Richard Bernstein Equity Strategy 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 several major stock indexes set or neared record 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 share prices upward. 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 (The Fed), 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 Average⁹ returned 11.93% and hit an all-time closing high during the quarter. The broader S&P 500 Index¹⁰ also reached a new high on the quarter’s final trading day, rising 10.61% for the period. Globally, the MSCI EAFE Index¹¹ 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 Richard Bernstein Equity Strategy Fund (the Fund) outperformed its benchmark, the MSCI All Country World Index (the Index),² for the quarter ended March 31, 2013, returning 10.78% for Class A shares at net asset value versus the Index’s 6.50% return.

• The Fund’s U.S. overweight proved beneficial during the quarter, helping the Fund outperform the Index by more than four percentage points at net asset value.
• The Fund’s favorable positioning across both geographic regions and economic sectors also proved beneficial to performance versus the Index.
• The S&P 500 Index ended the quarter with an all-time closing high, surpassing its previous high reached in October 2007. In this generally rising market environment, the Fund’s modest cash position, held back performance relative to the Index.

Contributors 

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

• The Fund’s largest active exposure was to overweight the U.S. versus the rest of the world. At the same time, the Fund was underweight Europe and emerging markets. These geographic weightings were the major drivers of the Fund’s outperformance versus the Index.
• In terms of sector positioning, the Fund benefited from its relative underweights in the materials and energy sectors, as well as from its exposure to U.S. names in the information technology sector.

Detractors 

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

• Although the Fund outperformed the Index across most regions and sectors, relative performance was diminished by maintaining a modest cash position.

Investment Outlook And Fund Positioning 

The current bull market has been a particularly strong one, potentially rivaling the 1980s bull market. In the U.S., historical warning signals that a bull market may be nearing an end have yet to materialize. For example, the U.S. Federal Reserve does not appear close to meaningfully tightening policy anytime soon, and investors’ continued lack of euphoria or even confidence regarding equities suggests to us attractive risk premiums.

We do not believe the U.S. economy is in jeopardy, given that many lower-quality and smaller-capitalization stocks—those typically most sensitive to the domestic economy—have generally led global asset performance recently. In contrast, emerging-market equities, which are perhaps most sensitive to the global economy, have lagged.

As of quarter-end, we remain bullish on U.S. equities, but continue to have concerns about emerging-market equities and multinational companies whose growth strategies focus on 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.

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. 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.