Commodity Strategy Fund (A) Share
Class

A

• A
• C
• I

A Word On The Markets  as of Mar 31, 2013

The broad commodity market, as measured by the Dow Jones-UBS Commodity Index Total Return (the Index),² fell 1.13% in the first quarter. During the quarter, the reflationary forces of monetary stimulus from the Federal Reserve (the Fed) and other major central banks were deflected by several crosscurrents. In the United States, the uncertain impact of new government policies, from tax increases to spending cuts to health care regulation, weighed on business and consumer confidence. Overseas, the eurozone remained mired in recession, Cyprus narrowly avoided a collapse of its banks, and the pace of growth in industrial production slowed in China. These crosscurrents clouded the demand outlook for raw materials, and commodities finished the quarter modestly lower despite all of the liquidity being pumped into the financial system.

Four of the five sectors in the Index declined: industrial metals, livestock, precious metals and agriculture. Industrial metals were impacted by slowing global growth that caused inventories to build. Abundant herds were a headwind for the livestock sector, as were lower feed grain prices, which led to more competitive pricing of meats. Precious metals weakened on concerns that the Fed might slow or end quantitative easing (QE) before reaching its previously stated goal of substantial improvement in the labor market. After climbing higher throughout much of the quarter, agriculture prices fell sharply near quarter-end on a much more optimistic forecast for this year’s crop. Energy was the only sector to post a gain, led by strength in natural gas. U.S. natural gas prices benefited from increased demand from utilities transitioning from coal-fired to gas-fired power plants.

Performance Summary 

Eaton Vance Commodity Strategy Fund (the Fund) A shares underperformed the Index at net asset value (NAV) during the quarter.

• The Fund’s broad commodity market exposure via total return swaps on the Index continued to provide the majority of returns, and tracking error to the Index remained minimal. As the Index’s return was negative, so was the Fund’s total return.
• Hedging strategies employed in the long/short emerging-market and high-yield debt sleeve of the portfolio negatively affected results versus the Index. However, the Fund’s emerging-market and high-yield debt allocation, including the hedges, had a positive impact overall.
• The Fund’s exposure to Treasury Inflation-Protected Securities (TIPS) within its collateral portfolio boosted relative results. TIPS outperformed Treasurys on concerns that the Fed’s accommodative policies would stoke inflation. Active commodity investing did not have a significant impact on the Fund’s performance relative to the index this quarter.

Contributors 

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

• Platinum prices advanced during the period, and an overweight position added value. The world’s largest platinum producer, which is based in South Africa, reported a drop in production related to wildcat strikes in the country last year.
• An overweight in Brent crude oil was helpful. Brent crude traded in a relatively narrow range but finished the quarter with a modest gain.
• An underweight in aluminum had a positive impact. Aluminum prices dropped 9.51% amid a glut of supply.

Detractors 

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

• An overweight in gold detracted. The price of the metal fell, as investors gravitated toward equities and high-yield bonds and away from perceived safe havens like gold.
• The Fund’s relative performance was also negatively impacted by an overweight in nickel. Like other industrial metals, nickel was hurt by slowing global growth, particularly the slowing of commodity-intensive growth in China.
• An underweight in natural gas near the end of the quarter was detrimental, as most of the increase in the price of natural gas occurred in March.

Investment Outlook And Fund Positioning 

Recent data suggests that economic growth is slowing in the United States, as well as globally. Of additional concern are structural issues, including the instability of the European banks, private sector deleveraging in the United States and the outsized debt burdens of many developed countries. We think very easy monetary policy is masking much of the structural risk in the global economy.

Looking forward, we believe monetary accommodation could be supportive of commodity prices and that central banks are prepared to ease even more aggressively should some kind of crisis occur, such as a flare-up in Europe’s debt problems. However, given our concerns about global economic growth, we have positioned the Fund conservatively.

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 

The value of commodities investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, including weather, embargoes, tariffs, or health, political, international and regulatory developments. 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. An imbalance in supply and demand in the income market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. As interest rates rise, the value of certain income investments is likely to decline. Securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. A portfolio with negative duration generally incurs a loss when interest rates and yields fall. The Fund's performance may not match or correlate to that of its Index, either on a daily or aggregate basis due to factors such as Fund expenses, imperfect correlation, rounding of share prices, changes to the composition of the Index, regulatory policies, high portfolio turnover and the use of leverage (if any). Investments in income securities may be affected by changes in the creditworthiness of the issuer and are subject to the risk of non–payment of principal and interest. The value of income securities also may decline because of real or perceived concerns about the issuer's ability to make principal and interest payments. 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. In emerging countries, these risks may be more significant. Because the Fund investments may be concentrated in a particular sector, the Fund share value may fluctuate more than that of a less concentrated fund. A non-diversified fund may be subject to greater risk by investing in a smaller number of investments than a diversified fund. 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 

The value of commodities investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, including weather, embargoes, tariffs, or health, political, international and regulatory developments. 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. An imbalance in supply and demand in the income market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. As interest rates rise, the value of certain income investments is likely to decline. Securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. A portfolio with negative duration generally incurs a loss when interest rates and yields fall. The Fund's performance may not match or correlate to that of its Index, either on a daily or aggregate basis due to factors such as Fund expenses, imperfect correlation, rounding of share prices, changes to the composition of the Index, regulatory policies, high portfolio turnover and the use of leverage (if any). Investments in income securities may be affected by changes in the creditworthiness of the issuer and are subject to the risk of non–payment of principal and interest. The value of income securities also may decline because of real or perceived concerns about the issuer's ability to make principal and interest payments. 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. In emerging countries, these risks may be more significant. Because the Fund investments may be concentrated in a particular sector, the Fund share value may fluctuate more than that of a less concentrated fund. A non-diversified fund may be subject to greater risk by investing in a smaller number of investments than a diversified fund. 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.