Atlanta Capital Horizon Growth Fund (A)¹

A Word On The Markets  as of Dec 31, 2011

Political irresolution characterized most of the developed world during the fourth quarter of 2011, creating an atmosphere of uncertainty that subjected global equity markets to dramatic volatility. In the U.S., the congressional Super Committee failed to identify $1.2 trillion in federal spending cuts in November. Then, in December, Congress waffled once more and failed to approve until the twelfth hour a two-month extension of unemployment benefits and the payroll-tax holiday. In Europe, EU officials were unable to convince the markets that they had a viable plan to stem the region's sovereign debt crisis.

In spite of this, the U.S. economy displayed signs of economic growth in the fourth quarter, spurred largely by lower energy prices. Looking globally, manufacturing data showed expansion, including in China, where there have been concerns about slowing.

Despite extreme volatility during the fourth quarter, global equity markets generally posted solid positive returns. The MSCI EAFE Index¹³ rose 3.33%, while the broader-based MSCI All Country World Index¹⁴ rose 7.18% during the quarter. In the U.S., the S&P 500 Index¹⁵ added 11.82% during the quarter to finish up 2.11% for the calendar year, while the blue chip Dow Jones Industrial Average¹⁶ jumped 12.78%, posting a return of 8.38% for the year. Small-cap stocks outperformed large-caps during the quarter, with the Russell 2000 Index¹⁷ gaining 15.47% compared to 11.84% for the large-cap Russell 1000 Index¹⁸. Across capitalizations, value stocks outperformed growth stocks.

Performance Summary 

Mid-cap stocks, as measured by the Russell MidCap Index¹⁹, performed in line with large-cap stocks, as measured by the Russell 1000 Index, during the quarter. Both of which increased more than 11% for the quarter. For both the large cap and mid cap indexes, economically sensitive sectors such as energy, industrials and materials performed the best, while consumer staples, utilities and telecom sectors lagged the most.

• The Fund underperformed the Russell Midcap Growth benchmark³ at NAV during the quarter.
• Stock selection in the consumer staples and information technology sectors generated the majority of the performance shortfall.
• The Fund outperformed the benchmark in only three of the 10 sectors, those being energy, financials and materials.
• Given its growth bias, the Fund had no exposure to telecom or utilities during the quarter.

Contributors 

Stock selection in the financials and energy sectors contributed to the Fund's performance relative to the benchmark for the quarter.

• MercadoLibre was the largest contributor to performance for the quarter and reported better-than-expected earnings, as it continued to grow its market share in Latin American e-commerce.
• Intuitive Surgical was the second strongest contributor after reporting better-than-expected order rates for its key products.
• First Republic Bank was the third strongest contributor for the quarter, as prospects of deleting the mortgage tax deduction faded, leading to a higher valuation for the stock.

Detractors 

Stock selection in the consumer staples and information technology sectors detracted from the Fund's relative performance for the quarter.

• Green Mountain Coffee Roasters detracted from the Fund's performance, as the company missed revenue expectations on inventory destocking at several of its key customers, and the stock sold off sharply as vocal short-sellers called for the stock's valuation to compress.
• Diamond Foods also detracted from performance, as questions surrounding accounting practices related to supplier payments contributed to a decline in the stock price.
• Acme Packet also hurt relative performance due to the postponement of a large contract from a key supplier that affected quarterly earnings.

Investment Outlook And Fund Positioning 

We believe that the recent rally in domestic stocks was supported by attractive valuations and modestly improving domestic economic fundamentals. We expect the equity markets to remain volatile in the near term due to the fluid European debt crisis concerns, but as these economic issues mature, we would expect growth stocks to outperform value stocks provided visibility on the economic outlook improves.

As of quarter end, the Fund's most substantive overweight positions were in the information technology and financials sectors, and the Fund's largest underweight positions were in the materials and consumer discretionary sectors.

The views expressed in this report are those of portfolio manager(s) and are current only through the date stated at the top of this page. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. This commentary may contain statements that are not historical facts, referred to as "forward looking statements". The Fund's actual future results may differ significantly from those stated in any forward-looking statement, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of Fund shares, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in the Fund's filings with the Securities and Exchange Commission.

Portfolio profile subject to change due to active management. Percentages may not total 100% due to rounding.

About Risk 

Fund share values are sensitive to stock market volatility. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. Investments in foreign instruments or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical or other conditions. Derivatives instruments can be used to take both long and short positions, be highly volatile, result in economic leverage (which can magnify losses), and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. If a counterparty is unable to honor its commitments, the value of Fund shares may decline and/or the Fund could experience delays in the return of collateral or other assets held by the counterparty. No Fund is a complete investment program and you may lose money investing in a Fund. The Fund may engage in other investment practices that may involve additional risks and you should review the Fund prospectus for a complete description.

No attribution information is available.

Portfolio profile subject to change due to active management. Percentages may not total 100% due to rounding.

About Risk 

Fund share values are sensitive to stock market volatility. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. Investments in foreign instruments or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical or other conditions. Derivatives instruments can be used to take both long and short positions, be highly volatile, result in economic leverage (which can magnify losses), and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. If a counterparty is unable to honor its commitments, the value of Fund shares may decline and/or the Fund could experience delays in the return of collateral or other assets held by the counterparty. No Fund is a complete investment program and you may lose money investing in a Fund. The Fund may engage in other investment practices that may involve additional risks and you should review the Fund prospectus for a complete description.