Small-Cap Fund (A) Share
Class

A

• A
• B
• C
• I
• R

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 Small-Cap Fund (the Fund) underperformed its benchmark, the Russell 2000 Index (the Index), for the quarter ended March 31, 2013, returning 11.22% for Class A shares at net asset value versus the Index’s 12.39% return.

• The Fund trailed the Index due to modest negative contributions from both sector allocation and stock selection.
• Small-cap stocks, in general, performed better than large caps during the quarter. Within the small-cap segment, while there was no clear quality bias, companies with higher market capitalizations and share prices generally recorded the best returns.

Contributors 

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

• Relative to the Index, the Fund’s stock selection results were particularly strong in the energy and consumer staples sectors.
• Stock selection in the materials sector also helped the Fund’s relative performance.
• In terms of individual stocks, the largest contributors to relative performance were Goodrich Petroleum and PDC Energy, two energy exploration and production companies.
• Another top individual contributor was Flowers Foods, a leading baked goods producer that had benefited from industry consolidation.

Detractors 

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

• Sector allocation overall detracted from the Fund’s performance relative to the Index, although no individual sector stood out.
• In addition, stock selection in the financials and information technology sectors hurt the Fund’s relative performance.
• Among individual holdings, the largest detractors from relative performance were Walter Investment Management, a specialty mortgage servicing company that reported lower Q4 earnings than expected during the quarter, and Cirrus Logic, a semiconductor supplier for consumer electronics.
• Another holding that held back relative performance during the quarter was Global Cash Access, a global cash access and data collection company that had lowered its earnings guidance.

Investment Outlook And Fund Positioning 

To some extent, the powerful equity market rally during the first quarter reflects mounting investor confidence in longer-term economic prospects. In contrast to the persistent volatility of recent years, markets worldwide have been demonstrating a greater ability to absorb the impact of periodic macro crises such as Cyprus – a possible sign of investors’ optimism that the global economic recovery is on firmer footing. Notably, markets worldwide have been demonstrating a greater ability to absorb the impact of periodic events, such as the recent banking crisis in Cyprus and related fears that the country might exit the European Union. The U.S. economy appears to be in better shape than much of the rest of the world, but is still growing at a fairly slow pace.

Ongoing commitment by the Federal Reserve and other central banks to keep easy-money policies in place should continue to support economic growth and equity markets. However, investors are likely to keep a wary eye on upcoming U.S. budget and debt-ceiling negotiations, as well as further developments out of Europe.

As the balance of 2013 unfolds, we believe investors will find equities relatively more attractive. In our view, the types of companies in which the Fund invests—firms with, what management believes, are strong growth prospects and reasonable valuations—should be increasingly differentiated and sought after by equity investors.

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. 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.

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. 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.