Small-Cap Value Fund (A) Share
Class

A

• A
• B
• 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 Average,¹¹ returned 11.93% and hit an all-time closing high during the quarter. The broader S&P 500 Index¹² also reached a new high on the quarter’s final trading day, rising 10.61% for the period. Globally, the MSCI EAFE Index¹³ 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 Value Fund (The Fund) outperformed its benchmark, the Russell 2000 Value Index (the Index),³ for the quarter ended March 31, 2013, returning 12.93% for Class A shares at net asset value versus the Index’s 11.63% return.

• The Fund’s outperformance versus the Index was primarily due to favorable stock selection. Sector allocation overall had a small negative impact on relative performance.
• Small-cap stocks, in general, outperformed large-cap stocks during the quarter. Within the small-cap segment, there was no clear quality bias, but 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:

• Favorable stock selection was the main reason that the Fund outperformed the Index during the quarter.
• The Fund’s stock selection results were particularly strong in the industrials and materials sectors.
• In terms of individual stocks, the largest contribution to the Fund’s performance came from Spirit Airlines, a low-fare airline that has benefited from expansion opportunities and lower fuel prices.
• Other leading contributors included Maximus, a company that administers Medicaid as well as other benefits programs for government customers and has continued to win new business, and Hornbeck Offshore Services, an energy services company that has seen stepped-up demand for its Gulf of Mexico operations.

Detractors 

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

• Sector allocation overall detracted from the Fund’s relative performance during the quarter, although no individual sector stood out as a key detractor.
• The Fund’s holdings in the information technology and consumer discretionary sectors modestly detracted from relative performance.
• Among individual holdings, the largest performance detractor was NETGEAR, a supplier of electronic products to the residential and small business markets that preannounced lower earnings due to a higher tax rate.
• Another stock that held back relative performance was Vaalco Energy, an energy exploration and production company that reported disappointing drilling results and has struggled to contain costs.

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 negotiations, as well as further developments out of Europe.

Our investment process continues to focus on companies that appear to have promising fundamental prospects, strong management and attractive valuations relative to the market. We believe the Fund is well-positioned as we move further into 2013.

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. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry, including REITs. 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. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry, including REITs. 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.