Atlanta Capital Select Equity Fund (A) Share
Class

A

• A
• C
• I

A Word On The Markets  as of Mar 31, 2013

Global equity markets surged ahead in the first quarter of 2013, as the major U.S. stock indexes achieved record closing highs. Positive economic trends overcame headwinds ranging from recent tax hikes to renewed turmoil in Europe. In the U.S., encouraging news on the jobs front helped drive the prices of many equity securities higher. Unemployment fell to 7.7% in February, its lowest level in more than four years, as employers added 236,000 jobs. In addition, surprisingly strong U.S. retail sales helped ease concerns that consumers might spend less amid higher taxes and still-high energy prices. In the housing market, rising demand and more limited supply lifted home values, helping to boost consumer confidence and spending.

Mandatory government spending cuts under the so-called “sequester” barely hampered U.S. stocks' advance. Equities continued to draw support from the U.S. Federal Reserve, which reiterated its intention to maintain stimulus policies until its unemployment and growth targets are met. Global equities also demonstrated a degree of resiliency, with European stocks declining only modestly in response to Cyprus’ banking crisis in late March.

Reflecting the breadth of the first-quarter rally, major stock market indexes recorded strong gains across geographies and equity categories. In the U.S., the Dow Jones Industrial Average¹⁰ returned 11.93% and hit an all-time closing high during the quarter. The broader S&P 500 Index¹¹ also reached a new high on the quarter’s final trading day, rising 10.61% for the period. Globally, the MSCI EAFE Index¹² gained 5.13%. Small-cap stocks generally fared better than their large-cap counterparts during the quarter. Among large caps, value stocks outpaced growth stocks, while the reverse was true among small caps.

Performance Summary 

Eaton Vance Select Equity Fund (the Fund) slightly underperformed its benchmark, the Russell 1000 Index (the Index),² for the quarter ended March 31, 2013, returning 10.84% for Class A shares at net asset value versus the Index’s 10.96% return.

• All of the 10 economic sectors within the Index posted gains for the quarter. The defensive consumer staples, health care and utilities sectors had the strongest returns, while the more growth-oriented materials and information technology sectors had the weakest returns.
• The Fund’s performance for the quarter was driven primarily by stock selection, particularly in the information technology and financials sectors. Sector allocation detracted slightly from Fund performance relative to the Index, especially the Fund’s lack of exposure to the outperforming utilities sector.

Contributors 

Factors contributing to the Fund’s relative performance compared to the Index during the quarter:

• Stock selection contributed to the Fund’s relative performance, particularly in the financials, information technology and industrials sectors.
• The Fund’s overweight position in the outperforming health care sector and its underweight in the lagging information technology sector also aided relative performance.
• The Fund’s top five individual performance contributors spanned multiple sectors and industries, including a bank (TD Ameritrade), an insurance company (Markel), an asset management firm (Affiliated Managers Group), an industrial name (Jacobs Engineering Group) and an information technology company (Ansys).

Detractors 

Factors detracting from the Fund’s relative performance compared to the Index during the quarter:

• Overall, sector allocation detracted from the Fund’s relative performance during the quarter, particularly its lack of exposure to the utilities sector.
• Stock selection results in the consumer discretionary and consumer staples sectors also detracted from the Fund’s relative performance.
• The Fund’s top five individual performance detractors also spanned multiple sectors and industries, including one information technology name (Oracle), one secondary auto parts firm (LKQ), one real estate holding company (Brookfield Asset Management), one security and automation firm (ADT) and a dental supply company (Dentsply).

Investment Outlook And Fund Positioning 

While there has been no shortage of bad news in the financial press, we believe there are reasons for optimism. We continue to search for companies that are attractively valued relative to their earnings, and whose performance is not dependent on the economy. Volatility in the equity markets may provide an opportunity to invest in these companies at lower prices.

As of quarter-end, the Fund contained 29 stocks representing seven of the 10 economic sectors comprising the Index. Relative to the sector weightings in the Index, the Fund was overweight financials, industrials, health care, consumer discretionary, consumer staples and materials. The Fund was underweight information technology and had no exposure to energy, utilities or telecommunication services.

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. A non-diversified fund may be subject to greater risk by investing in a smaller number of investments than a diversified fund. 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. 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.

Additional Notes 

Source: Factset.

Attribution analysis shows the contribution of indicated factor exposures to a portfolio's relative total return versus a designated benchmark. Results are based on each day's ending holdings, and linked to generate attribution over longer periods. Portfolio returns do not reflect applicable expenses and trading costs, or variations in transaction prices from end of day values.

Allocation Effect 

Measures portfolio's excess return due to over or under-weighting a sector.

Selection Effect 

Measures portfolio's excess return from selecting individual stocks within each sector.

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. A non-diversified fund may be subject to greater risk by investing in a smaller number of investments than a diversified fund. 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. 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.