Dividend Builder Fund (A)

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 had been concerns about slowing.

Despite extreme volatility during the fourth quarter, global equity markets posted solid positive returns. The MSCI EAFE Index¹¹ rose 3.33%, while the broader-based MSCI All Country World Index¹² rose 7.18% during the quarter. In the U.S., the S&P 500 Index² added 11.82% during the quarter to finish up 2.11% for the calendar year, while the blue chip Dow Jones Industrial Average¹³ 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 Index¹⁴ gaining 15.47% compared to 11.84% for the large-cap Russell 1000 Index¹⁵. Across capitalizations, value stocks outperformed growth stocks.

Performance Summary 

Eaton Vance Dividend Builder Fund underperformed its benchmark, the S&P 500 Index², during the fourth quarter at NAV.

• All 10 sectors in both the benchmark and the Fund had positive returns for the quarter. Six sectors in the benchmark and five sectors in the Fund had double-digit gains for quarter.
• The energy sector was the top performer in the benchmark for the quarter, posting a return of more than 18.20%. The telecommunications services sector was the bottom performer, with a return of more than 7.61%.
• The Fund's underperformance was driven by security selection as well as sector allocation.

Contributors 

Stock selection in the materials, energy and financials sectors had a positive impact on performance. The Fund?s underweight position in the consumer staples sector also helped performance.

• Reflecting the strong performance of large integrated energy companies, Royal Dutch Shell, ENI and Kinder Morgan Management were among the strongest Fund contributors.
• Within the financials sector, PNC Financial Services Group and insurer, AFLAC also contributed to Fund performance.
• Major U.S. railroad company, Union Pacific, also had a positive impact on Fund performance.

Detractors 

Security selection in the information technology, consumer discretionary and health care sectors detracted from Fund performance for the quarter. The Fund's overweight position in telecommunications services also had a negative impact on performance.

• Two Fund technology stocks, Accenture and HTC, were among the largest detractors to Fund performance.
• Shoe retailer DSW and cable company Time Warner Cable in the Consumer Discretionary sector and Nestle in the Consumer Staples sector also hurt relative performance compared to the benchmark for the quarter.
• In the health care sector, Fresenius Medical Care and Novartis also had a negative impact on performance for the quarter.
• The Fund's exposure to consumer discretionary stock, Time Warner Cable, also detracted from performance.

Investment Outlook And Fund Positioning 

Entering 2012, political and economic uncertainty remains an issue in the equity markets. However, we believe there continue to be attractive opportunities in large-capitalization, dividend-paying stocks. We continued to see companies increase dividends; for the year 2011, there were 34% more dividend increases and initiations within the benchmark than in 2010.

Management remains committed to our fundamental, research-driven process. We continue to invest in companies we feel have strong business franchises and attractive growth prospects.

At year end, the Fund's most meaningful overweight positions were in the telecommunications services and utilities sectors; the most substantive underweights were in the industrials, consumer staples and financials 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.

Fund invests in an affiliated investment company (Portfolio) with the same objective(s) and policies as the Fund. References to investments are to the Portfolio's holdings. 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. Changes in the dividend policies of companies could make it difficult to provide a predictable level of income. 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.

No attribution information is available.

Fund invests in an affiliated investment company (Portfolio) with the same objective(s) and policies as the Fund. References to investments are to the Portfolio's holdings. 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. Changes in the dividend policies of companies could make it difficult to provide a predictable level of income. 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.