxembourg. Secondary market: UBS AG (the "market-maker") will make a market in the shares of the Subfund. Shareholders may sell shares to the market-maker on each business day. The price at which shares can be traded with the market-maker may differ from the most recent total net asset value of the Subfund. Pursuant to a Market Maker Agreement between the market-maker and the Fund, the market-maker may decide not to buy shares of the Subfund in the secondary market if the market-maker determines, in its sole discretion, that one of the following extraordinary events has occurred: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) the stock exchanges or markets on which the valuation of a major part of the Fund's assets is based or when the foreign exchange markets corresponding to the currencies in which the Net Asset Value or a considerable portion of the Subfund's assets are denominated, are closed, except on regular public holidays, or when trading on such a market is limited or suspended or temporarily exposed to severe fluctuations; political, economic, military or other emergencies beyond the control, liability and influence of the Fund make it impossible to access the Subfund's assets under normal conditions or such access would be detrimental to the interests of the shareholders; disruptions in the communications network or any other reason make it impossible to calculate with sufficient exactitude the value of a considerable part of the Subfund's net assets; limitations on exchange operations or other transfers of assets render it impracticable for the Fund to execute business transactions, or where purchases and sales of the Subfund's assets cannot be effected at the normal conversion rates; when for any other reason the prices of any investments owned by the Fund cannot promptly or accurately be ascertained; upon the publication of a notice convening a general meeting of shareholders for the purpose of resolving the winding-up of the Fund; a violation by the Fund or change of any material terms of the prospectus or constitutional documents which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; any restriction or limitation or suspension or deferral or delay of redemptions of, or subscriptions for, shares in the Subfund (including, without limitation, any partial payment of redemption proceeds or the introduction or increase of any associated fee, cost or expense, the introduction or use of gating or a side pocket, or any restructuring, reorganisation or action that has a similar impact to gating or a side pocket), or any mandatory redemption of shares of the Subfund; any review or investigation of the activities of the Fund or the Subfund by a relevant regulator, in connection with suspected or alleged wrongdoing or breach of any rule or regulation, or other similar reason, or any disciplinary action taken by such regulator in connection therewith which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; if as a consequence of shareholders of the Fund selling shares of the Subfund to the market-maker, the market-maker would become the beneficial owner of 25% or more of the shares of the Subfund; 95

96 (k) (l) any winding-up, liquidation of, or any termination or any loss of regulatory approval, licence or registration of, the Portfolio Manager, or any merger, de-merger, winding-up or liquidation of or affecting the Fund or the Subfund; any arrangement between the market-maker and the Fund or the Subfund including arrangements relating to subscriptions for, and redemptions of, shares in the Subfund, is changed or terminated; and/or (m) the Fund or the Subfund becomes party to any litigation or dispute which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Sub-fund. Specific reasons for the suspension of the Net Asset Value calculation and/or issue, conversion and redemption of shares: Notwithstanding the reasons set out in Section II "Suspension of the Net Asset Value calculation and of the issue, conversion and redemption of share" the Subfund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to restrictions on subscriptions or redemptions of the entirety of or some of the hedging positions. Subject to an extraordinary event, including without limitation, liquidation or force majeure, the Subfund will ensure that investor's shares will be redeemed within 12 months following the request for redemption but in no case later than within 36 months. UBS Group: UBS AG together with its branches and affiliates (which shall for this purpose mean any entity owned by and/or under common ownership or control of UBS Group AG.) Portfolio Manager: UBS Asset Management (UK) Ltd. The Portfolio Manager is part of UBS Asset Management, a business group of UBS AG. The Portfolio Manager is regulated by the UK Financial Conduct Authority. Launch Date: 17 July 2013 Share classes The Board of Directors can issue several classes of shares for the Subfund. Currently, the following share class is offered: I-class available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. Fees and Expenses The Subfund will bear all the costs incurred in connection with the management, administration, portfolio management of the Subfund's assets (the "Flat Fee"), which will be calculated based on the total net asset value of the Subfund and in total will not exceed 0.45% per annum of the Net Asset Value per share and be payable on a quarterly basis. The Depositary will receive a fee that will not exceed 0.05% per annum of the Net Asset Value per share calculated and payable on a quarterly basis. In addition, the Subfund shall bear the expenses (the "Additional Expenses") as described in Section II 12. Charges and Expenses. As described above, the Swap Counterparty pays the Subfund on a quarterly basis an amount corresponding to the aforementioned fees and costs and all additional costs incurred by the Subfund. Fees which are borne by the investor directly are the following: Issuing commission of up to 3% of the issue price per share; Redemption charge of up to 0.5% of the Net Asset Value per share to be redeemed, which may be increased up to 5% in periods of increased volatility of the Index Components or in the event that the Subfund experiences significant redemptions. 96

97 Subscriptions On the Launch Date the shares of the Subfund may be subscribed at a price calculated based on the latest estimated valuations of the Index Components multiplied by their weights provided on or before the Launch Date and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as of the Launch Date as determined by the Swap Calculation Agent on that date plus any stamp duties and fees. Investors may settle the subscription 'in-kind'. After the Launch Date, the issue price is based on the Net Asset Value per share. Any taxes, commissions and other fees that apply to investors in the different countries in which shares may be sold will also be charged in addition to the Net Asset Value per share. Sales agencies may charge investors an issuing commission of up to 3% of the issue price per share. Example 1 sales commission applied in addition to investment amount Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares subscribed Total amount of subscription EUR 10,300 EUR 10,000 Example 2 sales commission applied to initial investment Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares issued Total subscription amount EUR 10,000 EUR 10,000 Subscriptions for shares in the Subfund are accepted by the Fund as well as by the sales agencies and paying agents, which forward them to the Fund. Subscriptions received on any Subfund Business Day prior to the time stated under "Issue of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent, earlier cut-off times may apply for submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. The issue price of the Subfund shares is paid no later than two Subfund Business Days following the relevant Valuation Day into the account at the Depositary in favour of the Subfund. In addition, the Fund may issue fractional shares up to three decimal places. However, no certificates are issued for these fractional shares. They are credited to the shareholder via an entry in the securities custody account of his or her choice. Fractions of shares do not confer the right to vote at general meetings, but will grant entitlement to a distribution or a proportionate distribution of the liquidation proceeds in the case where the Subfund is dissolved. In certain circumstances during the first six months after Launch Date, at the discretion of the Board of Directors, the Subfund may process subscriptions on a Subfund Business Day which is not a 97

98 Valuation Day. In such cases, the assets and liabilities of the Subfund will be valued on that Subfund Business Day. Redemptions Redemption applications, accompanied by any certificates that might have been issued, are accepted by the Fund as well as at the sales agencies and paying agents, which forward them to the Fund. Applications for redemption received on any Subfund Business Day prior to the time stated under "Redemption of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent earlier cut-off times may apply for the submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. In general, the value of redeemed Subfund shares is paid out no later than two Subfund Business Days after the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself and has not received redemption proceeds for whatever reasons with respect to its hedge, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. In addition, legal provisions, such as foreign exchange controls or restrictions on capital movements, or other circumstances beyond the control of the Depositary, may make it impossible to transfer the redemption amount to the country in which the redemption application was submitted. Any taxes, commissions and other fees incurred in the countries in which Fund shares may be sold will also be charged. The price, at which shares in the Subfund are redeemed, shall be calculated according to the Net Asset Value per share of the Subfund and of the relevant share class. In the event of an excessively large volume of redemption applications, the Board of Directors may decide to delay execution of the redemption applications until the corresponding assets of the Fund have been sold without unnecessary delay. Should such a measure be necessary, all redemption applications received on the same day will be calculated at the same price. In calculating the redemption price, the Subfund may on any Valuation Day when there are redemptions adjust the redemption price by deducting an amount of up to 0.5% from the Net Asset Value per share to be redeemed. However, in periods of increased volatility of the Index Components and/or in the event that the Subfund experiences significant redemptions such deduction may be increased up to 5% of the Net Asset Value per share. Example 3 redemption charge applied to redemption of shares Example where no redemption charge is applied Example where redemption charge of 0.5% is applied Example where redemption charge of 5% is applied Number of shares redeemed Net asset value per share EUR 100 EUR 100 EUR 100 Redemption charge (in %) 0% 0.5% 5.0% Redemption price per share EUR 100 EUR 99.5 EUR 95 Total redemption proceeds EUR 10,000 EUR 9,950 EUR 9,500 Conversions Conversions of shares into other Subfunds' shares of the Fund may be permitted. 98

99 Past performance The chart shows the investment returns of the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused EUR I-class calculated as a percentage of the change in Net Asset Value over the previous year. In general any past performance takes account of all ongoing charges but not the entry charge/issuing commission. The past performance is not an indicator for the future performance. The share class was launched on The past performance is calculated in EUR. 99

100 APPENDIX: INDEX DESCRIPTION Neither the Index Sponsor nor the Index Calculation Agent guarantees the accuracy and/or the completeness of the Index or any data included therein, and neither of them shall have any liability for any errors, omissions, or interruptions therein. Neither the Index Sponsor nor the Index Calculation Agent does make any warranty, express or implied, as to results to be obtained by the performance of the Subfund, investors or any other person or entity from the use of the Index or any data included therein. Neither the Index Sponsor nor the Index Calculation Agent makes any express or implied warranties and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall either of the Index Sponsor or the Index Calculation Agent have any liability for any lost profits or indirect, punitive, special or consequential damages, even if notified of the possibility thereof. I. Background to the Index The Key Multi-Manager Hedge Fund Focused (EUR) Index (the "Index") is a EUR denominated index which mirrors the performance of (i) a limited number of private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the "Financial Instruments"), (iii) the Cash Position and (iv) certain EUR/USD Hedging Arrangements (as described below which together with the Hedge Funds, the Financial Instruments and the Cash Position shall be referred to as the "Index Components"). The level of the EUR denominated Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). UBS Switzerland AG is responsible for the selection of the Index Components as well as the composition, management and rebalancing of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). It is at the full discretion of each of the Index Sponsor and the Index Calculation Agent to delegate their respective duties and rights related to the selection of the Index Components and to the composition, management, calculation and rebalancing of the Index, entirely or partially to another affiliated or non-affiliated party. The objective of the Index is to achieve a long-term appreciation. The Index seeks to achieve performance results that are less volatile in both rising and falling markets than direct exposure to traditional markets by selecting Index Components that utilize hedged strategies, among others. This is to be aimed for by diversifying both the approach according to which the Index mirrors investments in assets, i.e. Index Components and the respective types of instruments. The Hedge Funds included in the Index have broad flexibility to take long or short positions, employ leverage and use derivative instruments. The Index Sponsor will consider including in the Index Hedge Funds operating in all global markets. The Index Sponsor may include a revenue participation in Hedge Fund management companies within the Index. The Index may also include Hedge Funds which may be managed and/or owned by the Index Sponsor, the Index Calculation Agent or any of their affiliates. The Index was created on 1 July 2013 with an opening Index level of 1, points and may be rebalanced at any date thereafter (each an "Index Rebalancing Date"). The Index Sponsor may on any Index Rebalancing Date, in its reasonable discretion, change the composition of the Index or the weightings of existing Index Components (such change hereinafter called "Rebalancing") subsequent to the initial composition of the Index in line with the objectives and goals of the Index. On each Index Rebalancing Date on which a change in the composition of the Index is made, the Index will be adjusted by assigning new weightings to one or more of the Index Components subject to the condition that the level of the Index after the change is effected is the same as the level of the Index before the change. In other words, no change in the level of the Index occurs on the Index Rebalancing Date as a result of changes to the composition of the Index. II. Cash Position The Index will include as an Index Component a "Cash Position" which reflects the holding of cash, 100

101 money market instruments or cash obligations. The Cash Position can also reflect the application of leverage, in which case the Cash Position may mirror a negative cash balance and may reflect the cost of such leverage in the returns of such Cash Position. Accordingly, the Cash Position may be a negative amount at such times that borrowing exceeds cash holdings. III. Expenses and Index Fees The Index is calculated net of certain fees, costs and expenses commonly to be associated with establishing and maintaining a portfolio similar to the notional portfolio mirrored by the Index, as determined by the Index Calculation Agent in its reasonable discretion, including, without limitation, investment, research, legal, accounting, administration, custodial and professional expenses (collectively, the "Expenses"). In addition, the Index Fees (as defined below) will be deducted when calculating the level of the Index. The Index Fees are applied to the value in EUR of the Weighted Closing Valuations of the Index Components and consist of: (i) (ii) an index management and calculation fee of 0.90% per annum of the value (in EUR) of the Weighted Closing Valuations of the Index Components at the end of each calendar month (calculated and deducted on a monthly basis) (the "Index Management and Calculation Fee"); and a quarterly index performance fee of 5.00% of the increase in value (in EUR) of the Weighted Closing Valuations of the Index Components during each calendar quarter (after deduction of the aforementioned Index Calculation Fee) (calculated and accrued monthly, payable quarterly in arrears) (the "Index Performance Fee", together with the Index Calculation Fee, the "Index Fees"). IV. EUR/USD Hedging Arrangements The Index will include as an Index Component the "EUR/USD Hedging Arrangements". As it is anticipated that substantially all of the Hedge Funds will be denominated in USD, the Index Sponsor will enter into EUR/USD Hedging Arrangements. The Index Sponsor will, pursuant to the EUR/USD Hedging Arrangements, make a reasonable attempt to offset, but not eliminate, the EUR/USD exposure of the Index resulting from those Index Components that are denominated in USD. The level of the Index will be increased or decreased, as the case may be, by any income, loss, costs and expenses attributable to the currency conversions and any other transactions constituting the EUR/USD Hedging Arrangements. Pursuant to the EUR/USD Hedging Arrangements, to the extent reasonably practicable, the Index Sponsor will use reasonable efforts to convert weightings to the Index Components between EUR and USD at the spot rate. In addition, to the extent reasonably practicable, non-eur exposure of the Index Components is periodically hedged back to EUR by means of notional forward currency contracts. The EUR/USD Hedging Arrangements will be maintained, evaluated, and employed based on the estimated level of the EUR/USD exposure of the Index Components at the time of periodic currency hedging. There can be no assurance that the EUR/USD Hedging Arrangements will be successful or will not themselves generate significant losses. Although the EUR/USD Hedging Arrangements will be adjusted periodically, the EUR/USD Hedging Arrangements will not necessarily at any time hedge the entire EUR/USD exposure of the relevant Index Components to changes in the exchange rate. Such Index Components' unhedged exposure to changes in the exchange rate may be significant. V. Index Calculation UBS Switzerland AG as Index Sponsor selects the Index Components and is responsible for the weightings, re-weightings and changes to the Index Components. The Index Calculation Agent calculates the level of the Index as at any given Index Valuation Date. Each of the Index Sponsor and the Index Calculation Agent may, at its discretion and under its own responsibility, delegate some or all of their respective duties to another party, which may be affiliated to or independent of the Index Sponsor and/or the Index Calculation Agent. "Index Valuation Date" means the last calendar day of each month. The first Index Valuation Date was 31 July On every Index Calculation Date, the Index Calculation Agent will calculate the official closing level of the Index as at the applicable Index Valuation Date. The "Index Calculation Date" relating to an Index Valuation Date is the last Index Business Day of the month immediately following that Index Valuation Date or such earlier date following the relevant Index Valuation Date as the Index Calculation Agent may determine. The first 101

102 Index Calculation Date was 30 August "Index Business Day" means any calendar day (except Saturday and Sunday) on which commercial are open for business (including dealings in foreign exchange and foreign currency deposits) in the Cayman Islands, Zurich, Switzerland and New York, the USA. The level of the Index is based on the performance of the Index Components in EUR from the previous Index Valuation Date to the present Index Valuation Date, less the Index Fees and Expenses. The following formula will be used by the Index Calculation Agent on a monthly basis in order to calculate levels of the Index. where: Index (t) = Index (t-1) * {EUR Value (t) / EUR Value (t-1) } (the interval between t and t-1 refers to the period of one month) Index (t) : Index (t-1) : EUR Value (t) : EUR Value (t - 1) : The closing level of the Index as at the Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date. The closing level of the Index as at the Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant Index Calculation Date,. The sum of the Weighted Closing Valuations in EUR of the Index Components as at Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date, minus Index Fees and Expenses. The sum of the Weighted Closing Valuations in EUR of the Index Components as at Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant previous Index Calculation Date, minus Index Fees and Expenses. Index Valuation The Index Valuation Date in month t. Date (t) Index Valuation The Index Valuation Date in month t-1 Date (t-1) Weighted Closing Valuations: The last valuation of each Index Component, including the most recent estimated unaudited valuations of each Hedge Fund and the EUR/USD Hedging Arrangements, as provided by the managers or/and the administrators of the Hedge Funds making up the Index to the Index Calculation Agent on or before the relevant Index Calculation Date, multiplied by their respective weightings as at the relevant Index Valuation Date. If information concerning the last official valuation of an Index Component as at an Index Valuation Date is not received by the Index Calculation Agent prior to and including the relevant Index Calculation Date, the Index Calculation Agent shall use best efforts to determine in its reasonable discretion the Index Component's value using the last available valuation, the net asset value estimated by the Index Calculation Agent, current market conditions or any other available information as its basis. Such determination will serve as the basis for the Index Calculation Agent's further calculations. The above procedure will also be applied when the Index Calculation Agent needs to determine in its reasonable discretion the last official valuation of an Index Component that, at some relevant point in time, cannot be redeemed against payment of cash or material assets. VI. Index Component Selection The Index Sponsor will follow certain general guidelines in choosing the Hedge Funds as Index Components. While the Index Sponsor will attempt to apply such guidelines consistently, the guidelines involve the application of subjective and qualitative criteria and therefore the selection of the Index Components is a fundamentally subjective process. The use of the selection guidelines may 102

103 be adjusted by the Index Sponsor in its reasonable discretion in line with the objectives and goals of the Index. The Index Sponsor or its delegate will conduct a number of onsite and offsite interviews with the investment managers or investment advisers of prospective Index Components and substantial other due diligence prior to making a selection. The goal of the due diligence process is to evaluate the candidates on a wide range of criteria. By combining historical quantitative analysis with a sound knowledge of these key qualitative attributes, the Index Sponsor will attempt to forecast the proposed Index Components' potential for generating sustainable positive risk-adjusted returns under a wide variety of market conditions. When selecting the Index Components, the Index Sponsor shall always consider whether the Index Components can meet certain criteria. The criteria include, but are not limited to: 1. The manager of the Index Component should display an employment background with a reasonable amount of relevant experience in the specialty of the strategy employed. 2. The manager of the Index Component should have proper risk control policies and procedures that are consistent with meeting the investment goals of the Index. 3. The manager of the Index Component should have the proper research and operational infrastructure to conduct its business properly. 4. The manager of the Index Component should employ a strategy where, in the opinion of the Index Sponsor, reasonable risk-return parameters exist. 5. The Index Sponsor should be able to classify the investment strategy pursued by the Index Component under the basic investment strategy categories it utilizes. VII. Constructing the Index The Index Sponsor will seek to construct a portfolio of Index Components that is relatively concentrated and has low correlation to traditional benchmarks. The Index Sponsor will seek to use a limited number of Index Components that trade in diverse markets, utilize different trading strategies, construct varying types of portfolios and layer capital in a manner that is consistent with the risks embedded in their trading philosophy. The Index Sponsor will then assign percentage weights (the sum of all weights being equal to 100%) to each Index Component subject to the following restrictions being satisfied on any Index Valuation Date: 1. The minimum number of Hedge Funds will at all times be equal or higher than The value of the largest single Hedge Fund should generally not be more than 25%, with no others exceeding 20%, of the aggregate Weighted Closing Valuations on any given Index Valuation Date; however, if as a result of extreme positive performance an Index Component the value of any single Hedge Fund exceeds this level, an adjustment in the allocation will be made as soon as practicable. 3. Hedge Funds selected for inclusion within the Index will be grouped based on the particular strategy each of them pursues. The aggregate weights of the Index Components falling into the respective strategy at any given Valuation Date shall be as follows: Strategy Lower Limit Upper Limit Equity Hedged 0% 80% Credit/Income 0% 80% Relative Value 0% 80% Trading 0% 80% Risk Parity 0% 30% Others 0% 30% Cash and cash equivalents -30% 30% 103

104 The above guidelines are intended to be general and the Index Sponsor may vary them where appropriate. Monitoring of Hedge Funds and Reallocation. The Index Sponsor will monitor Hedge Funds through a combination of periodic net asset value updates, position reports and correspondence and meetings with managers of the Hedge Funds. The Index Sponsor will also rely on its experience to make qualitative assessments about the current risk conditions that each Hedge Fund and the overall Index may face. The performance of each Hedge Fund will be compared with the performance of other hedge funds which utilise the same or similar strategies (and who may or may not at that time be in the Index). Reasons for reducing or withdrawing entirely an allocation to a Hedge Fund may include, without limitation: i. the identification by the Index Sponsor of an alternative Hedge Fund which in the opinion of the Index Sponsor will improve the performance of the Index; ii. iii. iv. a change in the Hedge Fund's strategy or personnel; a significant change in the amount of assets under the Hedge Fund's management; a decline in performance relative to the performance of other hedge funds using the same investment strategy; v. any other circumstance or reason affecting the composition of the Index such as legal, regulatory or any other requirements as determined by the Index Sponsor; vi. vii. viii. VIII. a decline in the potential for gains on investment in the Hedge Funds market niche; a failure of a Hedge Fund to meet expectations of or adhere to restrictions on activities established by the Index Sponsor; or relative gains or losses in the accounts of different Hedge Funds that cause the Index Sponsor's allocations among the Hedge Funds to become disproportionate or unbalanced with respect to the Index Sponsor's allocation models or strategies. Investment Strategies Although it is anticipated that the strategies described below will represent the primary strategies expected to be included in the Index, the Index Sponsor will not be limited in the types of Hedge Funds that it may select or the types of activities in which they may engage. Accordingly, the Index Sponsor, in its sole and absolute discretion, may consider allocations to Hedge Funds that pursue a wider range of investments or other market strategies, including activities not described herein, if he deems it appropriate for reaching the objectives and goals of the Index. The classification of Hedge Funds included in the Index and the strategy definitions are based on the subjective judgement of the Index Sponsor which may differ from strategy definitions in the market. The following strategy descriptions are summaries only and do not provide detailed descriptions of each strategy. Equity Hedged Fundamental Conservative A typical fundamental conservative manager makes both long and short stock selection through research on the individual companies. The process is generally 'bottom-up'; that is, stocks are added to the portfolio on the basis of the opportunity for price movement of the individual company. The vast span of equities globally creates an opportunity for these managers to attempt to take advantage of their proprietary company research and analysis at the individual stock level. The difference between the long and short portfolio is the fund's net exposure, which typically is an indicator of market risk (Beta) that is assumed by the manager. The fund's short portfolio may vary greatly and is both a tactical expression of the manager's market outlook and a reflection of their conviction in the bottom-up stock selection opportunities. Long portfolios generally run more fully invested with variations driven by the underlying risk/reward opportunities and market dynamics light correlation levels and volatility. Conservative funds tend to be less concentrated, either by sector, position size, market capitalization, beta mismatches, style or net market exposure. However, a distinguishing feature of the conservative classification is the manager's attempt to reduce market risk at all times by maintaining a lower net exposure, generally between 0% and 60% net long. While these net exposure ranges are not hard limits, managers may on exception, 104

105 opportunistically expand beyond these ranges for short periods of time if market conditions and risk management dictate in their view. Related stocks / i.e. pairs trading is a type of market neutral equity strategy and would fall into the fundamental conservative category. In this approach, companies that are related to one another (by reason of engaging in similar activities and having comparable corporate structures) are grouped together. Stock price movements may move these relationships out of alignment, whether by reason of a corporate action, market event or simply high equity market volatility. These related stocks may often demonstrate mean reversion characteristics; that is, they have a tendency to return to the previous equilibrium level. The trading strategies employed to potentially benefit from these anomalies involve a combination of quantitative and qualitative techniques. If the process is primarily qualitative, then these managers would fall into the fundamental conservative grouping; if the process is primarily quantitative, we would classify the strategy as Relative Value: Quantitative Equity. Fundamental Aggressive Similar to fundamental conservative managers, a typical fundamental aggressive manager makes both long and short stock selection through bottom-up research on individual companies. Aggressive funds tend to be more concentrated than their more conservative peers. Aggressive managers are more likely to have directional skews in their portfolios to either sector, market capitalization, geography, or factor/style. Furthermore, aggressive funds may occasionally or regularly amplify their market risk exposure by exceeding net market exposure of 100% net long or by being net short with conviction. Although some of the fundamental aggressive managers essentially take a passive 'deep value' approach to investing on the long side, others may take an activist approach to their investments. An activist investor often seeks to create the catalyst for stock price movement. Activist strategies are broadly defined as either operational or financial, depending on the intention and expertise of the managers. Implementation varies from friendly, behind the scenes approaches to hostile, public battles with management teams and corporate boards. For this reason, some activist strategies may result in more concentrated portfolios and be longer term in nature. Such funds typically have a long biased un-hedged approach. Event Driven approaches involve directional long and short investing in public companies that are undergoing some corporate event with a definitive catalyst and timetable. These catalysts may include spin-offs, restructurings, stock buybacks, management changes or other well-defined events. The approach tends to have a value bias as the complexity surrounding events may create a discount to market peers not undergoing similar situations. Some event styles have a long-biased, un-hedged approach, which may offer significant upside return potential but can also exhibit significant market correlation and Beta especially in times of stress. Opportunistic Trading This strategy refers to the active trading of long and short equity positions based on short-term, catalyst-driven or flow-driven opportunities in the equity markets. This strategy is often marked by the prevalence of using sector baskets, exchange traded funds and equity indices and often leads to dramatic variability in a managers underlying net exposure. Given that the portfolio turnover is quite high, leverage is typically lower than in most of the other equity sub-strategies, though position concentration may be higher. Relative Value Capital Structure / Volatility Arbitrage This strategy generally seeks to benefit from anomalies in the relative value of different securities or issues within a single company's capital structure. Convertible bond arbitrage is a classic way of expressing this strategy. A convertible bond is a hybrid product combining a bond with an imbedded warrant that permits conversion to the issuer's common stock at some fixed exchange rate. The 'plain vanilla' version of the strategy involves investing in the convertible securities of companies and then shorting the underlying common stock as a hedge. Managers within the strategy vary in terms of what drives returns, but the primary differentiator is the level of credit risk in the portfolio. Other typical types of capital structure relative value trades include senior versus subordinated debt and cash bonds versus CDS (basis trades). Trades may also be catalyst-driven, involving corporate events, 105

106 such as convertible bond buybacks, convertible bond putbacks, equity exchanges, and M&A driven trades with capital structure implications. Managers will often seek to hedge exposure to a variety of other factors not related to the specific mispricing. Volatility Arbitrage involves using options and the underlying securities in an attempt to capture mis-pricings in option markets. Volatility strategies can be employed across various asset classes. In general, the primary driver of returns is the volatility differential between the options and the actual price movement less the transactions cost. For example, in equity-oriented volatility arbitrage, the manager analyses the relationship between actual stock price movement and the volatility that is implied by the options on the stock. If the options are deemed to be cheap, the manager buys options on a market neutral basis and then re-hedges the strategy as the underlying stock moves, to maintain neutrality. If options are deemed to be expensive, the options are sold, the premium is taken in and the strategy is re-hedged with stock movement. Quantitative ('Quant') Equity As statistical arbitrage and other systematic long/short approaches evolved over time, managers employing them began to overlap to such a degree that the Index Sponsor decided it was more appropriate to view them together as opposed to separate and distinct. As such, the quantitative equity sub-strategy involves model-driven approaches that utilize one or both of the following approaches: Statistical arbitrage is a model-driven approach that seeks to create diversified, risk-balanced long and short portfolios with the objective of capturing short-term price anomalies in equity markets. Models can either take the form of mean reversion, price momentum or a combination thereof. A key driver of performance is the ability to have for backtesting, superior alpha signals, a strong risk management and portfolio management framework, and a robust execution platform. Given the market neutral bias to the approach, the strategy implies a degree of minimization of sector, market capitalization, style, beta and other type of imbalances. Portfolio turnover is typically very high in the strategy. Systematic long/short, which is a model-driven approach to constructing equity long/short portfolios, incorporates fundamental, event, and price data used by traditional stock pickers. These funds' models typically begin by analysing vast amounts of data to determine relevant factors that indicate potential underperformance and outperformance of certain sectors and styles. The holding periods for trades can vary between medium term and longer term horizons. The portfolio turnover tends to be lower than that of statistical arbitrage strategies. The main risk for the style, as is the case in all systems, is a regime shift, which renders past information less meaningful. Merger Arbitrage Merger arbitrageurs seek to capture the price spread between current market prices and the value of securities upon successful completion of a merger. In cash transactions this spread is straightforward, but in stock-for-stock transactions, the spread is created by shorting an appropriate ratio of the acquiring company's stock. The width of the spreads reflects the market's willingness to take on transaction risk. Deals that the market assesses to have a lower probability of closing typically trade with a wider spread than straightforward synergistic mergers with little-to-no regulatory issues. Most managers attempt to control risk by limiting position size, diversifying and conducting thorough due diligence. Few managers solely focus on plain vanilla merger arbitrage anymore; rather, most portfolio managers employing the strategy sit within larger multi-strategy firms. Merger arbitrage often exists as one of several "event driven" strategies where a manager relies on catalysts to unlock value. Generally, these event-driven managers may participate in both hard and soft catalysts, taking a fundamental approach to the investment process, while merger arbitrage is generally focused on hard catalysts. Fixed Income Relative Value The fixed income arbitrageur attempts to profit from price anomalies between related interest rate and currency instruments. Some managers focus exclusively on US or G3 markets (US, UK, and Japan), while others invest across the global capital markets. The goal of most managers in this category is to deliver steady returns with low volatility. Since managers attempt to mitigate directional risk is mitigated by running hedged spreads (long and short, paired positions), leverage 106

107 may be applied more broadly. These managers will use leverage, sometimes in excess of 10 times NAV, depending on the similarity of the two securities and the liquidity of the invested market. Arbitrageurs seek to exploit yield spread dislocations, often implemented through buying of higher yielding securities and selling similar securities with lower yields, but will trade in the opposite direction if spreads are abnormally narrow. Fixed income arbitrage can include interest rate swap arbitrage, US and non-us government bond arbitrage, forward yield curve arbitrage, basis trading (i.e. cash versus futures, currency basis swaps), or a combination of each. Potential risks to the strategy include counterparty risk, margin calls, increased haircuts, market illiquidity, and deleveraging from other fixed income market participants. Greater use of leverage usage may compound the risk to certain managers in this strategy. Agency MBS In traditional Agency Mortgage Backed Security (MBS) arbitrage, funds seek to invest in high quality securities with no credit risk (US government agency mortgage, Treasury), hedging out interest rate risk to earn excess spread on the security. Other funds employ relative value pair strategies using agency mortgage pass-throughs and specified pools in an attempt to take advantage of pricing dislocations in the market. Examples of agency mortgage-backed securities include Fannie Mae and Freddie Mac issued MBS and Ginnie Mae guaranteed MBS, created from real estate mortgage investment conduits (REMICs) or collateralized mortgage obligations (CMOs). Typical instruments traded in the agency MBS space include mortgage pass-throughs and their derivatives, such as floaters, inverse floaters, interest-only (IO) strips, principal-only (PO) strips, and inverse interest-only (inverse IO) strips. Credit/Income Corporate Long/Short Corporate long/short involves investing long and/or short in debt or debt-linked securities on an opportunistic basis. Portfolio turnover, as well as gross and net exposure levels can vary based on the manager and their view of the opportunity set. This strategy may be directionally long or directionally short. Managers may express outright directional views or seek to exploit opportunities across comparable debt securities of different companies or of a single company versus an index. To be implemented successfully, the strategy demands a thorough knowledge of both the fundamental and technical factors that drive debt prices. Distressed These funds invest in the debt or equity securities of firms that are in the midst of financial restructuring, balance sheet re-capitalization, or are trading at stressed or distressed prices in anticipation of such an event. Opportunities in this strategy are closely linked to the level of defaults and credit spreads and hence the business cycle in general. Distressed funds differ in terms of the stage of their investment or the degree to which they become actively involved in the restructuring process. Distressed securities are often inefficiently priced due to their lack of liquidity, the existence of forced sellers and the uncertainty created by the restructuring process. Structured Products As the securitization market expanded from the early 2000s through 2007, some hedge funds began to invest in mortgage securities and other structured products through a variety of approaches. The strategies they implemented were generally focused on credit risk as opposed to interest rate or prepayment risk, which is more the focus of agency-based mortgage-backed strategies. Managers in the strategy will typically perform detailed research on the underlying assets that comprise the structured product as well as research the structure and the terms of the securitization, particularly with reference to the cash flow waterfall, credit enhancement, collateral triggers and control protection. It is important to note the liquidity spectrum is varied for these strategies, ranging from the more liquid (RMBS/CMBS) to less liquid (multi-sector CDOs, non-performing whole loan residential mortgage pools). The Index Sponsor further dissects the universe of structured product strategies into two general groups: Asset-backed securities (ABS) Asset-backed strategies typically emphasize non-agency residential mortgage-backed (RMBS), commercial mortgage-backed (CMBS) securities, and other asset backed securities (ABS) such as 107

108 auto loans, home equity loans, credit card receivables, student loans, manufactured housing, aircraft leases, and a variety of other cash-flow producing assets. While shorting these securitizations is typically not possible, managers may utilize residential mortgage-related indices (such as the ABX), commercial mortgage-related indices (such as the CMBX), and CDS (credit default swaps) to hedge broader market risk. Structured corporate credit Structured corporate credit typically focuses on CLOs, CBOs and corporate credit index tranches (e.g. High Yield CDX indices). In these strategies, managers could be either directional or relative value, or both. An example of a directional trade would be a manager purchasing specific tranches of a CLO trading at distressed prices, based upon the expectation that ultimate cash flows will exceed the value of the security at its purchase price. An example of a relative value trade would be a manager taking advantage of technical inefficiencies in the relative pricing of two different tranches of an index, for example (i.e. a calendar trade). While there are specialists in the two sub-sectors listed above, there are also managers that invest across the structured credit universe, which we would categorize as multi-strategy Structured Credit approaches. Reinsurance Reinsurance is an income-based strategy where managers attempt to generate returns by insuring catastrophe and other risks where other insurance (or reinsurance) companies want to offset some of their risk. Reinsurance strategies have historically had little correlation to more traditional capital market investments and thus have the potential to be a source of diversification within a portfolio. The risks within a modestly diversified portfolio of reinsurance investments are expected to be largely uncorrelated to each other (i.e. should be little correlation between hurricanes that may impact the US and Japanese earthquakes). Managers may employ a number of different approaches. Traditional Reinsurance (providing insurance to insurance companies) involves engaging in a contract directly with an insurance company where specific risk(s) is assumed and the methodology for triggering a payout is defined in the contract. Retrocession takes this concept one step further by providing reinsurance to reinsurance companies. A series of diverse risks are often bundled together into a single contract; this has the potential to result in pricing advantages that can accrue to both the writers of the contracts (i.e. money managers in this case) and the end users. Managers often invest in both traditional reinsurance and retrocession in a collateralized format where the full amount of capital that is theoretically at risk (known in industry terms as the "limit") is held in a trust account from which losses can be paid. Managers may also utilize Insurance Linked Securities ("ILS") such as Catastrophe Bonds and Industry Loss Warranties. Catastrophe Bonds are issued by insurers and are typically the most liquid instrument but generally offer lower potential returns. Industry Loss Warranties (ILWs) reference the overall loss due to an event at an industry level, rather than for a specific insurer. These instruments trade in swap-like format where protection can be bought and sold. Liquidity is somewhat lower than in the catastrophe bond market, with the potential return and volatility profiles being somewhat higher. Managers will also occasionally use this market to hedge certain risks in their portfolios (i.e. buy protection) that they deem unacceptable. Other There are several other types of income-generating, carry-based strategies that do not fit into one of the above sub-strategy categories. Although they are more niche approaches, the risk/return profile falls within the Credit/Income category and so we reflect them here as opposed to in the Other Niche category. Some multi-strategy Credit managers will employ one or more of these strategies alongside the more dominant Credit/Income strategies. Direct private lending (loan finance, loan-based lending, mezzanine finance, middle-market lending) Asset-backed lending (ABL) PIPES / Reg-D 108

109 Trading Microfinance Factoring (e.g. receivables/invoice factoring, rents, alternative finance, government attorney fees, etc.) Life insurance premium finance Life/viatical settlements and traded life policies (TLP) Structured settlements (liabilities settlements, e.g. personal injury, workers' compensation, etc.) Film finance Media rights (film, TV, music, games) Patents and royalty streams (e.g. drug royalties) SPACs (special purpose acquisition company) Global Macro Global macro encompasses funds that have the broadest mandate and trade in all asset classes around the world, including but not limited to equity, fixed income, foreign exchange (FX) and commodities. These managers generally focus on underlying macro-economic fundamentals in developing their investment theses. Technical data or money flows may also be considered in developing trade themes. The managers establish opportunistic long or short market positions in an attempt to profit from anticipated market moves. Macro managers tend to be highly sophisticated and are generally adept at using derivatives or leverage in an attempt to increase returns while protecting against loss. Similar to those Trading managers operating in the systematic space, macro managers tend to be adept at moving capital to those markets offering potentially robust opportunity sets. Historically, they also have been able to outperform in periods of market volatility and trending markets. Periods of global central bank activity and monetary intervention are typically favorable environments for this strategy. Historically, the Index Sponsor separated emerging markets as its own sub-strategy, given the sufficiently independent risk profile we believed these strategies used to maintain. However, the expansion of market linkages across developed and emerging economies has broadened the overall investment landscape for managers across all strategies in a meaningful way. The influence of the BRIC nations (Brazil, Russia, India and China) and the rising importance of G20 economies can be measured in the size and scope of their populations, GDP and foreign exchange reserve positions. The investment flow of funds to the developing markets also reflects the modernization of their financial markets, stability of fiscal position and more stable political infrastructure. Finally, the financial turmoil in Europe has blurred the credit rating landscape of sovereigns; effectively widening the universe for discretionary managers. Given these developments, for managers that invest materially in emerging markets, the Index Sponsor believes it is now more appropriate to categorize them based upon the assets traded and the investment strategy employed (Equity Hedged, Credit, Relative Value, or Trading). As such, managers that invest across asset classes in emerging markets, generally with a top-down trading-oriented approach will be categorized as global macro. Systematic Systematic traders, many of whom are also known as commodity trading advisers (CTAs), typically trade listed financial and commodity futures and interbank markets around the world. These managers utilize highly sophisticated technical models to analyse price and market data in order to identify trading opportunities. There are three types of systematic traders: trend-following, non-trend following, and systematic macro. Trend-following traders seek to profit from sustained price movement in any direction by focusing on medium to longer-term price behaviour. Non-trend following traders typically employ shorter-term momentum, mean reversion, volatility breakout, pattern recognition and counter-trend models. Systematic macro traders use econometric variables representing inflation and growth from both a value and/or a momentum perspective. Portfolio construction varies greatly across the different funds, and each manager's approach to market diversification, asset allocation, contract weightings and leverage might differ in the effort to 109

110 maximize risk-adjusted returns. Historically, market volatility has benefited the performance of CTAs, particularly those managers operating in the short-term, non-trend following strategy. Commodities Commodity markets exhibited dramatic growth over the last decade, pre-dominantly driven by increasing global demand due to significant emerging markets development. New technologies, applied to satisfy the ever rising demand for commodities, have resulted in a dynamically changing supply/demand picture, offering manifold trading opportunities for specialized market participants. Managers in this strategy utilize both directional and relative value approaches in an attempt to capture the opportunity set. The funds' market sector exposure may vary greatly across energies, grains & oilseeds, so-called "softs" (such as cocoa, coffee, cotton, orange juice or sugar), and industrial and precious metals. Idiosyncratic supply/demand dynamics can drive markets, with factors such as weather patterns, planting acreage, energy supply disruptions, and exploration influencing market prices. The managers typically employ a discretionary approach to this single asset class by using both macro and micro variables to build portfolios. Multi-Strategy Multi-Strategy Some hedge funds invest in a combination of strategies, often as a result of commonalties in the research and trading talent required for successful execution of the strategies. These funds allocate capital opportunistically among strategies believed to offer a suitable risk-adjusted return going forward. Multi-strategy funds can be relatively attractive by incorporating this flexibility through strategy diversification and asset allocation. In some cases, multi-strategy funds may be structured with individual portfolio managers having autonomous control over specific strategies, while receiving a specified risk allocation at the aggregated fund level. In other cases, one or more primary portfolio manager may treat the various strategies less like separate funds and more like one cohesive unit. Regardless of their structure, one of the benefits of multi-strategy funds is that they seek to provide investors is the ability to shift capital rapidly across various strategies in response to changes in the opportunity sets while maintaining a competitive edge and sector expertise. Further, financing costs may be reduced by the ability to borrow at a lower rate for the fund as a whole versus individual strategies. This potential benefit may also create potential additional risks, if certain riskier and more volatile strategies (a classic example would be commodity trading) are not properly ring fenced through a separate legal structure. Fund of Funds This category is used to define an investment vehicle that allocates capital across multiple investment managers and/or vehicles. The Index Sponsor divides the universe of fund of funds into three types: 1) Broad Based Diversified; 2) Broad Based Neutral; and 3) Strategy/Region Specific. Other Niche This category contains investment approaches that are outside of the mainstream hedge fund strategies listed above. While some industry participants consider niche strategies as 'hedge funds', others might argue that such approaches belong in an entirely separate asset class. This is especially true for borderline strategies, including certain private equity and real estate dealings. Besides funds dedicated to these fringe strategies, the Index Sponsor has seen a fair number of traditional hedge funds dabbling in niche approaches, and thus developed a separate category for them. Below is a summary list of the types of strategies that would currently fall into this category. Please note the list is not exhaustive and can be expected to change over time. Further, some of the categories may overlap. Hopefully this list provides a general picture of the types of investment approaches that would fall into the category. Emissions trading Equipment leasing / venture leasing Infrastructure investing 110

111 Litigation (including tort liability insurance) Natural resources Private Equity Real Estate (e.g. land, buildings, etc.) Clean/Renewable energy (investing/trading in water, wind, solar, etc.) Timber Wine Risk Parity There has been a recent trend in the industry for investors to allocate increasingly to Risk Parity or Risk Premia Parity strategies, often including them within their Hedge Fund or Alternative buckets. In general, Risk Parity managers typically actively rebalance allocations to a diverse set of assets in an attempt to take advantage of market pricing anomalies. The approach focuses on a high level of diversification within the portfolio but generally maintains a long-bias. Risk Parity generally focuses on the passive allocation of risk, rather than of capital, in an attempt to provide a higher Sharpe ratio alternative to the traditional 60% stock / 40% bond portfolio through the use of a wider range of uncorrelated assets, low leverage, and low equity risk. These approaches, while certainly an alternative to traditional asset allocation, are not hedge fund strategies. Liquidating / Side Pockets This category comprises exposure remaining to funds after a redemption notice has been placed and reached value date. The remaining exposure is typically less liquid in nature and often invested in private equity, real estate, or litigation claims that may take an unspecified amount of time to exit. Although these types of securities are among the most common remaining investments we see post-redemption, the underlying holdings can vary broadly. IX. Adjustments The Index Sponsor is solely charged with constructing and rebalancing the Index in its reasonable discretion. In the event that Index Components are altered by virtue of corporate actions, insolvency, dissolution or nationalisation of any Index Component the Index Sponsor will evaluate such changes and use its reasonable judgement to maximise the level of the Index in rebalancing the Index. The Index Sponsor may also adjust the Index Fees or the calculation method thereof in its reasonable discretion if it considers an adjustment as necessary. The Subfund is not sponsored, endorsed, sold or promoted by the Index Sponsor or the Index Calculation Agent. Neither the Index Sponsor nor the Index Calculation Agent does make any representation or warranty, express or implied, to the Subfund's investors or any member of the public regarding the advisability of investing in securities generally or in the Subfund shares particularly. The Index Sponsor composes and the Index Calculation Agent calculates the Index without regard to the Subfund shares. Neither the Index Sponsor nor the Index Calculation Agent is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Subfund shares to be issued or in the determination or calculation of the equation by which the Subfund shares are to be converted into cash. Neither the Index Sponsor nor the Index Calculation Agent has any obligation or liability in connection with the administration, marketing or trading of the Subfund shares. 111

112 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND FOCUSED CHF This specific section describes the particulars of the Subfund SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused CHF and is part of the general sales prospectus. Therefore, all information given herein should be considered in conjunction with this general prospectus. Profile of the typical investors The Subfund is suitable for investors with a relatively long investment horizon who consider investments in this Subfund as a convenient way of participating in the performance of the Key Multi-Manager Hedge Fund Focused (CHF) Index (the "Index"). The Index reflects the performance of a relatively concentrated notional portfolio comprised primarily of hedge funds (single manager and fund of hedge funds) and certain financial instruments as further described below. The performance of the Subfund is determined by the performance of the Index. If the level of the Index increases from Launch Date, then this will result in a comparable increase in the performance of the Subfund; conversely if the level of the Index decreases from Launch Date, then this will result in a comparable decrease in the performance of the Subfund. The strategy as described herein is a high risk investment which does not provide any right of repayment of capital invested and as such, should the Index Components (as defined below) not perform favourably, then investors will incur a partial or total loss of capital invested. Shares of the Subfund are exclusively available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. The Fund reserves the right to compulsorily redeem shares that are not held in accordance with the aforementioned requirements or for other regulatory, legal or tax obligations of the Subfund. Those shares will be redeemed at the prevailing net asset value per share. Investment objective The investment objective of the Subfund is to generate capital appreciation by providing investors with a return linked to the performance of the Key Multi-Manager Hedge Fund Focused Index (CHF), a concentrated hedge fund index, as further described below. Investment policy The Subfund will principally invest in equity and debt securities issued by corporate entities domiciled in any OECD country and listed or traded on regulated markets of an OECD country (the "Investment Portfolio"), and for the purpose of meeting its investment objective the Subfund will enter into a performance swap agreement (the "Swap Agreement") negotiated at arm's length with a counterparty the obligations of which under the Swap Agreement are guaranteed by UBS AG or with another first class financial institution specialised in this type of transactions (the "Swap Counterparty"). Under the terms of the Swap Agreement, the Swap Counterparty delivers to the Subfund exposure to the Index (as described below) (the "Investment Strategy") and the Subfund delivers to the Swap Counterparty a total return exposure to the Investment Portfolio. As of the Launch Date, all obligations of the Swap Counterparty under the Swap Agreement will be guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. The Subfund may hold liquid assets on an ancillary basis. The Subfund may not invest directly in other undertakings for collective investment in transferable securities (UCITS) and/or open-ended undertakings for collective investment (UCI). The Subfund will only utilise leverage to a limited extent by which the exposure of the Subfund will not exceed 225% of the NAV when calculated applying the gross method in accordance with Article 7 of Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 and 125% of the NAV when calculated applying the 112

113 commitment method in accordance with Article 8 of Commission Delegated Regulation (EU) No 231/2013 of 19 December The Subfund will enter into securities lending transactions in order to generate additional income with a counterparty determined by the Board of Directors in accordance with the requirements and regulations of the CSSF and of which obligations under the relevant securities lending agreement are guaranteed by UBS AG (London branch) or such other counterparty specialised in this type of transactions (the "Securities Lending Counterparty"). The Swap Agreement will incorporate the terms of and be governed by a master agreement based on the standard 1992 ISDA Master Agreement governed and construed in accordance with English law and published by the International Swaps and Derivatives Association, Inc. The Swap Agreement will be valued on a consistent and monthly basis by the calculation agent ("Swap Calculation Agent") being UBS AG (London branch) or such other party as accepted by the Board of Directors from time to time, in accordance with the prevailing market parameters and valuations. The valuation methodology is outlined below. The Swap Counterparty will provide a trading price at which the Subfund can increase or decrease the Swap Agreement notional amount. Such a facility will be available on each Valuation Day when requested by the Portfolio Manager. The notional amount of the Swap Agreement will be the proceeds raised at the Launch Date and, in the case of subsequent subscriptions and/or redemptions, the notional amount will be adjusted accordingly. The Swap Agreement may be terminated or otherwise cancelled in accordance with its terms. The Swap Agreement will be entered into for a 5 year term as outlined therein. Thereafter it will be extended for consecutive 5 year periods, subject to the consent of the Board of Directors of the Fund and the Swap Counterparty at the end of each period (each such expiry date also being a relevant "Maturity Date") and the end of the last such period being the final maturity date (the "Final Maturity Date"). The Swap Counterparty has the option to early terminate the Swap Agreement in various circumstances upon the provision of adequate notice to the Subfund; in such circumstances, the early termination date would become the Final Maturity Date. The Swap Agreement neutralises the performance of the Investment Portfolio. Consequently, any income (including dividends) and capital gains from the Investment Portfolio are delivered to the Swap Counterparty under the Swap Agreement and will not be paid to investors in the Subfund. Risk Profile: The Subfund replicates the performance of a hedge fund index. It is therefore exposed via the Swap Agreement to less liquid financial instruments, a wide range of asset classes and potentially leverage in some of the index components. A significant portion of the Subfund is exposed to less liquid instruments, whose prices could fluctuate in certain market conditions. This potential for higher volatility has determined that the Subfund be classified in a high risk category. Interim Swap Flows: In accordance with the Swap Agreement, and for the first time on 17th July 2013 and thereafter on the 3rd Subfund Business Day of each quarter until the Final Maturity Date: The Swap Counterparty will pay to the Subfund an amount, which corresponds to all fees and operating charges and expenses incurred by the Subfund as referred to in the section "Fees and Expenses" below. The Subfund will pay to the Swap Counterparty the income received on the Investment Portfolio and on any ancillary liquid assets. Maturity Swap Flows: At the end of the relevant term, amounts to be paid out under the Swap Agreement are determined on the basis of the following formula: 113

114 Amount payable = outstanding Notional Amount on Final Maturity Date * (ISm IPm) where: ISm = performance of the Investment Strategy in CHF (consisting of exposure to the Index calculated on the basis of the liquidation proceeds that the Swap Counterparty would actually receive in respect of the hedge position under the Swap Agreement by redeeming or selling such hedge position, as determined by the Swap Calculation Agent; or, if agreed by the Fund and Swap Counterparty, an amount equal to the estimated level of the Index as determined by the Swap Calculation Agent) at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. IPm = performance of the Investment Portfolio in CHF at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. If the amount is positive, then the Swap Counterparty will pay the amount to the Subfund. If the amount is negative then the Subfund will pay the amount to the Swap Counterparty. Valuation of Swap Agreement and its effects on the performance of the Subfund Before each Maturity Date, except for decreases of the notional amount, no payment is made to the Subfund in relation to the performance of the Investment Strategy. The performance of the Investment Strategy is taken into account in the meantime by virtue of the Swap Agreement in the calculation of the Net Asset Value per share of the Subfund. Accordingly, the valuation of the Swap Agreement determines the performance of the Subfund On any Valuation Day after the Launch Date but before the Maturity Date, the value of the Swap Agreement is determined as follows: Outstanding Notional Amount on the relevant Valuation Day * (ISi IPi) ISi = the estimated performance of the Investment Strategy in CHF (consisting of exposure to the Index) at close of business on that Valuation Day in relation to the initial value when the relevant agreement commenced, as determined by the Swap Calculation Agent. For the avoidance of doubt the estimated performance of the Investment Strategy will be calculated based on the latest estimated valuations of the Index Components (as defined below) multiplied by their weights provided on or before the relevant Valuation Day and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as at the Valuation Day (and not on the final Index level which is calculated on a one month delayed basis as outlined below) as determined by the Swap Calculation Agent on that Valuation Day. IPi = performance of the Investment Portfolio at close of business on the relevant Valuation Day in relation to the initial value when the relevant agreement commenced. Guarantee The irrevocable and unconditional Guarantee was issued on the Launch Date by UBS AG (London branch), 1 Finsbury Avenue, London EC2M 2PP (the "Guarantor"). UBS AG (London branch) is the London branch of UBS AG, a company incorporated under the laws of Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel, Switzerland and Bahnhofstrasse 45, CH-8098 Zurich, Switzerland. The Guarantor irrevocably and unconditionally guarantees to the Subfund the due and punctual observance and performance by the Securities Lending and Swap Counterparty under the Securities Lending Agreement and Swap Agreement and agrees to pay to the Subfund from time to time on demand any and every sum or sums of money from time to time due and payable (but unpaid) by the Securities Lending and Swap Counterparty under or pursuant to the Securities Lending Agreement or Swap Agreement. The Guarantee exclusively aims at covering the Subfund's counterparty risk on the Securities Lending and Swap Counterparty and the Subfund's risk on the failure of the Securities Lending and Swap Counterparty to perform its obligations under the Securities Lending Agreement and the Swap Agreement. The Guarantee does not guarantee any investment returns upon redemption or at Maturity Date. 114

115 Market Making UBS AG will make a market in the shares of the Subfund for investors who wish to realise their investment outside of the normal subscription and redemption cycle (as further described below under "Secondary market"). Key Multi-Manager Hedge Fund Focused (CHF) Index The Index is a CHF denominated index which reflects the performance of notional index components comprising (i) a limited number of private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the Financial Instruments (as described below), and (iii) the Cash Position and (iv) certain CHF/USD Hedging Arrangements (as described below), (which together with the Hedge Funds, the Financial Instruments and the Cash Position, shall be referred to as the "Index Components"). The level of the Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). Index Sponsor and Index Calculation Agent UBS Switzerland AG created the Index and is responsible for the selection, rebalancing as well as the management of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). Each of the Index Sponsor and Index Calculation Agent may delegate all or parts of its duties to other group entities within the UBS Group or a third party. Further details on the Index are included in the Appendix below. Collateral In order to reduce the credit risk exposure of the Subfund to the Swap Counterparty and the Securities Lending Counterparty (together the "Counterparty"), the Counterparty will provide the Subfund with collateral which should at least correspond to 90% of the total net asset value of the Subfund on any Valuation Day. This collateral will consist of eligible assets in accordance with the requirements and regulations of the CSSF and may include units of funds of hedge funds and claims against protected custody accounts opened with a regulated custodian in which the collateral assets are held. Should the Subfund exercise economic ownership control over collateral such collateral shall be subject to section 17. "INVESTMENT GUIDELINES". Collateral received will not be reinvested or otherwise reused. Risk Considerations Investment risk: no capital protection: the Subfund is a high-risk investment and employs no capital protection techniques or capital guarantees. Accordingly, investors are not entitled to repayment of the capital invested. The full amount of an investor's subscription is at risk and may be lost. Investment risk: achievement of investment objective: the investment objective of the Subfund is to generate growth in value. The return of the Subfund will be linked to the return of the estimated Index level as determined by the Swap Calculation Agent subject to certain adjustments or, at the Final Maturity Date to the final Index level. There can be no assurance that the Index level will increase in value, and accordingly there is no assurance that the Subfund's investment objective will be attained. Investment risk: alternative investment index risk: the return of the Subfund will be linked to the return of the estimated Index level as swap underlying. Investors in the Subfund are therefore exposed to general risks inherent in the Hedge Funds, as well as specific risks associated with the Index. Such risks include but are not limited to the following: The risk that the Index Sponsor is not effective in selecting appropriate Hedge Funds components that will generate positive returns over the long term. The risk that the Index as a result of its limited number of Index Components may be more susceptible to fluctuations in value resulting from adverse economic conditions, changes in the performance of the Index Components or other factors which negatively affect the performance 115

116 of such Index Components than a more diversified index. The Index return will also likely be more volatile. In addition, the expected concentrated nature of the index composition may expose the Subfund to losses disproportionate to market movements in general. The risk that the Hedge Funds may suspend the calculation of their net asset values which could impact the calculation of the Index level or estimated Index level as relevant and could lead to a suspension of subscriptions and redemptions of the Subfund shares. Hedge funds are generally considered to be unregulated investment vehicles. They may sell securities short, use significant levels of leverage, invest in various asset classes and instrument types including derivatives and commodities, whether traded on a regulated market or over the counter, and may not be required to diversify their investments. Accordingly, investments in hedge funds are generally considered to have a greater degree of risk than investments in regulated funds. To the extent that the Hedge Funds invest in the securities markets of developing countries, the political, regulatory and economic risks inherent in investments in emerging markets' securities are significant and may differ in kind and degree from the risks presented by investments in the world's major securities markets. These may include greater price volatility, substantially less liquidity and controls on foreign investment and limitations on repatriation of invested capital. The risk that the Index or any of the Hedge Funds diverge from their stated investment objectives and take on greater than expected levels of investment risk. The risk that some or all of the investments are illiquid. Accordingly, some or all the Hedge Funds may be unable to redeem from and/or sell the underlying investments in a timely manner which may affect the liquidity of the Subfund. The risk of incorrect or stale investment values. The Hedge Funds and their investments may include assets which are not traded on an exchange or regulated market. Accordingly, their values may be difficult to determine and may be based on models or quotes provided by the relevant manager. These values may be incorrect or stale and may not reflect fair value. Lack of operating history of managers. The Index may include Hedge Funds whose managers have no, or a very short, performance history. Such investments may involve greater risks than those with more established managers. Operational risks of the managers, including inadequate back office functions, trade processing, accounting, administration, risk management, valuation services and reporting. Reliance on key personnel in the Hedge Funds components selection process. The loss of key personnel at both the Index Sponsor and the Hedge Funds could materially and negatively impact the value of the Index. Limited capacity of managers. In order to deliver positive returns, some managers close their funds to new subscriptions once their fund has reached a certain size. The Index may be unable to reference underlying funds at all times, and therefore from time to time, the Index may in part also reference cash or money market instruments. Risk of lack of regulatory oversight. The Hedge Funds are domiciled in countries providing significant investment discretion and which are generally considered to be lightly regulated. For example, the Hedge Funds are generally not required to deposit their assets with an independent custodian bank. Instead, such assets may be deposited with brokers or other intermediaries who do not provide for segregation of client assets. The net asset value of the Subfund will be affected by various levels of fees, including fees at the level of the Subfund, the Index and the Index Components. These fees may include asset-based as well as performance fees. Consequently, performance fees may be charged in periods when the total net asset value of the Subfund has fallen. Additionally, performance fees may be paid on unrealised gains which in fact are never realised. Foreign currency risk: The Hedge Funds are mostly denominated in USD. The Hedge Funds in turn may invest in assets denominated in various currencies. The Index is calculated in CHF. The level of the Index and the return to investors in the Subfund could be adversely affected not only by changes 116

117 in exchange rates but also by local exchange control regulations and other limitations, including currency exchange limitations and political and economic developments in the relevant countries. Liquidity Risk: The risk that the Fund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares. Gating Risk: The risk that the Subfund may partially reject redemption orders exceeding a certain percentage of the Subfund's total net asset value when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to gating restrictions. Collateral Risk - The Fund has made all reasonable endeavours to ensure the collateral is enforceable under the relevant laws and regulations. However, there is a risk that as a result of a change in, or amendment to, the applicable laws and regulations, the collateral may become unenforceable. Valuation risk estimated Index level: the main determinant of the monthly Net Asset Value per share of the Subfund is the level of the Index on the Valuation Day. The final Index level is provided monthly by the Index Sponsor, typically within a month after the relevant Valuation Day. In order to calculate the value of the Swap Agreement on any Valuation Day (other than the Final Maturity Date) at which the Subfund can trade with the Swap Counterparty, the estimated Index level will be determined by the Swap Calculation Agent based on estimated values of the Hedge Funds provided to the Swap Counterparty by the managers or administrators of the Hedge Funds on or before the Valuation Day and may be adjusted to reflect expected changes to the estimated valuations as at the Valuation Day; where the values of any Hedge Funds are not available or, in the opinion of the Swap Calculation Agent, are otherwise unreliable or unrepresentative, the Swap Calculation Agent may estimate in good faith the value of such Hedge Funds in order to determine the estimated value of the Index on the Valuation Day. The value of the Index used in determining the Net Asset Value per share of the Subfund may differ from the final Index level for the relevant month as provided by the Index Sponsor. In such circumstances, the value of the Swap Agreement and the Net Asset Value per share of the Subfund will not be revised or otherwise amended to reflect any such difference. Valuation risk final Index level: The Net Asset Value per share of the Subfund at the Final Maturity Date will be based on the final Index level as calculated by the Index Calculation Agent. In valuing the Hedge Funds, the Index Calculation Agent may need to rely on financial information provided by the managers of the Hedge Funds themselves. Independent valuation sources such as exchange listing may not be available for the Hedge Funds of the Index. The net asset value of the Hedge Funds may be finalized using estimated values provided by the managers or administrators of the Hedge Funds. In most cases, the Index Calculation Agent will have no ability to assess the accuracy of the valuations received. In certain cases, the values provided by the managers or administrators of the Hedge Funds may subsequently be amended; e.g. as a result of adjustments identified as part of the annual audit of the underlying schemes. In such circumstances, the value of the Index and the Net Asset Value per share of the Subfund at the Final Maturity Date will not be revised or otherwise amended to reflect any such difference. Effect of Substantial Redemptions: A number of events could trigger substantial redemptions from a Hedge Fund. Actions taken to meet substantial redemption requests could result in a decrease in prices of financial instruments. The overall value of Hedge Funds may also decrease because the liquidation value of certain assets may be materially less than their mark-to-market value. Hedge Funds may be forced to sell their more liquid positions, may need to maintain greater amounts of cash and cash-equivalent investments than they would otherwise maintain and may also be restricted in their ability to obtain financing or derivatives counterparties needed for certain investment and trading strategies. Settlement of redemption amounts prior to the Final Maturity Date: redemption proceeds will generally be paid 2 Subfund Business Days following the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. 117

118 Settlement of redemption amounts on the Final Maturity Date: redemption proceeds will generally be paid after one calendar month plus 5 Subfund Business Days following the Final Maturity Date. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. Early Maturity: Under the terms of the Swap Agreement, the Swap Counterparty may terminate the Swap Agreement on a calendar quarter-end prior to the Maturity Date. In such circumstances, the date of the early termination would become the Final Maturity Date of the Subfund, and the Subfund would terminate unless the Subfund enters into another swap agreement with another counterparty. The Swap Counterparty must give at least 100 calendar days' notice to the Subfund prior to an early termination date. Index disruption: If the Swap Calculation Agent determines the Index has been replaced with another index, or the Index is likely to cease to be calculated by the Index Calculation Agent or maintained by the Index Sponsor, then the Swap Counterparty and the Subfund may agree to use another index, and the terms of the Swap Agreement may be amended accordingly. Alternatively, the Swap Agreement may be terminated and accordingly the Subfund would terminate as well as set out above unless the Subfund enters into another swap agreement with another counterparty. Counterparty Risk: the Subfund is exposed to the risk that the Swap Counterparty (together with the Guarantor) may default on its obligations to perform under the Swap Agreement and that the Securities Lending Counterparty (together with the Guarantor) may default on its obligations to deliver equivalent collateral. In assessing this risk, investors should recognise that the Swap Counterparty will pledge collateral to ensure that the net credit risk of the Subfund to the Swap Counterparty will not exceed 10% of the total net asset value of the Subfund; and the Securities Lending Counterparty will pledge collateral equivalent to the value of the securities under loan. In circumstances where a single counterparty is both the Swap Counterparty and the Securities Lending Counterparty, then the net exposure to it will be collateralised such that the net credit risk to the relevant counterparty will not exceed 10% of the overall net exposure to that counterparty. Taxation: Potential shareholders should seek information on the taxation laws and regulations in force and, where appropriate, seek advice on the subscription, purchase, possession and sale of shares at their place of residence. Further information on taxation is provided in the section "Taxation" of Section II. Use of Derivatives: The Swap Agreement is a structured derivative transaction as part of the investment strategy. While the prudent use of such a derivative can be beneficial, derivatives also involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Structured derivative transactions are complex and may involve a high degree of loss. The aim of the Swap Agreement is to deliver exposure to the Investment Strategy and as such, the use of the Swap Agreement is not speculative in nature. Alternative Investments: The Subfund may take advantage of opportunities with respect to certain other alternative instruments that are not presently contemplated for use by the Subfund or that are currently not available, but that may be developed, to the extent such opportunities are both consistent with the investment objective of the Subfund and legally permissible for the Subfund. Certain alternative instruments may be subject to various types of risks, including market risk, liquidity risk, the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty, legal risk and operations risk. Avoidance of conflicts of interest: The units within the UBS Group who are providing services to the Subfund operate as independent entities and in order to avoid possible conflicts of interest, all transactions between these entities and the Subfund are undertaken at arm's length prices, always keeping in mind the best interest of the shareholders. In particular, the estimated level of the Index on any Valuation Day prior to the Final Maturity Date will be determined by the Swap Calculation Agent based on estimated values for the Index Components and agreed by the Index Sponsor, both of whom may be different entities or divisions within the UBS Group. In the normal course of business, UBS Group and/or its directors, officers and employees may have or may have had interests in the Hedge Funds. Such activity may or may not affect the value of the Index and Subfund. 118

119 Although the Index Sponsor has agreed to use its best efforts in managing the Index, the Index Sponsor and its principals, members and affiliates (collectively the "Index Sponsor Parties") are not required to devote full time or any material portion of their time to managing the Index. The Index Sponsor is the investment adviser to a number of investment funds, including funds with investment objectives similar or substantially similar to those of the Index, and the Index Sponsor Parties advise and may advise additional clients, some of which hold or may hold the same investments as are included in the Index. The Index Sponsor may in the future sponsor other indices similar to the Index. UBS Group may receive management fees, performance fees and other fees, if applicable, for such portion of the Index allocated to Index Components managed by any member of the UBS Group, which may constitute a significant percentage of the Index. Accordingly, in determining Index allocations, the Index Sponsor is subject to a conflict of interest because such allocation will result in higher amounts being allocated or paid to the UBS Group than if the Index was allocated exclusively to managers not affiliated with the UBS Group. Competition: Certain markets in which Hedge Funds may invest are extremely competitive for attractive investment opportunities. Thus, the managers of such Hedge Funds might not be able to identify or successfully pursue attractive investment opportunities in such environments and, as a result, there may be reduced expected investment returns. Economic conditions: Changes in economic conditions, including, for example, interest rates, employment conditions, competition, technological developments, political and diplomatic events and trends, and tax laws can affect substantially and adversely the business and prospects of the Hedge Funds. None of these conditions is within the control of the managers of such Hedge Funds and/or Index Sponsor and no assurances can be given that the managers of such Hedge Funds and/or Index Sponsor will anticipate these developments. The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Subfund. Prospective investors should read the prospectus and the articles of incorporation of the Fund and consult with their own advisers before deciding whether to invest in the Subfund. Investments in the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused CHF General Information Reference currency: CHF. This is the currency in which the Net Asset Value per share of the Subfund is calculated. The Swap Agreement is denominated in CHF. The Index is calculated in CHF. Allocation of income: this Subfund will pursue an accumulation policy. Valuation Day: the Net Asset Value per share will be calculated as of the third last bank business day of each month (i.e. each day on which banks are open during normal business hours) in London, Zurich and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich and Luxembourg. "Non-statutory rest days" are days on which several banks and financial institutions are closed in London, Zurich and Luxembourg. The Board of Directors may, at its sole discretion, decide to fix one or more extraordinary Valuation Day(s) or alter the cut-off point for dealing instructions in order to better deal with subscriptions and redemptions in the Subfund. Any decision to fix an extraordinary Valuation Day will be notified to shareholders. In order to cover any costs associated with subscriptions and redemptions, and if in the interest of the Subfund's shareholders, the Board of Directors may decide to apply an extraordinary charge to the value of the subscriptions and redemptions and to reflect this extraordinary charge in the Net Asset Value of the Subfund. Issue of shares: shares may be issued monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to increase the notional of the Swap Agreement on a Valuation Day, 119

120 then subscription applications of shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a subscription of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to increase the notional amount of the Swap Agreement, the subscription order may be rejected by the Subfund. In such case, the Subfund will execute the subscription order on the next Valuation Day on which the Swap Counterparty is prepared to increase the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward subscription applications to the Administrative Agent. No issue will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". Usually shares will be issued as non-certificated registered shares, unless otherwise decided by the Board of Directors. Upon request and against payment by the shareholder of all incurred expenses, share certificates may be issued in physical form. The Board of Directors reserves the right to issue share certificates in denominations of one or more shares, however fractions of shares will not be issued in certificated form. Global share certificates will not be issued. Redemption of shares: shares may be redeemed monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. Where orders for a redemption of shares in the Subfund have been received for a Valuation Day amounting to more than 10% of the total net asset value of the Subfund, the redemption orders may be partially rejected by the Subfund. In such case, the investors would need to place new redemption orders for the next available Valuation Day. In circumstances where the Swap Counterparty has hedged itself either with the Index Components or otherwise and has received redemption proceeds amounting to more than 10% of the total net asset value of the Subfund, the Subfund will, unless otherwise decided by the Board of Directors, execute redemption orders amounting to more than 10% of the total net asset value of the Subfund, provided that the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement accordingly. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to decrease the notional of the Swap Agreement on a Valuation Day, then redemption applications relating to shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a redemption of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to decrease the notional amount of the Swap Agreement, the redemption order may be rejected by the Subfund. In such case, the Subfund will execute the redemption order on the next Valuation Day on which the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward redemption applications to the Administrative Agent. No redemption will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". In addition, the Board of Directors is empowered to: a) Reject a subscription application at its discretion and to discretionarily decide to accept subscription requests on any other Valuation Day; 120

121 b) At any time redeem shares of the Subfund held by shareholders who are not qualified to purchase or hold shares of the Subfund. Such redeemed shares are reimbursed to the shareholders and thereby cease to be valid. Subfund Business Day: days on which the TARGET system is open and normal bank business days (i.e. each day on which banks are open during normal business hours) in London, Zurich, New York, Cayman Islands and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich, New York, Cayman Islands and Luxembourg. "Non-statutory rest days" are days, on which several banks and financial institutions are closed in London, Zurich, New York, Cayman Islands and Luxembourg. Secondary market: UBS AG (the "market-maker") will make a market in the shares of the Subfund. Shareholders may sell shares to the market-maker on each business day. The price at which shares can be traded with the market-maker may differ from the most recent total net asset value of the Subfund. Pursuant to a Market Maker Agreement between the market-maker and the Fund, the market-maker may decide not to buy shares of the Subfund in the secondary market if the market-maker determines, in its sole discretion, that one of the following extraordinary events has occurred: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) the stock exchanges or markets on which the valuation of a major part of the Fund's assets is based or when the foreign exchange markets corresponding to the currencies in which the Net Asset Value or a considerable portion of the Subfund's assets are denominated, are closed, except on regular public holidays, or when trading on such a market is limited or suspended or temporarily exposed to severe fluctuations; political, economic, military or other emergencies beyond the control, liability and influence of the Fund make it impossible to access the Subfund's assets under normal conditions or such access would be detrimental to the interests of the shareholders; disruptions in the communications network or any other reason make it impossible to calculate with sufficient exactitude the value of a considerable part of the Subfund's net assets; limitations on exchange operations or other transfers of assets render it impracticable for the Fund to execute business transactions, or where purchases and sales of the Subfund's assets cannot be effected at the normal conversion rates; when for any other reason the prices of any investments owned by the Fund cannot promptly or accurately be ascertained; upon the publication of a notice convening a general meeting of shareholders for the purpose of resolving the winding-up of the Fund; a violation by the Fund or change of any material terms of the prospectus or constitutional documents which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; any restriction or limitation or suspension or deferral or delay of redemptions of, or subscriptions for, shares in the Subfund (including, without limitation, any partial payment of redemption proceeds or the introduction or increase of any associated fee, cost or expense, the introduction or use of gating or a side pocket, or any restructuring, reorganisation or action that has a similar impact to gating or a side pocket), or any mandatory redemption of shares of the Subfund; any review or investigation of the activities of the Fund or the Subfund by a relevant regulator, in connection with suspected or alleged wrongdoing or breach of any rule or regulation, or other similar reason, or any disciplinary action taken by such regulator in connection therewith which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; if as a consequence of shareholders of the Fund selling shares of the Subfund to the market-maker, the market-maker would become the beneficial owner of 25% or more of the shares of the Subfund; 121

122 (k) (l) any winding-up, liquidation of, or any termination or any loss of regulatory approval, licence or registration of, the Portfolio Manager, or any merger, de-merger, winding-up or liquidation of or affecting the Fund or the Subfund; any arrangement between the market-maker and the Fund or the Subfund including arrangements relating to subscriptions for, and redemptions of, shares in the Subfund, is changed or terminated; and/or (m) the Fund or the Subfund becomes party to any litigation or dispute which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Sub-fund. Specific reasons for the suspension of the Net Asset Value calculation and/or issue, conversion and redemption of shares: Notwithstanding the reasons set out in Section II "Suspension of the Net Asset Value calculation and of the issue, conversion and redemption of share" the Subfund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to restrictions on subscriptions or redemptions of the entirety of or some of the hedging positions. Subject to an extraordinary event, including without limitation, liquidation or force majeure, the Subfund will ensure that investor's shares will be redeemed within 12 months following the request for redemption but in no case later than within 36 months. UBS Group: UBS AG together with its branches and affiliates (which shall for this purpose mean any entity owned by and/or under common ownership or control of UBS Group AG.) Portfolio Manager: UBS Asset Management (UK) Ltd. The Portfolio Manager is part of UBS Asset Management, a business group of UBS AG. The Portfolio Manager is regulated by the UK Financial Conduct Authority. Launch Date: 17 July 2013 Share classes The Board of Directors can issue several classes of shares for the Subfund. Currently, the following share class is offered: I-class available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. Fees and Expenses The Subfund will bear all the costs incurred in connection with the management, administration, portfolio management of the Subfund's assets (the "Flat Fee"), which will be calculated based on the total net asset value of the Subfund and in total will not exceed 0.45% per annum of the Net Asset Value per share and be payable on a quarterly basis. The Depositary will receive a fee that will not exceed 0.05% per annum of the Net Asset Value per share calculated and payable on a quarterly basis. In addition, the Subfund shall bear the expenses (the "Additional Expenses") as described in Section II 12. Charges and Expenses. As described above, the Swap Counterparty pays the Subfund on a quarterly basis an amount corresponding to the aforementioned fees and costs and all additional costs incurred by the Subfund. Fees which are borne by the investor directly are the following: Issuing commission of up to 3% of the issue price per share; Redemption charge of up to 0.5% of the Net Asset Value per share to be redeemed, which may be increased up to 5% in periods of increased volatility of the Index Components or in the event that the Subfund experiences significant redemptions. 122

123 Subscriptions On the Launch Date the shares of the Subfund may be subscribed at a price calculated based on the latest estimated valuations of the Index Components multiplied by their weights provided on or before the Launch Date and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as of the Launch Date as determined by the Swap Calculation Agent on that date plus any stamp duties and fees. Investors may settle the subscription 'in-kind'. After the Launch Date, the issue price is based on the Net Asset Value per share. Any taxes, commissions and other fees that apply to investors in the different countries in which shares may be sold will also be charged in addition to the Net Asset Value per share. Sales agencies may charge investors an issuing commission of up to 3% of the issue price per share. Example 1 sales commission applied in addition to investment amount Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares subscribed Total amount of subscription EUR 10,300 EUR 10,000 Example 2 sales commission applied to initial investment Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares issued Total subscription amount EUR 10,000 EUR 10,000 Subscriptions for shares in the Subfund are accepted by the Fund as well as by the sales agencies and paying agents, which forward them to the Fund. Subscriptions received on any Subfund Business Day prior to the time stated under "Issue of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent, earlier cut-off times may apply for submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. The issue price of the Subfund shares is paid no later than two Subfund Business Days following the relevant Valuation Day into the account at the Depositary in favour of the Subfund. In addition, the Fund may issue fractional shares up to three decimal places. However, no certificates are issued for these fractional shares. They are credited to the shareholder via an entry in the securities custody account of his or her choice. Fractions of shares do not confer the right to vote at general meetings, but will grant entitlement to a distribution or a proportionate distribution of the liquidation proceeds in the case where the Subfund is dissolved. In certain circumstances during the first six months after Launch Date, at the discretion of the Board of Directors, the Subfund may process subscriptions on a Subfund Business Day which is not a 123

124 Valuation Day. In such cases, the assets and liabilities of the Subfund will be valued on that Subfund Business Day. Redemptions Redemption applications, accompanied by any certificates that might have been issued, are accepted by the Fund as well as at the sales agencies and paying agents, which forward them to the Fund. Applications for redemption received on any Subfund Business Day prior to the time stated under "Redemption of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent earlier cut-off times may apply for the submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. In general, the value of redeemed Subfund shares is paid out no later than two Subfund Business Days after the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself and has not received redemption proceeds for whatever reasons with respect to its hedge, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. In addition, legal provisions, such as foreign exchange controls or restrictions on capital movements, or other circumstances beyond the control of the Depositary, may make it impossible to transfer the redemption amount to the country in which the redemption application was submitted. Any taxes, commissions and other fees incurred in the countries in which Fund shares may be sold will also be charged. The price at which shares in the Subfund are redeemed, shall be calculated according to the Net Asset Value per share of the Subfund and of the relevant share class. In the event of an excessively large volume of redemption applications, the Board of Directors may decide to delay execution of the redemption applications until the corresponding assets of the Fund have been sold without unnecessary delay. Should such a measure be necessary, all redemption applications received on the same day will be calculated at the same price. In calculating the redemption price, the Subfund may on any Valuation Day when there are redemptions adjust the redemption price by deducting an amount of up to 0.5% from the Net Asset Value per share to be redeemed. However, in periods of increased volatility of the Index Components and/or in the event that the Subfund experiences significant redemptions such deduction may be increased up to 5% of the Net Asset Value per share. Example 3 redemption charge applied to redemption of shares Example where no redemption charge is applied Example where redemption charge of 0.5% is applied Example where redemption charge of 5% is applied Number of shares redeemed Net asset value per share EUR 100 EUR 100 EUR 100 Redemption charge (in %) 0% 0.5% 5.0% Redemption price per share EUR 100 EUR 99.5 EUR 95 Total redemption proceeds EUR 10,000 EUR 9,950 EUR 9,500 Conversions Conversions of shares into other Subfunds' shares of the Fund may be permitted. 124

125 Past performance The chart shows the investment returns of the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused CHF I-class calculated as a percentage of the change in Net Asset Value over the previous year. In general any past performance takes account of all ongoing charges but not the entry charge/issuing commission. The past performance is not an indicator for the future performance. The share class was launched on The past performance is calculated in CHF. 125

126 APPENDIX: INDEX DESCRIPTION Neither the Index Sponsor nor the Index Calculation Agent guarantees the accuracy and/or the completeness of the Index or any data included therein, and neither of them shall have any liability for any errors, omissions, or interruptions therein. Neither the Index Sponsor nor the Index Calculation Agent does make any warranty, express or implied, as to the performance of the Subfund, investors or any other person or entity from the use of the Index or any data included therein. Neither the Index Sponsor nor the Index Calculation Agent makes any express or implied warranties and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall either of the Index Sponsor or the Index Calculation Agent have any liability for any lost profits or indirect, punitive, special or consequential damages, even if notified of the possibility thereof. I. Background to the Index The Key Multi-Manager Hedge Fund Focused (CHF) Index (the "Index") is a CHF denominated index which reflects the performance of (i) a limited number of private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the "Financial Instruments"), (iii) the Cash Position and (iv) certain CHF/USD Hedging Arrangements (as described below which together with the Hedge Funds, the Financial Instruments and the Cash Position shall be referred to as the "Index Components"). The level of the CHF denominated Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). UBS Switzerland AG is responsible for the selection of the Index Components as well as the composition, management and rebalancing of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). It is at the full discretion of each of the Index Sponsor and the Index Calculation Agent to delegate their respective duties and rights related to the selection of the Index Components and to the composition, management, calculation and rebalancing of the Index, entirely or partially to another affiliated or non-affiliated party. The objective of the Index is to achieve a long-term appreciation. The Index seeks to achieve performance results that are less volatile in both rising and falling markets than direct exposure to traditional markets by selecting Index Components that utilize hedged strategies, among others. This is to be aimed for by diversifying both the approach according to which the Index mirrors investments in assets, i.e. Index Components and the respective types of instruments. The Hedge Funds included in the Index have broad flexibility to take long or short positions, employ leverage and use derivative instruments. The Index Sponsor will consider including in the Index Hedge Funds operating in all global markets. The Index Sponsor may include a revenue participation in Hedge Fund management companies within the Index. The Index may also include Hedge Funds which may be managed and/or owned by the Index Sponsor, the Index Calculation Agent or any of their affiliates. The Index was created on 1 July 2013 with an opening Index level of 1, points and may be rebalanced at any date thereafter (each an "Index Rebalancing Date"). The Index Sponsor may on any Index Rebalancing Date, in its reasonable discretion, change the composition of the Index or the weightings of existing Index Components (such change hereinafter called "Rebalancing") subsequent to the initial composition of the Index in line with the objectives and goals of the Index. On each Index Rebalancing Date on which a change in the composition of the Index is made, the Index will be adjusted by assigning new weightings to one or more of the Index Components subject to the condition that the level of the Index after the change is effected is the same as the level of the Index before the change. In other words, no change in the level of the Index occurs on the Index Rebalancing Date as a result of changes to the composition of the Index. II. Cash Position The Index will include as an Index Component a "Cash Position" which reflects the holding of cash, 126

127 money market instruments or cash obligations. The Cash Position can also reflect the application of leverage, in which case the Cash Position may mirror a negative cash balance and may reflect the cost of such leverage in the returns of such Cash Position. Accordingly, the Cash Position may be a negative amount at such times that borrowing exceeds cash holdings. III. Expenses and Index Fees The Index is calculated net of certain fees, costs and expenses commonly to be associated with establishing and maintaining a portfolio similar to the notional portfolio mirrored by the Index, as determined by the Index Calculation Agent in its reasonable discretion, including, without limitation, investment, research, legal, accounting, administration, custodial and professional expenses (collectively, the "Expenses"). In addition, the Index Fees (as defined below) will be deducted when calculating the level of the Index. The Index Fees are applied to the value in CHF of the Weighted Closing Valuations of the Index Components and consist of: (i) (ii) an index management and calculation fee of 0.90% per annum of the value (in CHF) of the Weighted Closing Valuations of the Index Components at the end of each calendar month (calculated and deducted on a monthly basis) (the "Index Management and Calculation Fee"); and a quarterly index performance fee of 5.00% of the increase in value (in CHF) of the Weighted Closing Valuations of the Index Components during each calendar quarter (after deduction of the aforementioned Index Calculation Fee) (calculated and accrued monthly, payable quarterly in arrears) (the "Index Performance Fee", together with the Index Calculation Fee, the "Index Fees"). IV. CHF/USD Hedging Arrangements The Index will include as an Index Component the "CHF/USD Hedging Arrangements". As it is anticipated that substantially all of the Hedge Funds will be denominated in USD, the Index Sponsor will enter into CHF/USD Hedging Arrangements. The Index Sponsor will, pursuant to the CHF/USD Hedging Arrangements, make a reasonable attempt to offset, but not eliminate, the CHF/USD exposure of the Index resulting from those Index Components that are denominated in USD. The level of the Index will be increased or decreased, as the case may be, by any income, loss, costs and expenses attributable to the currency conversions and any other transactions constituting the CHF/USD Hedging Arrangements. Pursuant to the CHF/USD Hedging Arrangements, to the extent reasonably practicable, the Index Sponsor will use reasonable efforts to convert weightings to the Index Components between CHF and USD at the spot rate. In addition, to the extent reasonably practicable, non-chf exposure of the Index Components is periodically hedged back to CHF by means of notional forward currency contracts. The CHF/USD Hedging Arrangements will be maintained, evaluated, and employed based on the estimated level of the CHF/USD exposure of the Index Components at the time of periodic currency hedging. There can be no assurance that the CHF/USD Hedging Arrangements will be successful or will not themselves generate significant losses. Although the CHF/USD Hedging Arrangements will be adjusted periodically, the CHF/USD Hedging Arrangements will not necessarily at any time hedge the entire CHF/USD exposure of the relevant Index Components to changes in the exchange rate. Such Index Components' unhedged exposure to changes in the exchange rate may be significant. V. Index Calculation UBS Switzerland AG as both Index Sponsor and Index Calculation Agent, selects the Index Components and is responsible for the weightings, re-weightings and changes to the Index Components. The Index Calculation Agent calculates the level of the Index as at any given Index Valuation Date. Each of the Index Sponsor and the Index Calculation Agent may, at its discretion and under its own responsibility, delegate some or all of their respective duties to another party, which may be affiliated to or independent of the Index Sponsor and/or the Index Calculation Agent. "Index Valuation Date" means the last calendar day of each month. The first Index Valuation Date was 31 July On every Index Calculation Date, the Index Calculation Agent will calculate the official closing level of the Index as at the applicable Index Valuation Date. The "Index Calculation Date" relating to an Index Valuation Date is the last Index Business Day of the month immediately following that Index Valuation Date or such earlier date following the relevant Index Valuation Date 127

128 as the Index Calculation Agent may determine. The first Index Calculation Date was 30 August "Index Business Day" means any calendar day (except Saturday and Sunday) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the Cayman Islands, Zurich, Switzerland and New York, the USA. The level of the Index is based on the performance of the Index Components in CHF from the previous Index Valuation Date to the present Index Valuation Date, less the Index Fees and Expenses. The following formula will be used by the Index Calculation Agent on a monthly basis in order to calculate levels of the Index. where: Index (t) = Index (t-1) * {CHF Value (t) / CHF Value (t-1) } (the interval between t and t-1 refers to the period of one month) Index (t) : Index (t-1) : CHF Value (t) : CHF Value (t - 1) : The closing level of the Index as at the Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date. The closing level of the Index as at the Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant Index Calculation Date,. The sum of the Weighted Closing Valuations in CHF of the Index Components as at Index Valuation Date (t), as calculated by the Index Calculation Agent on the relevant Index Calculation Date, minus Index Fees and Expenses. The sum of the Weighted Closing Valuations in CHF of the Index Components as at Index Valuation Date (t-1), as calculated by the Index Calculation Agent on the relevant previous Index Calculation Date, minus Index Fees and Expenses. Index Valuation The Index Valuation Date in month t. Date (t) Index Valuation The Index Valuation Date in month t-1 Date (t-1) Weighted Closing Valuations: The last valuation of each Index Component, including the most recent estimated unaudited valuations of each Hedge Fund and the CHF/USD Hedging Arrangements, as provided by the managers or/and the administrators of the Hedge Funds making up the Index to the Index Calculation Agent on or before the relevant Index Calculation Date, multiplied by their respective weightings as at the relevant Index Valuation Date. If information concerning the last official valuation of an Index Component as at an Index Valuation Date is not received by the Index Calculation Agent prior to and including the relevant Index Calculation Date, the Index Calculation Agent shall use best efforts to determine in its reasonable discretion the Index Component's value using the last available valuation, the net asset value estimated by the Index Calculation Agent, current market conditions or any other available information as its basis. Such determination will serve as the basis for the Index Calculation Agent's further calculations. The above procedure will also be applied when the Index Calculation Agent needs to determine in its reasonable discretion the last official valuation of an Index Component that, at some relevant point in time, cannot be redeemed against payment of cash or material assets. VI. Index Component Selection The Index Sponsor will follow certain general guidelines in choosing the Hedge Funds as Index Components. While the Index Sponsor will attempt to apply such guidelines consistently, the guidelines involve the application of subjective and qualitative criteria and therefore the selection of the Index Components is a fundamentally subjective process. The use of the selection guidelines may 128

129 be adjusted by the Index Sponsor in its reasonable discretion in line with the objectives and goals of the Index. The Index Sponsor or its delegate will conduct a number of onsite and offsite interviews with the investment managers or investment advisers of prospective Index Components and substantial other due diligence prior to making a selection. The goal of the due diligence process is to evaluate the candidates on a wide range of criteria. By combining historical quantitative analysis with a sound knowledge of these key qualitative attributes, the Index Sponsor will attempt to forecast the proposed Index Components' potential for generating sustainable positive risk-adjusted returns under a wide variety of market conditions. When selecting the Index Components, the Index Sponsor shall always consider whether the Index Components can meet certain criteria. The criteria include, but are not limited to: 1. The manager of the Index Component should display an employment background with a reasonable amount of relevant experience in the specialty of the strategy employed. 2. The manager of the Index Component should have proper risk control policies and procedures that are consistent with meeting the investment goals of the Index. 3. The manager of the Index Component should have the proper research and operational infrastructure to conduct its business properly. 4. The manager of the Index Component should employ a strategy where, in the opinion of the Index Sponsor, reasonable risk-return parameters exist. 5. The Index Sponsor should be able to classify the investment strategy pursued by the Index Component under the basic investment strategy categories it utilizes. VII. Constructing the Index The Index Sponsor will seek to construct a portfolio of Index Components that is relatively concentrated and has low correlation to traditional benchmarks. The Index Sponsor will seek to use a limited number of Index Components that trade in diverse markets, utilize different trading strategies, construct varying types of portfolios and layer capital in a manner that is consistent with the risks embedded in their trading philosophy. The Index Sponsor will then assign percentage weights (the sum of all weights being equal to 100%) to each Index Component subject to the following restrictions being satisfied on any Index Valuation Date: 1. The minimum number of Hedge Funds will at all times be equal or higher than The value of the largest single Hedge Fund should generally not be more than 25%, with no others exceeding 20%, of the aggregate Weighted Closing Valuations on any given Index Valuation Date; however, if as a result of extreme positive performance an Index Component the value of any single Hedge Fund exceeds this level, an adjustment in the allocation will be made as soon as practicable. 3. Hedge Funds selected for inclusion within the Index will be grouped based on the particular strategy each of them pursues. The aggregate weights of the Index Components falling into the respective strategy at any given Valuation Date shall be as follows: Strategy Lower Limit Upper Limit Equity Hedged 0% 80% Credit/Income 0% 80% Relative Value 0% 80% Trading 0% 80% Risk Parity 0% 30% Others 0% 30% Cash and cash equivalents -30% 30% 129

130 The above guidelines are intended to be general and the Index Sponsor may vary them where appropriate. Monitoring of Hedge Funds and Reallocation. The Index Sponsor will monitor Hedge Funds through a combination of periodic net asset value updates, position reports and correspondence and meetings with managers of the Hedge Funds. The Index Sponsor will also rely on its experience to make qualitative assessments about the current risk conditions that each Hedge Fund and the overall Index may face. The performance of each Hedge Fund will be compared with the performance of other hedge funds which utilise the same or similar strategies (and who may or may not at that time be in the Index). Reasons for reducing or withdrawing entirely an allocation to a Hedge Fund may include, without limitation: i. the identification by the Index Sponsor of an alternative Hedge Fund which in the opinion of the Index Sponsor will improve the performance of the Index; ii. iii. iv. a change in the Hedge Fund's strategy or personnel; a significant change in the amount of assets under the Hedge Fund's management; a decline in performance relative to the performance of other hedge funds using the same investment strategy; v. any other circumstance or reason affecting the composition of the Index such as legal, regulatory or any other requirements as determined by the Index Sponsor; vi. vii. viii. VIII. a decline in the potential for gains on investment in the Hedge Funds market niche; a failure of a Hedge Fund to meet expectations of or adhere to restrictions on activities established by the Index Sponsor; or relative gains or losses in the accounts of different Hedge Funds that cause the Index Sponsor's allocations among the Hedge Funds to become disproportionate or unbalanced with respect to the Index Sponsor's allocation models or strategies. Investment Strategies Although it is anticipated that the strategies described below will represent the primary strategies expected to be included in the Index, the Index Sponsor will not be limited in the types of Hedge Funds that it may select or the types of activities in which they may engage. Accordingly, the Index Sponsor, in its sole and absolute discretion, may consider allocations to Hedge Funds that pursue a wider range of investments or other market strategies, including activities not described herein, if he deems it appropriate for reaching the objectives and goals of the Index. The classification of Hedge Funds included in the Index and the strategy definitions are based on the subjective judgment of the Index Sponsor which may differ from strategy definitions in the market. The following strategy descriptions are summaries only and do not provide detailed descriptions of each strategy. Equity Hedged Fundamental Conservative A typical fundamental conservative manager makes both long and short stock selection through research on the individual companies. The process is generally 'bottom-up'; that is, stocks are added to the portfolio on the basis of the opportunity for price movement of the individual company. The vast span of equities globally creates an opportunity for these managers to attempt to take advantage of their proprietary company research and analysis at the individual stock level. The difference between the long and short portfolio is the fund's net exposure, which typically is an indicator of market risk (Beta) that is assumed by the manager. The fund's short portfolio may vary greatly and is both a tactical expression of the manager's market outlook and a reflection of their conviction in the bottom-up stock selection opportunities. Long portfolios generally run more fully invested with variations driven by the underlying risk/reward opportunities and market dynamics light correlation levels and volatility. Conservative funds tend to be less concentrated, either by sector, position size, market capitalization, beta mismatches, style or net market exposure. However, a distinguishing feature of the conservative classification is the manager's attempt to reduce market risk at all times by maintaining a lower net exposure, generally between 0% and 60% net long. While these net exposure ranges are not hard limits, managers may on exception, 130

131 opportunistically expand beyond these ranges for short periods of time if market conditions and risk management dictate in their view. Related stocks / i.e. pairs trading is a type of market neutral equity strategy and would fall into the fundamental conservative category. In this approach, companies that are related to one another (by reason of engaging in similar activities and having comparable corporate structures) are grouped together. Stock price movements may move these relationships out of alignment, whether by reason of a corporate action, market event or simply high equity market volatility. These related stocks may often demonstrate mean reversion characteristics; that is, they have a tendency to return to the previous equilibrium level. The trading strategies employed to potentially benefit from these anomalies involve a combination of quantitative and qualitative techniques. If the process is primarily qualitative, then these managers would fall into the fundamental conservative grouping; if the process is primarily quantitative, we would classify the strategy as Relative Value: Quantitative Equity. Fundamental Aggressive Similar to fundamental conservative managers, a typical fundamental aggressive manager makes both long and short stock selection through bottom-up research on individual companies. Aggressive funds tend to be more concentrated than their more conservative peers. Aggressive managers are more likely to have directional skews in their portfolios to either sector, market capitalization, geography, or factor/style. Furthermore, aggressive funds may occasionally or regularly amplify their market risk exposure by exceeding net market exposure of 100% net long or by being net short with conviction. Although some of the fundamental aggressive managers essentially take a passive 'deep value' approach to investing on the long side, others may take an activist approach to their investments. An activist investor often seeks to create the catalyst for stock price movement. Activist strategies are broadly defined as either operational or financial, depending on the intention and expertise of the managers. Implementation varies from friendly, behind the scenes approaches to hostile, public battles with management teams and corporate boards. For this reason, some activist strategies may result in more concentrated portfolios and be longer term in nature. Such funds typically have a long biased un-hedged approach. Event Driven approaches involve directional long and short investing in public companies that are undergoing some corporate event with a definitive catalyst and timetable. These catalysts may include spin-offs, restructurings, stock buybacks, management changes or other well-defined events. The approach tends to have a value bias as the complexity surrounding events may create a discount to market peers not undergoing similar situations. Some event styles have a long-biased, un-hedged approach, which may offer significant upside return potential but can also exhibit significant market correlation and Beta especially in times of stress. Opportunistic Trading This strategy refers to the active trading of long and short equity positions based on short-term, catalyst-driven or flow-driven opportunities in the equity markets. This strategy is often marked by the prevalence of using sector baskets, exchange traded funds and equity indices and often leads to dramatic variability in a managers underlying net exposure. Given that the portfolio turnover is quite high, leverage is typically lower than in most of the other equity sub-strategies, though position concentration may be higher. Relative Value Capital Structure / Volatility Arbitrage This strategy generally seeks to benefit from anomalies in the relative value of different securities or issues within a single company's capital structure. Convertible bond arbitrage is a classic way of expressing this strategy. A convertible bond is a hybrid product combining a bond with an imbedded warrant that permits conversion to the issuer's common stock at some fixed exchange rate. The 'plain vanilla' version of the strategy involves investing in the convertible securities of companies and then shorting the underlying common stock as a hedge. Managers within the strategy vary in terms of what drives returns, but the primary differentiator is the level of credit risk in the portfolio. Other typical types of capital structure relative value trades include senior versus subordinated debt and cash bonds versus CDS (basis trades). Trades may also be catalyst-driven, involving corporate events, 131

132 such as convertible bond buybacks, convertible bond putbacks, equity exchanges, and M&A driven trades with capital structure implications. Managers will often seek to hedge exposure to a variety of other factors not related to the specific mispricing. Volatility Arbitrage involves using options and the underlying securities in an attempt to capture mis-pricings in option markets. Volatility strategies can be employed across various asset classes. In general, the primary driver of returns is the volatility differential between the options and the actual price movement less the transactions cost. For example, in equity-oriented volatility arbitrage, the manager analyses the relationship between actual stock price movement and the volatility that is implied by the options on the stock. If the options are deemed to be cheap, the manager buys options on a market neutral basis and then re-hedges the strategy as the underlying stock moves, to maintain neutrality. If options are deemed to be expensive, the options are sold, the premium is taken in and the strategy is re-hedged with stock movement. Quantitative ('Quant') Equity As statistical arbitrage and other systematic long/short approaches evolved over time, managers employing them began to overlap to such a degree that the Index Sponsor decided it was more appropriate to view them together as opposed to separate and distinct. As such, the quantitative equity sub-strategy involves model-driven approaches that utilize one or both of the following approaches: Statistical arbitrage is a model-driven approach that seeks to create diversified, risk-balanced long and short portfolios with the objective of capturing short-term price anomalies in equity markets. Models can either take the form of mean reversion, price momentum or a combination thereof. A key driver of performance is the ability to have for backtesting, superior alpha signals, a strong risk management and portfolio management framework, and a robust execution platform. Given the market neutral bias to the approach, the strategy implies a degree of minimization of sector, market capitalization, style, beta and other type of imbalances. Portfolio turnover is typically very high in the strategy. Systematic long/short, which is a model-driven approach to constructing equity long/short portfolios, incorporates fundamental, event, and price data used by traditional stock pickers. These funds' models typically begin by analysing vast amounts of data to determine relevant factors that indicate potential underperformance and outperformance of certain sectors and styles. The holding periods for trades can vary between medium term and longer term horizons. The portfolio turnover tends to be lower than that of statistical arbitrage strategies. The main risk for the style, as is the case in all systems, is a regime shift, which renders past information less meaningful. Merger Arbitrage Merger arbitrageurs seek to capture the price spread between current market prices and the value of securities upon successful completion of a merger. In cash transactions this spread is straightforward, but in stock-for-stock transactions, the spread is created by shorting an appropriate ratio of the acquiring company's stock. The width of the spreads reflects the market's willingness to take on transaction risk. Deals that the market assesses to have a lower probability of closing typically trade with a wider spread than straightforward synergistic mergers with little-to-no regulatory issues. Most managers attempt to control risk by limiting position size, diversifying and conducting thorough due diligence. Few managers solely focus on plain vanilla merger arbitrage anymore; rather, most portfolio managers employing the strategy sit within larger multi-strategy firms. Merger arbitrage often exists as one of several "event driven" strategies where a manager relies on catalysts to unlock value. Generally, these event-driven managers may participate in both hard and soft catalysts, taking a fundamental approach to the investment process, while merger arbitrage is generally focused on hard catalysts. Fixed Income Relative Value The fixed income arbitrageur attempts to profit from price anomalies between related interest rate and currency instruments. Some managers focus exclusively on US or G3 markets (US, UK, and Japan), while others invest across the global capital markets. The goal of most managers in this category is to deliver steady returns with low volatility. Since managers attempt to mitigate directional risk is mitigated by running hedged spreads (long and short, paired positions), leverage 132

133 may be applied more broadly. These managers will use leverage, sometimes in excess of 10 times NAV, depending on the similarity of the two securities and the liquidity of the invested market. Arbitrageurs seek to exploit yield spread dislocations, often implemented through buying of higher yielding securities and selling similar securities with lower yields, but will trade in the opposite direction if spreads are abnormally narrow. Fixed income arbitrage can include interest rate swap arbitrage, US and non-us government bond arbitrage, forward yield curve arbitrage, basis trading (i.e. cash versus futures, currency basis swaps), or a combination of each. Potential risks to the strategy include counterparty risk, margin calls, increased haircuts, market illiquidity, and deleveraging from other fixed income market participants. Greater use of leverage usage may compound the risk to certain managers in this strategy. Agency MBS In traditional Agency Mortgage Backed Security (MBS) arbitrage, funds seek to invest in high quality securities with no credit risk (US government agency mortgage, Treasury), hedging out interest rate risk to earn excess spread on the security. Other funds employ relative value pair strategies using agency mortgage pass-throughs and specified pools in an attempt to take advantage of pricing dislocations in the market. Examples of agency mortgage-backed securities include Fannie Mae and Freddie Mac issued MBS and Ginnie Mae guaranteed MBS, created from real estate mortgage investment conduits (REMICs) or collateralized mortgage obligations (CMOs). Typical instruments traded in the agency MBS space include mortgage pass-throughs and their derivatives, such as floaters, inverse floaters, interest-only (IO) strips, principal-only (PO) strips, and inverse interest-only (inverse IO) strips. Credit/Income Corporate Long/Short Corporate long/short involves investing long and/or short in debt or debt-linked securities on an opportunistic basis. Portfolio turnover, as well as gross and net exposure levels can vary based on the manager and their view of the opportunity set. This strategy may be directionally long or directionally short. Managers may express outright directional views or seek to exploit opportunities across comparable debt securities of different companies or of a single company versus an index. To be implemented successfully, the strategy demands a thorough knowledge of both the fundamental and technical factors that drive debt prices. Distressed These funds invest in the debt or equity securities of firms that are in the midst of financial restructuring, balance sheet re-capitalization, or are trading at stressed or distressed prices in anticipation of such an event. Opportunities in this strategy are closely linked to the level of defaults and credit spreads and hence the business cycle in general. Distressed funds differ in terms of the stage of their investment or the degree to which they become actively involved in the restructuring process. Distressed securities are often inefficiently priced due to their lack of liquidity, the existence of forced sellers and the uncertainty created by the restructuring process. Structured Products As the securitization market expanded from the early 2000s through 2007, some hedge funds began to invest in mortgage securities and other structured products through a variety of approaches. The strategies they implemented were generally focused on credit risk as opposed to interest rate or prepayment risk, which is more the focus of agency-based mortgage-backed strategies. Managers in the strategy will typically perform detailed research on the underlying assets that comprise the structured product as well as research the structure and the terms of the securitization, particularly with reference to the cash flow waterfall, credit enhancement, collateral triggers and control protection. It is important to note the liquidity spectrum is varied for these strategies, ranging from the more liquid (RMBS/CMBS) to less liquid (multi-sector CDOs, non-performing whole loan residential mortgage pools). The Index Sponsor further dissects the universe of structured product strategies into two general groups: Asset-backed securities (ABS) Asset-backed strategies typically emphasize non-agency residential mortgage-backed (RMBS), commercial mortgage-backed (CMBS) securities, and other asset backed securities (ABS) such as 133

134 auto loans, home equity loans, credit card receivables, student loans, manufactured housing, aircraft leases, and a variety of other cash-flow producing assets. While shorting these securitizations is typically not possible, managers may utilize residential mortgage-related indices (such as the ABX), commercial mortgage-related indices (such as the CMBX), and CDS (credit default swaps) to hedge broader market risk. Structured corporate credit Structured corporate credit typically focuses on CLOs, CBOs and corporate credit index tranches (e.g. High Yield CDX indices). In these strategies, managers could be either directional or relative value, or both. An example of a directional trade would be a manager purchasing specific tranches of a CLO trading at distressed prices, based upon the expectation that ultimate cash flows will exceed the value of the security at its purchase price. An example of a relative value trade would be a manager taking advantage of technical inefficiencies in the relative pricing of two different tranches of an index, for example (i.e. a calendar trade). While there are specialists in the two sub-sectors listed above, there are also managers that invest across the structured credit universe, which we would categorize as multi-strategy Structured Credit approaches. Reinsurance Reinsurance is an income-based strategy where managers attempt to generate returns by insuring catastrophe and other risks where other insurance (or reinsurance) companies want to offset some of their risk. Reinsurance strategies have historically had little correlation to more traditional capital market investments and thus have the potential to be a source of diversification within a portfolio. The risks within a modestly diversified portfolio of reinsurance investments are expected to be largely uncorrelated to each other (i.e. should be little correlation between hurricanes that may impact the US and Japanese earthquakes). Managers may employ a number of different approaches. Traditional Reinsurance (providing insurance to insurance companies) involves engaging in a contract directly with an insurance company where specific risk(s) is assumed and the methodology for triggering a payout is defined in the contract. Retrocession takes this concept one step further by providing reinsurance to reinsurance companies. A series of diverse risks are often bundled together into a single contract; this has the potential to result in pricing advantages that can accrue to both the writers of the contracts (i.e. money managers in this case) and the end users. Managers often invest in both traditional reinsurance and retrocession in a collateralized format where the full amount of capital that is theoretically at risk (known in industry terms as the "limit") is held in a trust account from which losses can be paid. Managers may also utilize Insurance Linked Securities ("ILS") such as Catastrophe Bonds and Industry Loss Warranties. Catastrophe Bonds are issued by insurers and are typically the most liquid instrument but generally offer lower potential returns. Industry Loss Warranties (ILWs) reference the overall loss due to an event at an industry level, rather than for a specific insurer. These instruments trade in swap-like format where protection can be bought and sold. Liquidity is somewhat lower than in the catastrophe bond market, with the potential return and volatility profiles being somewhat higher. Managers will also occasionally use this market to hedge certain risks in their portfolios (i.e. buy protection) that they deem unacceptable. Other There are several other types of income-generating, carry-based strategies that do not fit into one of the above sub-strategy categories. Although they are more niche approaches, the risk/return profile falls within the Credit/Income category and so we reflect them here as opposed to in the Other Niche category. Some multi-strategy Credit managers will employ one or more of these strategies alongside the more dominant Credit/Income strategies. Direct private lending (loan finance, loan-based lending, mezzanine finance, middle-market lending) Asset-backed lending (ABL) PIPES / Reg-D 134

135 Trading Microfinance Factoring (e.g. receivables/invoice factoring, rents, alternative finance, government attorney fees, etc.) Life insurance premium finance Life/viatical settlements and traded life policies (TLP) Structured settlements (liabilities settlements, e.g. personal injury, workers' compensation, etc.) Film finance Media rights (film, TV, music, games) Patents and royalty streams (e.g. drug royalties) SPACs (special purpose acquisition company) Global Macro Global macro encompasses funds that have the broadest mandate and trade in all asset classes around the world, including but not limited to equity, fixed income, foreign exchange (FX) and commodities. These managers generally focus on underlying macro-economic fundamentals in developing their investment theses. Technical data or money flows may also be considered in developing trade themes. The managers establish opportunistic long or short market positions in an attempt to profit from anticipated market moves. Macro managers tend to be highly sophisticated and are generally adept at using derivatives or leverage in an attempt to increase returns while protecting against loss. Similar to those Trading managers operating in the systematic space, macro managers tend to be adept at moving capital to those markets offering potentially robust opportunity sets. Historically, they also have been able to outperform in periods of market volatility and trending markets. Periods of global central bank activity and monetary intervention are typically favorable environments for this strategy. Historically, the Index Sponsor separated emerging markets as its own sub-strategy, given the sufficiently independent risk profile we believed these strategies used to maintain. However, the expansion of market linkages across developed and emerging economies has broadened the overall investment landscape for managers across all strategies in a meaningful way. The influence of the BRIC nations (Brazil, Russia, India and China) and the rising importance of G20 economies can be measured in the size and scope of their populations, GDP and foreign exchange reserve positions. The investment flow of funds to the developing markets also reflects the modernization of their financial markets, stability of fiscal position and more stable political infrastructure. Finally, the financial turmoil in Europe has blurred the credit rating landscape of sovereigns; effectively widening the universe for discretionary managers. Given these developments, for managers that invest materially in emerging markets, the Index Sponsor believes it is now more appropriate to categorize them based upon the assets traded and the investment strategy employed (Equity Hedged, Credit, Relative Value, or Trading). As such, managers that invest across asset classes in emerging markets, generally with a top-down trading-oriented approach will be categorized as global macro. Systematic Systematic traders, many of whom are also known as commodity trading advisers (CTAs), typically trade listed financial and commodity futures and interbank markets around the world. These managers utilize highly sophisticated technical models to analyse price and market data in order to identify trading opportunities. There are three types of systematic traders: trend-following, non-trend following, and systematic macro. Trend-following traders seek to profit from sustained price movement in any direction by focusing on medium to longer-term price behaviour. Non-trend following traders typically employ shorter-term momentum, mean reversion, volatility breakout, pattern recognition and counter-trend models. Systematic macro traders use econometric variables representing inflation and growth from both a value and/or a momentum perspective. Portfolio construction varies greatly across the different funds, and each manager's approach to market diversification, asset allocation, contract weightings and leverage might differ in the effort to 135

136 maximize risk-adjusted returns. Historically, market volatility has benefited the performance of CTAs, particularly those managers operating in the short-term, non-trend following strategy. Commodities Commodity markets exhibited dramatic growth over the last decade, pre-dominantly driven by increasing global demand due to significant emerging markets development. New technologies, applied to satisfy the ever rising demand for commodities, have resulted in a dynamically changing supply/demand picture, offering manifold trading opportunities for specialized market participants. Managers in this strategy utilize both directional and relative value approaches in an attempt to capture the opportunity set. The funds' market sector exposure may vary greatly across energies, grains & oilseeds, so-called "softs" (such as cocoa, coffee, cotton, orange juice or sugar), and industrial and precious metals. Idiosyncratic supply/demand dynamics can drive markets, with factors such as weather patterns, planting acreage, energy supply disruptions, and exploration influencing market prices. The managers typically employ a discretionary approach to this single asset class by using both macro and micro variables to build portfolios. Multi-Strategy Multi-Strategy Some hedge funds invest in a combination of strategies, often as a result of commonalties in the research and trading talent required for successful execution of the strategies. These funds allocate capital opportunistically among strategies believed to offer a suitable risk-adjusted return going forward. Multi-strategy funds can be relatively attractive by incorporating this flexibility through strategy diversification and asset allocation. In some cases, multi-strategy funds may be structured with individual portfolio managers having autonomous control over specific strategies, while receiving a specified risk allocation at the aggregated fund level. In other cases, one or more primary portfolio manager may treat the various strategies less like separate funds and more like one cohesive unit. Regardless of their structure, one of the benefits of multi-strategy funds is that they seek to provide investors is the ability to shift capital rapidly across various strategies in response to changes in the opportunity sets while maintaining a competitive edge and sector expertise. Further, financing costs may be reduced by the ability to borrow at a lower rate for the fund as a whole versus individual strategies. This potential benefit may also create potential additional risks, if certain riskier and more volatile strategies (a classic example would be commodity trading) are not properly ring fenced through a separate legal structure. Fund of Funds This category is used to define an investment vehicle that allocates capital across multiple investment managers and/or vehicles. The Index Sponsor divides the universe of fund of funds into three types: 1) Broad Based Diversified; 2) Broad Based Neutral; and 3) Strategy/Region Specific. Other Niche This category contains investment approaches that are outside of the mainstream hedge fund strategies listed above. While some industry participants consider niche strategies as 'hedge funds', others might argue that such approaches belong in an entirely separate asset class. This is especially true for borderline strategies, including certain private equity and real estate dealings. Besides funds dedicated to these fringe strategies, the Index Sponsor has seen a fair number of traditional hedge funds dabbling in niche approaches, and thus developed a separate category for them. Below is a summary list of the types of strategies that would currently fall into this category. Please note the list is not exhaustive and can be expected to change over time. Further, some of the categories may overlap. Hopefully this list provides a general picture of the types of investment approaches that would fall into the category. Emissions trading Equipment leasing / venture leasing Infrastructure investing 136

137 Litigation (including tort liability insurance) Natural resources Private Equity Real Estate (e.g. land, buildings, etc.) Clean/Renewable energy (investing/trading in water, wind, solar, etc.) Timber Wine Risk Parity There has been a recent trend in the industry for investors to allocate increasingly to Risk Parity or Risk Premia Parity strategies, often including them within their Hedge Fund or Alternative buckets. In general, Risk Parity managers typically actively rebalance allocations to a diverse set of assets in an attempt to take advantage of market pricing anomalies. The approach focuses on a high level of diversification within the portfolio but generally maintains a long-bias. Risk Parity generally focuses on the passive allocation of risk, rather than of capital, in an attempt to provide a higher Sharpe ratio alternative to the traditional 60% stock / 40% bond portfolio through the use of a wider range of uncorrelated assets, low leverage, and low equity risk. These approaches, while certainly an alternative to traditional asset allocation, are not hedge fund strategies. Liquidating / Side Pockets This category comprises exposure remaining to funds after a redemption notice has been placed and reached value date. The remaining exposure is typically less liquid in nature and often invested in private equity, real estate, or litigation claims that may take an unspecified amount of time to exit. Although these types of securities are among the most common remaining investments we see post-redemption, the underlying holdings can vary broadly. IX. Adjustments The Index Sponsor is solely charged with constructing and rebalancing the Index in its reasonable discretion. In the event that Index Components are altered by virtue of corporate actions, insolvency, dissolution or nationalisation of any Index Component the Index Sponsor will evaluate such changes and use its reasonable judgment to maximise the level of the Index in rebalancing the Index. The Index Sponsor may also adjust the Index Fees or the calculation method thereof in its reasonable discretion if it considers an adjustment as necessary. The Subfund is not sponsored, endorsed, sold or promoted by the Index Sponsor or the Index Calculation Agent. Neither the Index Sponsor nor the Index Calculation Agent does make any representation or warranty, express or implied, to the Subfund's investors or any member of the public regarding the advisability of investing in securities generally or in the Subfund shares particularly. The Index Sponsor composes and the Index Calculation Agent calculates the Index without regard to the Subfund shares. Neither the Index Sponsor nor the Index Calculation Agent is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Subfund shares to be issued or in the determination or calculation of the equation by which the Subfund shares are to be converted into cash. Neither the Index Sponsor nor the Index Calculation Agent has any obligation or liability in connection with the administration, marketing or trading of the Subfund shares. 137

138 SF (LUX) SICAV 3 KEY MULTI-MANAGER HEDGE FUND FOCUSED USD This specific section describes the particulars of the Subfund SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused USD and is part of the general sales prospectus. Therefore, all information given herein should be considered in conjunction with this general prospectus. Profile of the typical investors The Subfund is suitable for investors with a relatively long investment horizon who consider investments in this Subfund as a convenient way of participating in the performance of the Key Multi-Manager Hedge Fund Focused (USD) Index (the "Index"). The Index reflects the performance of a relatively concentrated notional portfolio comprised primarily of hedge funds (single manager and fund of hedge funds) and certain financial instruments as further described below. The performance of the Subfund is determined by the performance of the Index. If the level of the Index increases from Launch Date, then this will result in a comparable increase in the performance of the Subfund; conversely if the level of the Index decreases from Launch Date, then this will result in a comparable decrease in the performance of the Subfund. The strategy as described herein is a high risk investment which does not provide any right of repayment of capital invested and as such, should the Index Components (as defined below) not perform favourably, then investors will incur a partial or total loss of capital invested. Shares of the Subfund are exclusively available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. The Fund reserves the right to compulsorily redeem shares that are not held in accordance with the aforementioned requirements or for other regulatory, legal or tax obligations of the Subfund. Those shares will be redeemed at the prevailing net asset value per share. Investment objective The investment objective of the Subfund is to generate capital appreciation by providing investors with a return linked to the performance of the Key Multi-Manager Hedge Fund Focused Index (USD), a concentrated hedge fund index, as further described below. Investment policy The Subfund will principally invest in equity and debt securities issued by corporate entities domiciled in any OECD country and listed or traded on regulated markets of an OECD country (the "Investment Portfolio"), and for the purpose of meeting its investment objective the Subfund will enter into a performance swap agreement (the "Swap Agreement") negotiated at arm's length with a counterparty the obligations of which under the Swap Agreement are guaranteed by UBS AG or with another first class financial institution specialised in this type of transactions (the "Swap Counterparty"). Under the terms of the Swap Agreement, the Swap Counterparty delivers to the Subfund exposure to the Index (as described below) (the "Investment Strategy") and the Subfund delivers to the Swap Counterparty a total return exposure to the Investment Portfolio. As of the Launch Date, all obligations of the Swap Counterparty under the Swap Agreement being guaranteed by UBS AG (London branch) as more fully described under "Guarantee" below. The Subfund may hold liquid assets on an ancillary basis. The Subfund may not invest directly in other undertakings for collective investment in transferable securities (UCITS) and/or open-ended undertakings for collective investment (UCI). The Subfund will only utilise leverage to a limited extent by which the exposure of the Subfund will not exceed 225% of the NAV when calculated applying the gross method in accordance with Article 7 of Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 and 138

139 125% of the NAV when calculated applying the commitment method in accordance with Article 8 of Commission Delegated Regulation (EU) No 231/2013 of 19 December The Subfund will enter into securities lending transactions in order to generate additional income with a counterparty determined by the Board of Directors in accordance with the requirements and regulations of the CSSF and of which obligations under the relevant securities lending agreement are guaranteed by UBS AG (London branch) or such other counterparty specialised in this type of transactions (the "Securities Lending Counterparty"). The Swap Agreement will incorporate the terms of and be governed by a master agreement based on the standard 1992 ISDA Master Agreement governed and construed in accordance with English law and published by the International Swaps and Derivatives Association, Inc. The Swap Agreement will be valued on a consistent and monthly basis by the calculation agent ("Swap Calculation Agent") being UBS AG (London branch) or such other party as accepted by the Board of Directors from time to time, in accordance with the prevailing market parameters and valuations. The valuation methodology is outlined below. The Swap Counterparty will provide a trading price at which the Subfund can increase or decrease the Swap Agreement notional amount. Such a facility will be available on each Valuation Day when requested by the Portfolio Manager. The notional amount of the Swap Agreement will be the proceeds raised at the Launch Date and, in the case of subsequent subscriptions and/or redemptions, the notional amount will be adjusted accordingly. The Swap Agreement may be terminated or otherwise cancelled in accordance with its terms. The Swap Agreement will be entered into for a 5 year term as outlined therein. Thereafter it will be extended for consecutive 5 year periods, subject to the consent of the Board of Directors of the Fund and the Swap Counterparty at the end of each period (each such expiry date also being a relevant "Maturity Date") and the end of the last such period being the final maturity date (the "Final Maturity Date"). The Swap Counterparty has the option to early terminate the Swap Agreement in various circumstances upon the provision of adequate notice to the Subfund; in such circumstances, the early termination date would become the Final Maturity Date. The Swap Agreement neutralises the performance of the Investment Portfolio. Consequently, any income (including dividends) and capital gains from the Investment Portfolio are delivered to the Swap Counterparty under the Swap Agreement and will not be paid to investors in the Subfund. Risk Profile: The Subfund replicates the performance of a hedge fund index. It is therefore exposed via the Swap Agreement to less liquid financial instruments, a wide range of asset classes and potentially leverage in some of the index components. A significant portion of the Subfund is exposed to less liquid instruments, whose prices could fluctuate in certain market conditions. This potential for higher volatility has determined that the Subfund be classified in a high risk category. Interim Swap Flows: In accordance with the Swap Agreement, and for the first time on 17th July 2013 and thereafter on the 3rd Subfund Business Day of each quarter until the Final Maturity Date: The Swap Counterparty will pay to the Subfund an amount, which corresponds to all fees and operating charges and expenses incurred by the Subfund as referred to in the section "Fees and Expenses" below. The Subfund will pay to the Swap Counterparty the income received on the Investment Portfolio and on any ancillary liquid assets. Maturity Swap Flows: At the end of the relevant term, amounts to be paid out under the Swap Agreement are determined on the basis of the following formula: 139

140 Amount payable = outstanding Notional Amount on Final Maturity Date * (ISm IPm) where: ISm = performance of the Investment Strategy in USD (consisting of exposure to the Index calculated on the basis of the liquidation proceeds that the Swap Counterparty would actually receive in respect of the hedge position under the Swap Agreement by redeeming or selling such hedge position, as determined by the Swap Calculation Agent; or, if agreed by the Fund and Swap Counterparty, an amount equal to the estimated level of the Index as determined by the Swap Calculation Agent) at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. IPm = performance of the Investment Portfolio in USD at the end of the term of the Swap Agreement in relation to the initial value when the relevant agreement commenced. If the amount is positive, then the Swap Counterparty will pay the amount to the Subfund. If the amount is negative then the Subfund will pay the amount to the Swap Counterparty. Valuation of Swap Agreement and its effects on the performance of the Subfund Before each Maturity Date, except for decreases of the notional amount, no payment is made to the Subfund in relation to the performance of the Investment Strategy. The performance of the Investment Strategy is taken into account in the meantime by virtue of the Swap Agreement in the calculation of the Net Asset Value per share of the Subfund. Accordingly, the valuation of the Swap Agreement determines the performance of the Subfund. On any Valuation Day after the Launch Date but before the Maturity Date, the value of the Swap Agreement is determined as follows: Outstanding Notional Amount on the relevant Valuation Day * (ISi IPi) ISi = the estimated performance of the Investment Strategy in USD (consisting of exposure to the Index) at close of business on that Valuation Day in relation to the initial value when the relevant agreement commenced, as determined by the Swap Calculation Agent. For the avoidance of doubt the estimated performance of the Investment Strategy will be calculated based on the latest estimated valuations of the Index Components (as defined below) multiplied by their weights provided on or before the relevant Valuation Day and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as at the Valuation Day (and not on the final Index level which is calculated on a one month delayed basis as outlined below) as determined by the Swap Calculation Agent on that Valuation Day. IPi = performance of the Investment Portfolio at close of business on the relevant Valuation Day in relation to the initial value when the relevant agreement commenced. Guarantee The irrevocable and unconditional Guarantee was issued on the Launch Date by UBS AG (London branch), 1 Finsbury Avenue, London EC2M 2PP (the "Guarantor"). UBS AG (London branch) is the London branch of UBS AG, a company incorporated under the laws of Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel, Switzerland and Bahnhofstrasse 45, CH-8098 Zurich, Switzerland. The Guarantor irrevocably and unconditionally guarantees to the Subfund the due and punctual observance and performance by the Securities Lending and Swap Counterparty under the Securities Lending Agreement and Swap Agreement and agrees to pay to the Subfund from time to time on demand any and every sum or sums of money from time to time due and payable (but unpaid) by the Securities Lending and Swap Counterparty under or pursuant to the Securities Lending Agreement or Swap Agreement. The Guarantee exclusively aims at covering the Subfund's counterparty risk on the Securities Lending and Swap Counterparty and the Subfund's risk on the failure of the Securities Lending and Swap Counterparty to perform its obligations under the Securities Lending Agreement and the Swap Agreement. The Guarantee does not guarantee any investment returns upon redemption or at Maturity Date. 140

141 Market Making UBS AG will make a market in the shares of the Subfund for investors who wish to realise their investment outside of the normal subscription and redemption cycle (as further described below under "Secondary market"). Key Multi-Manager Hedge Fund Focused (USD) Index The Index is a USD denominated index which reflects the performance of notional index components comprising (i) a limited number of private investment funds implementing alternative investment strategies primarily in the form of hedge funds (single manager and fund of hedge funds) or so-called alternative investments (the "Hedge Funds"), (ii) from time to time, securities including, but not limited to, CDO's, CLO's, swaps, future and forward contracts, currencies, commodities, options and other fixed income and credit derivative instruments (collectively, the Financial Instruments (as described below), and (iii) the Cash Position (which together with the Hedge Funds, the Financial Instruments and the Cash Position, shall be referred to as the "Index Components"). The level of the Index is based on the performance of the Index Components, less Index Fees and Expenses (as defined below). Index Sponsor and Index Calculation Agent UBS Switzerland AG created the Index and is responsible for the selection, rebalancing as well as the management of the Index (the "Index Sponsor"). UBS Hedge Fund Solutions LLC is responsible for the calculation of the Index (the "Index Calculation Agent"). Each of the Index Sponsor and Index Calculation Agent may delegate all or parts of its duties to other group entities within the UBS Group or a third party. Further details on the Index are included in the Appendix below. Collateral In order to reduce the credit risk exposure of the Subfund to the Swap Counterparty and the Securities Lending Counterparty (together the "Counterparty"), the Counterparty will provide the Subfund with collateral which should at least correspond to 90% of the total net asset value of the Subfund on any Valuation Day. This collateral will consist of eligible assets in accordance with the requirements and regulations of the CSSF and may include units of funds of hedge funds and claims against protected custody accounts opened with a regulated custodian in which the collateral assets are held. Should the Subfund exercise economic ownership control over collateral such collateral shall be subject to section 17. "INVESTMENT GUIDELINES". Collateral received will not be reinvested or otherwise reused. Risk Considerations Investment risk: no capital protection: the Subfund is a high-risk investment and employs no capital protection techniques or capital guarantees. Accordingly, investors are not entitled to repayment of the capital invested. The full amount of an investor's subscription is at risk and may be lost. Investment risk: achievement of investment objective: the investment objective of the Subfund is to generate growth in value. The return of the Subfund will be linked to the return of the estimated Index level as determined by the Swap Calculation Agent subject to certain adjustments or, at the Final Maturity Date to the final Index level. There can be no assurance that the Index level will increase in value, and accordingly there is no assurance that the Subfund's investment objective will be attained. Investment risk: alternative investment index risk: the return of the Subfund will be linked to the return of the estimated Index level as swap underlying. Investors in the Subfund are therefore exposed to general risks inherent in the Hedge Funds, as well as specific risks associated with the Index. Such risks include but are not limited to the following: The risk that the Index Sponsor is not effective in selecting appropriate Hedge Funds components that will generate positive returns over the long term. The risk that the Index as a result of its limited number of Index Components may be more susceptible to fluctuations in value resulting from adverse economic conditions, changes in the performance of the Index Components or other factors which negatively affect the performance 141

142 of such Index Components than a more diversified index. The Index return will also likely be more volatile. In addition, the expected concentrated nature of the index composition may expose the Subfund to losses disproportionate to market movements in general. The risk that the Hedge Funds may suspend the calculation of their net asset values which could impact the calculation of the Index level or estimated Index level as relevant and could lead to a suspension of subscriptions and redemptions of the Subfund shares. Hedge funds are generally considered to be unregulated investment vehicles. They may sell securities short, use significant levels of leverage, invest in various asset classes and instrument types including derivatives and commodities, whether traded on a regulated market or over the counter, and may not be required to diversify their investments. Accordingly, investments in hedge funds are generally considered to have a greater degree of risk than investments in regulated funds. To the extent that the Hedge Funds invest in the securities markets of developing countries, the political, regulatory and economic risks inherent in investments in emerging markets' securities are significant and may differ in kind and degree from the risks presented by investments in the world's major securities markets. These may include greater price volatility, substantially less liquidity and controls on foreign investment and limitations on repatriation of invested capital. The risk that the Index or any of the Hedge Funds diverge from their stated investment objectives and take on greater than expected levels of investment risk. The risk that some or all of the investments are illiquid. Accordingly, some or all the Hedge Funds may be unable to redeem from and/or sell the underlying investments in a timely manner which may affect the liquidity of the Subfund. The risk of incorrect or stale investment values. The Hedge Funds and their investments may include assets which are not traded on an exchange or regulated market. Accordingly, their values may be difficult to determine and may be based on models or quotes provided by the relevant manager. These values may be incorrect or stale and may not reflect fair value. Lack of operating history of managers. The Index may include Hedge Funds whose managers have no, or a very short, performance history. Such investments may involve greater risks than those with more established managers. Operational risks of the managers, including inadequate back office functions, trade processing, accounting, administration, risk management, valuation services and reporting. Reliance on key personnel in the Hedge Funds components selection process. The loss of key personnel at both the Index Sponsor and the Hedge Funds could materially and negatively impact the value of the Index. Limited capacity of managers. In order to deliver positive returns, some managers close their funds to new subscriptions once their fund has reached a certain size. The Index may be unable to reference underlying funds at all times, and therefore from time to time, the Index may in part also reference cash or money market instruments. Risk of lack of regulatory oversight. The Hedge Funds are domiciled in countries providing significant investment discretion and which are generally considered to be lightly regulated. For example, the Hedge Funds are generally not required to deposit their assets with an independent custodian bank. Instead, such assets may be deposited with brokers or other intermediaries who do not provide for segregation of client assets. The net asset value of the Subfund will be affected by various levels of fees, including fees at the level of the Subfund, the Index and the Index Components. These fees may include asset-based as well as performance fees. Consequently, performance fees may be charged in periods when the total net asset value of the Subfund has fallen. Additionally, performance fees may be paid on unrealised gains which in fact are never realised. Foreign currency risk: The Hedge Funds are mostly denominated in USD. The Hedge Funds in turn may invest in assets denominated in various currencies. The Index is calculated in USD. The level of the Index and the return to investors in the Subfund could be adversely affected not only by changes 142

143 in exchange rates but also by local exchange control regulations and other limitations, including currency exchange limitations and political and economic developments in the relevant countries. Liquidity Risk: The risk that the Fund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares. Gating Risk: The risk that the Subfund may partially reject redemption orders exceeding a certain percentage of the Subfund's total net asset value when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to gating restrictions. Collateral Risk - The Fund has made all reasonable endeavours to ensure the collateral is enforceable under the relevant laws and regulations. However, there is a risk that as a result of a change in, or amendment to, the applicable laws and regulations, the collateral may become unenforceable. Valuation risk estimated Index level: the main determinant of the monthly Net Asset Value per share of the Subfund is the level of the Index on the Valuation Day. The final Index level is provided monthly by the Index Sponsor, typically within a month after the relevant Valuation Day. In order to calculate the value of the Swap Agreement on any Valuation Day (other than the Final Maturity Date) at which the Subfund can trade with the Swap Counterparty, the estimated Index level will be determined by the Swap Calculation Agent based on estimated values of the Hedge Funds provided to the Swap Counterparty by the managers or administrators of the Hedge Funds on or before the Valuation Day and may be adjusted to reflect expected changes to the estimated valuations as at the Valuation Day; where the values of any Hedge Funds are not available or, in the opinion of the Swap Calculation Agent, are otherwise unreliable or unrepresentative, the Swap Calculation Agent may estimate in good faith the value of such Hedge Funds in order to determine the estimated value of the Index on the Valuation Day. The value of the Index used in determining the Net Asset Value per share of the Subfund may differ from the final Index level for the relevant month as provided by the Index Sponsor. In such circumstances, the value of the Swap Agreement and the Net Asset Value per share of the Subfund will not be revised or otherwise amended to reflect any such difference. Valuation risk final Index level: The Net Asset Value per share of the Subfund at the Final Maturity Date will be based on the final Index level as calculated by the Index Calculation Agent. In valuing the Hedge Funds, the Index Calculation Agent may need to rely on financial information provided by the managers of the Hedge Funds themselves. Independent valuation sources such as exchange listing may not be available for the Hedge Funds of the Index. The net asset value of the Hedge Funds may be finalized using estimated values provided by the managers or administrators of the Hedge Funds. In most cases, the Index Calculation Agent will have no ability to assess the accuracy of the valuations received. In certain cases, the values provided by the managers or administrators of the Hedge Funds may subsequently be amended; e.g. as a result of adjustments identified as part of the annual audit of the underlying schemes. In such circumstances, the value of the Index and the Net Asset Value per share of the Subfund at the Final Maturity Date will not be revised or otherwise amended to reflect any such difference. Effect of Substantial Redemptions: A number of events could trigger substantial redemptions from a Hedge Fund. Actions taken to meet substantial redemption requests could result in a decrease in prices of financial instruments. The overall value of Hedge Funds may also decrease because the liquidation value of certain assets may be materially less than their mark-to-market value. Hedge Funds may be forced to sell their more liquid positions, may need to maintain greater amounts of cash and cash-equivalent investments than they would otherwise maintain and may also be restricted in their ability to obtain financing or derivatives counterparties needed for certain investment and trading strategies. Settlement of redemption amounts prior to the Final Maturity Date: redemption proceeds will generally be paid 2 Subfund Business Days following the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. 143

144 Settlement of redemption amounts on the Final Maturity Date: redemption proceeds will generally be paid after one calendar month plus 5 Subfund Business Days following the Final Maturity Date. However, in circumstances where the Swap Counterparty has hedged itself whether with the Index Components or otherwise and has not received redemption proceeds, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. Early Maturity: Under the terms of the Swap Agreement, the Swap Counterparty may terminate the Swap Agreement on a calendar quarter-end prior to the Maturity Date. In such circumstances, the date of the early termination would become the Final Maturity Date of the Subfund, and the Subfund would terminate unless the Subfund enters into another swap agreement with another counterparty. The Swap Counterparty must give at least 100 calendar days' notice to the Subfund prior to an early termination date. Index disruption: If the Swap Calculation Agent determines the Index has been replaced with another index, or the Index is likely to cease to be calculated by the Index Calculation Agent or maintained by the Index Sponsor, then the Swap Counterparty and the Subfund may agree to use another index, and the terms of the Swap Agreement may be amended accordingly. Alternatively, the Swap Agreement may be terminated and accordingly the Subfund would terminate as well as set out above unless the Subfund enters into another swap agreement with another counterparty. Counterparty Risk: the Subfund is exposed to the risk that the Swap Counterparty (together with the Guarantor) may default on its obligations to perform under the Swap Agreement and that the Securities Lending Counterparty (together with the Guarantor) may default on its obligations to deliver equivalent collateral. In assessing this risk, investors should recognise that the Swap Counterparty will pledge collateral to ensure that the net credit risk of the Subfund to the Swap Counterparty will not exceed 10% of the total net asset value of the Subfund; and the Securities Lending Counterparty will pledge collateral equivalent to the value of the securities under loan. In circumstances where a single counterparty is both the Swap Counterparty and the Securities Lending Counterparty, then the net exposure to it will be collateralised such that the net credit risk to the relevant counterparty will not exceed 10% of the overall net exposure to that counterparty. Taxation: Potential shareholders should seek information on the taxation laws and regulations in force and, where appropriate, seek advice on the subscription, purchase, possession and sale of shares at their place of residence. Further information on taxation is provided in the section "Taxation" of Section II. Use of Derivatives: The Swap Agreement is a structured derivative transaction as part of the investment strategy. While the prudent use of such a derivative can be beneficial, derivatives also involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Structured derivative transactions are complex and may involve a high degree of loss. The aim of the Swap Agreement is to deliver exposure to the Investment Strategy and as such, the use of the Swap Agreement is not speculative in nature. Alternative Investments: The Subfund may take advantage of opportunities with respect to certain other alternative instruments that are not presently contemplated for use by the Subfund or that are currently not available, but that may be developed, to the extent such opportunities are both consistent with the investment objective of the Subfund and legally permissible for the Subfund. Certain alternative instruments may be subject to various types of risks, including market risk, liquidity risk, the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty, legal risk and operations risk. Avoidance of conflicts of interest: The units within the UBS Group who are providing services to the Subfund operate as independent entities and in order to avoid possible conflicts of interest, all transactions between these entities and the Subfund are undertaken at arm's length prices, always keeping in mind the best interest of the shareholders. In particular, the estimated level of the Index on any Valuation Day prior to the Final Maturity Date will be determined by the Swap Calculation Agent based on estimated values for the Index Components and agreed by the Index Sponsor, both of whom may be different entities or divisions within the UBS Group. In the normal course of business, UBS Group and/or its directors, officers and employees may have or may have had interests in the Hedge Funds. Such activity may or may not affect the value of the Index and Subfund. 144

145 Although the Index Sponsor has agreed to use its best efforts in managing the Index, the Index Sponsor and its principals, members and affiliates (collectively the "Index Sponsor Parties") are not required to devote full time or any material portion of their time to managing the Index. The Index Sponsor is the investment adviser to a number of investment funds, including funds with investment objectives similar or substantially similar to those of the Index, and the Index Sponsor Parties advise and may advise additional clients, some of which hold or may hold the same investments as are included in the Index. The Index Sponsor may in the future sponsor other indices similar to the Index. UBS Group may receive management fees, performance fees and other fees, if applicable, for such portion of the Index allocated to Index Components managed by any member of the UBS Group, which may constitute a significant percentage of the Index. Accordingly, in determining Index allocations, the Index Sponsor is subject to a conflict of interest because such allocation will result in higher amounts being allocated or paid to the UBS Group than if the Index was allocated exclusively to managers not affiliated with the UBS Group. Competition: Certain markets in which Hedge Funds may invest are extremely competitive for attractive investment opportunities. Thus, the managers of such Hedge Funds might not be able to identify or successfully pursue attractive investment opportunities in such environments and, as a result, there may be reduced expected investment returns. Economic conditions: Changes in economic conditions, including, for example, interest rates, employment conditions, competition, technological developments, political and diplomatic events and trends, and tax laws can affect substantially and adversely the business and prospects of the Hedge Funds. None of these conditions is within the control of the managers of such Hedge Funds and/or Index Sponsor and no assurances can be given that the managers of such Hedge Funds and/or Index Sponsor will anticipate these developments. The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Subfund. Prospective investors should read the prospectus and the articles of incorporation of the Fund and consult with their own advisers before deciding whether to invest in the Subfund. Investments in the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused USD General Information Reference currency: USD. This is the currency in which the Net Asset Value per share of the Subfund is calculated. The Swap Agreement is denominated in USD. The Index is calculated in USD. Allocation of income: this Subfund will pursue an accumulation policy. Valuation Day: the Net Asset Value per share will be calculated as of the third last bank business day of each month (i.e. each day on which banks are open during normal business hours) in London, Zurich and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich and Luxembourg. "Non-statutory rest days" are days on which several banks and financial institutions are closed in London, Zurich and Luxembourg. The Board of Directors may, at its sole discretion, decide to fix one or more extraordinary Valuation Day(s) or alter the cut-off point for dealing instructions in order to better deal with subscriptions and redemptions in the Subfund. Any decision to fix an extraordinary Valuation Day will be notified to shareholders. In order to cover any costs associated with subscriptions and redemptions, and if in the interest of the Subfund's shareholders, the Board of Directors may decide to apply an extraordinary charge to the value of the subscriptions and redemptions and to reflect this extraordinary charge in the Net Asset Value of the Subfund. Issue of shares: shares may be issued monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to increase the notional of the Swap Agreement on a Valuation Day, 145

146 then subscription applications of shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a subscription of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to increase the notional amount of the Swap Agreement, the subscription order may be rejected by the Subfund. In such case, the Subfund will execute the subscription order on the next Valuation Day on which the Swap Counterparty is prepared to increase the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward subscription applications to the Administrative Agent. No issue will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". Usually shares will be issued as non-certificated registered shares, unless otherwise decided by the Board of Directors. Upon request and against payment by the shareholder of all incurred expenses, share certificates may be issued in physical form. The Board of Directors reserves the right to issue share certificates in denominations of one or more shares, however fractions of shares will not be issued in certificated form. Global share certificates will not be issued. Redemption of shares: shares may be redeemed monthly by reference to the Net Asset Value per share calculated as of the relevant Valuation Day of the month subject to written notice to the Administrative Agent by no later than 12pm (Central European Time) on the 7 th last Subfund Business Day of the month. Where orders for a redemption of shares in the Subfund have been received for a Valuation Day amounting to more than 10% of the total net asset value of the Subfund, the redemption orders may be partially rejected by the Subfund. In such case, the investors would need to place new redemption orders for the next available Valuation Day. In circumstances where the Swap Counterparty has hedged itself either with the Index Components or otherwise and has received redemption proceeds amounting to more than 10% of the total net asset value of the Subfund, the Subfund will, unless otherwise decided by the Board of Directors, execute redemption orders amounting to more than 10% of the total net asset value of the Subfund, provided that the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement accordingly. On an exceptional basis and subject to the Swap Counterparty's consent, where the Swap Counterparty is prepared to decrease the notional of the Swap Agreement on a Valuation Day, then redemption applications relating to shares of the Subfund that are registered with the Administrative Agent no later than by 9am (Central European Time) on the Valuation Day may be processed on the basis of the Net Asset Value per share calculated for that relevant Valuation Day. However, where an order for a redemption of shares in the Subfund has been received for a Valuation Day, and the Swap Counterparty is not prepared to decrease the notional amount of the Swap Agreement, the redemption order may be rejected by the Subfund. In such case, the Subfund will execute the redemption order on the next Valuation Day on which the Swap Counterparty is prepared to decrease the notional amount of the Swap Agreement. Earlier cut off times may be applied by any intermediaries that need to forward redemption applications to the Administrative Agent. No redemption will take place on days on which the Board of Directors has decided not to calculate a Net Asset Value per share as described in Section II entitled "Suspension of the net asset value calculation and of the issue, conversion and redemptions of shares". In addition, the Board of Directors is empowered to: a) Reject a subscription application at its discretion and to discretionarily decide to accept subscription requests on any other Valuation Day; 146

147 b) At any time redeem shares of the Subfund held by shareholders who are not qualified to purchase or hold shares of the Subfund. Such redeemed shares are reimbursed to the shareholders and thereby cease to be valid. Subfund Business Day: days on which the TARGET system is open and normal bank business days (i.e. each day on which banks are open during normal business hours) in London, Zurich, New York, Cayman Islands and Luxembourg with the exception of individual, non-statutory rest days in London, Zurich, New York, Cayman Islands and Luxembourg. "Non-statutory rest days" are days, on which several banks and financial institutions are closed in London, Zurich, New York, Cayman Islands and Luxembourg. Secondary market: UBS AG (the "market-maker") will make a market in the shares of the Subfund. Shareholders may sell shares to the market-maker on each business day. The price at which shares can be traded with the market-maker may differ from the most recent total net asset value of the Subfund. Pursuant to a Market Maker Agreement between the market-maker and the Fund, the market-maker may decide not to buy shares of the Subfund in the secondary market if the market-maker determines, in its sole discretion, that one of the following extraordinary events has occurred: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) the stock exchanges or markets on which the valuation of a major part of the Fund's assets is based or when the foreign exchange markets corresponding to the currencies in which the Net Asset Value or a considerable portion of the Subfund's assets are denominated, are closed, except on regular public holidays, or when trading on such a market is limited or suspended or temporarily exposed to severe fluctuations; political, economic, military or other emergencies beyond the control, liability and influence of the Fund make it impossible to access the Subfund's assets under normal conditions or such access would be detrimental to the interests of the shareholders; disruptions in the communications network or any other reason make it impossible to calculate with sufficient exactitude the value of a considerable part of the Subfund's net assets; limitations on exchange operations or other transfers of assets render it impracticable for the Fund to execute business transactions, or where purchases and sales of the Subfund's assets cannot be effected at the normal conversion rates; when for any other reason the prices of any investments owned by the Fund cannot promptly or accurately be ascertained; upon the publication of a notice convening a general meeting of shareholders for the purpose of resolving the winding-up of the Fund; a violation by the Fund or change of any material terms of the prospectus or constitutional documents which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; any restriction or limitation or suspension or deferral or delay of redemptions of, or subscriptions for, shares in the Subfund (including, without limitation, any partial payment of redemption proceeds or the introduction or increase of any associated fee, cost or expense, the introduction or use of gating or a side pocket, or any restructuring, reorganisation or action that has a similar impact to gating or a side pocket), or any mandatory redemption of shares of the Subfund; any review or investigation of the activities of the Fund or the Subfund by a relevant regulator, in connection with suspected or alleged wrongdoing or breach of any rule or regulation, or other similar reason, or any disciplinary action taken by such regulator in connection therewith which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Subfund; if as a consequence of shareholders of the Fund selling shares of the Subfund to the market-maker, the market-maker would become the beneficial owner of 25% or more of the shares of the Subfund; 147

148 (k) (l) any winding-up, liquidation of, or any termination or any loss of regulatory approval, licence or registration of, the Portfolio Manager, or any merger, de-merger, winding-up or liquidation of or affecting the Fund or the Subfund; any arrangement between the market-maker and the Fund or the Subfund including arrangements relating to subscriptions for, and redemptions of, shares in the Subfund, is changed or terminated; and/or (m) the Fund or the Subfund becomes party to any litigation or dispute which, in the opinion of the market-maker, will have a material adverse effect on the Fund or the Sub-fund. Specific reasons for the suspension of the Net Asset Value calculation and/or issue, conversion and redemption of shares: Notwithstanding the reasons set out in Section II "Suspension of the Net Asset Value calculation and of the issue, conversion and redemption of share" the Subfund may temporarily suspend calculation of the Net Asset Value per share of the Subfund and/or the issue and redemption of shares when the Subfund cannot adjust the size of the Swap Agreement due to the inability of the Swap Counterparty to adjust its hedging positions due to restrictions on subscriptions or redemptions of the entirety of or some of the hedging positions. Subject to an extraordinary event, including without limitation, liquidation or force majeure, the Subfund will ensure that investor's shares will be redeemed within 12 months following the request for redemption but in no case later than within 36 months. UBS Group: UBS AG together with its branches and affiliates (which shall for this purpose mean any entity owned by and/or under common ownership or control of UBS Group AG.) Portfolio Manager: UBS Asset Management (UK) Ltd. The Portfolio Manager is part of UBS Asset Management, a business group of UBS AG. The Portfolio Manager is regulated by the UK Financial Conduct Authority. Launch Date: 17 July 2013 Share classes The Board of Directors can issue several classes of shares for the Subfund. Currently, the following share class is offered: I-class available to UBS Switzerland AG and its affiliated companies ("UBS") and collective investment schemes managed by UBS ("UBS funds"). The shares may only be held by UBS or UBS funds on their own account or in the context of discretionary asset management mandates concluded with UBS. Fees and Expenses The Subfund will bear all the costs incurred in connection with the management, administration, portfolio management of the Subfund's assets (the "Flat Fee"), which will be calculated based on the total net asset value of the Subfund and in total will not exceed 0.45% per annum of the Net Asset Value per share and be payable on a quarterly basis. The Depositary will receive a fee that will not exceed 0.05% per annum of the Net Asset Value per share calculated and payable on a quarterly basis. In addition, the Subfund shall bear the expenses (the "Additional Expenses") as described in Section II 12. Charges and Expenses. As described above, the Swap Counterparty pays the Subfund on a quarterly basis an amount corresponding to the aforementioned fees and costs and all additional costs incurred by the Subfund. Fees which are borne by the investor directly are the following: Issuing commission of up to 3% of the issue price per share; Redemption charge of up to 0.5% of the Net Asset Value per share to be redeemed, which may be increased up to 5% in periods of increased volatility of the Index Components or in the event that the Subfund experiences significant redemptions. 148

149 Subscriptions On the Launch Date the shares of the Subfund may be subscribed at a price calculated based on the latest estimated valuations of the Index Components multiplied by their weights provided on or before the Launch Date and adjusted by the Swap Calculation Agent to reflect expected changes to the estimated valuations as of the Launch Date as determined by the Swap Calculation Agent on that date plus any stamp duties and fees. Investors may settle the subscription 'in-kind'. After the Launch Date, the issue price is based on the Net Asset Value per share. Any taxes, commissions and other fees that apply to investors in the different countries in which shares may be sold will also be charged in addition to the Net Asset Value per share. Sales agencies may charge investors an issuing commission of up to 3% of the issue price per share. Example 1 sales commission applied in addition to investment amount Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares subscribed Total amount of subscription EUR 10,300 EUR 10,000 Example 2 sales commission applied to initial investment Example where an issuing commission of 3% is applied Example where no issuing commission is applied Investment amount EUR 10,000 EUR 10,000 Net asset value per share EUR 100 EUR 100 Issuing commission 3% 0% Issue price per share EUR 103 EUR 100 Number of shares issued Total subscription amount EUR 10,000 EUR 10,000 Subscriptions for shares in the Subfund are accepted by the Fund as well as by the sales agencies and paying agents, which forward them to the Fund. Subscriptions received on any Subfund Business Day prior to the time stated under "Issue of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent, earlier cut-off times may apply for submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. The issue price of the Subfund shares is paid no later than two Subfund Business Days following the relevant Valuation Day into the account at the Depositary in favour of the Subfund. In addition, the Fund may issue fractional shares up to three decimal places. However, no certificates are issued for these fractional shares. They are credited to the shareholder via an entry in the securities custody account of his or her choice. Fractions of shares do not confer the right to vote at general meetings, but will grant entitlement to a distribution or a proportionate distribution of the liquidation proceeds in the case where the Subfund is dissolved. In certain circumstances during the first six months after Launch Date, at the discretion of the Board of Directors, the Subfund may process subscriptions on a Subfund Business Day which is not a 149

150 Valuation Day. In such cases, the assets and liabilities of the Subfund will be valued on that Subfund Business Day. Redemptions Redemption applications, accompanied by any certificates that might have been issued, are accepted by the Fund as well as at the sales agencies and paying agents, which forward them to the Fund. Applications for redemption received on any Subfund Business Day prior to the time stated under "Redemption of Shares" in "General Information" by the Administrative Agent will be processed as of the relevant Valuation Day. To ensure punctual forwarding to the Administrative Agent earlier cut-off times may apply for the submission of applications received by sales agencies in Luxembourg or abroad. Information on this may be obtained from the sales agency concerned. In general, the value of redeemed Subfund shares is paid out no later than two Subfund Business Days after the relevant Valuation Day. However, in circumstances where the Swap Counterparty has hedged itself and has not received redemption proceeds for whatever reasons with respect to its hedge, then settlement of Subfund redemptions may be delayed for up to 30 Subfund Business Days unless otherwise decided by the Board of Directors in exceptional circumstances. In addition, legal provisions, such as foreign exchange controls or restrictions on capital movements, or other circumstances beyond the control of the Depositary, may make it impossible to transfer the redemption amount to the country in which the redemption application was submitted. Any taxes, commissions and other fees incurred in the countries in which Fund shares may be sold will also be charged. The price, at which shares in the Subfund are redeemed, shall be calculated according to the Net Asset Value per share of the Subfund and of the relevant share class. In the event of an excessively large volume of redemption applications, the Board of Directors may decide to delay execution of the redemption applications until the corresponding assets of the Fund have been sold without unnecessary delay. Should such a measure be necessary, all redemption applications received on the same day will be calculated at the same price. In calculating the redemption price, the Subfund may on any Valuation Day when there are redemptions adjust the redemption price by deducting an amount of up to 0.5% from the Net Asset Value per share to be redeemed. However, in periods of increased volatility of the Index Components and/or in the event that the Subfund experiences significant redemptions such deduction may be increased up to 5% of the Net Asset Value per share. Example 3 redemption charge applied to redemption of shares Example where no redemption charge is applied Example where redemption charge of 0.5% is applied Example where redemption charge of 5% is applied Number of shares redeemed Net asset value per share EUR 100 EUR 100 EUR 100 Redemption charge (in %) 0% 0.5% 5.0% Redemption price per share EUR 100 EUR 99.5 EUR 95 Total redemption proceeds EUR 10,000 EUR 9,950 EUR 9,500 Conversions Conversions of shares into other Subfunds' shares of the Fund may be permitted. 150

151 Past performance The chart shows the investment returns of the SF (LUX) SICAV 3 Key Multi-Manager Hedge Fund Focused USD I-class calculated as a percentage of the change in Net Asset Value over the previous year. In general any past performance takes account of all ongoing charges but not the entry charge/issuing commission. The past performance is not an indicator for the future performance. The share class was launched on The past performance is calculated in USD. 151

SF (LUX) SICAV 1. Société d investissement à capital variable SALES PROSPECTUS. Juillet 2009

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