Richard Bernstein Equity Strategy 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 posted solid positive returns. The MSCI EAFE Index¹⁰ rose 3.33%, while the broader-based MSCI All Country World Index³ rose 7.18% during the quarter. In the U.S., the S&P 500 Index¹¹ added 11.82% during the quarter to finish up 2.11% for the calendar year, while the blue chip Dow Jones Industrial Average¹² 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 Index¹³ gaining 15.47% compared to 11.84% for the large-cap Russell 1000 Index¹⁴. Across capitalizations, value stocks outperformed growth stocks.

Performance Summary 

For the quarter ended December 31, 2011 Eaton Vance Richard Bernstein Equity Strategy Fund (the Fund) underperformed the MSCI All Country World Index³ at NAV. The Fund was up 6.49%, whereas the Benchmark was up 7.18%.

• The Fund's relative performance compared to the benchmark was negatively influenced by its defensive posture at the beginning of the quarter, which included an elevated cash level and fixed-income ETF positions. The Fund repositioned away from a defensive strategy as the quarter progressed.
• The Fund's relative performance was positively influenced by underweight positions outside of the U.S.

Contributors 

Regionally, the Fund was positively influenced by being overweight the U.S. market.

• In terms of Global Industry Classification Standard (GICS) sectors, the Fund's underweight to financials positively contributed to its performance.

Detractors 

The Fund's fixed-income ETFs and modest allocation to cash at the beginning of the quarter detracted from performance because more-conservative investments lagged.

• In terms of GICS sectors, the Fund's weakest performance came from its energy and utilities holdings.

Investment Outlook And Fund Positioning 

We believe 2012's biggest risks are in the emerging markets because these markets were the biggest beneficiaries of the global credit bubble. Because U.S. small-cap stocks are more domestically oriented, we think they may be less impacted if global credit bubbles deflate.

The U.S. economy might improve more than investors currently expect. It may not improve on an absolute basis, but the U.S. could be the best house on a bad block. At quarter-end, the Fund was overweight U.S. small-cap names and underweight emerging markets.

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. 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. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. 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.

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.

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. 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. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. 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.