Tax-Advantaged Dividend Income Fund

A Word On The Markets  as of Mar 31, 2013

Global equity markets surged ahead in the first quarter of 2013, as the major U.S. stock indexes achieved record closing 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, 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 Average⁴ returned 11.93% and hit an all-time closing high during the quarter. The broader S&P 500 Index⁵ also reached a new high on the quarter’s final trading day, rising 10.61% for the period. Globally, the MSCI EAFE Index⁶ 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. Preferred securities, as measured by the BofAML Fixed Rate Preferred Index,⁷ underperformed common equities, returning 2.81% for the quarter.

Performance Summary 

Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) underperformed its equity benchmark, the Russell 1000 Value Index,⁸ at net asset value (NAV) for the quarter ended March 31, 2013. The Fund’s underperformance was primarily driven by stock selection and by the underperformance of its preferred securities versus the equity benchmark. Stock selection in the financials and information technology sectors detracted from performance relative to the equity benchmark. The Fund’s use of leverage aided relative performance, as did stock selection in the consumer discretionary and telecommunication services sectors.

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. 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, we believe the pace of the rally is likely to slow in the coming weeks and months. Investors will be keeping a close eye on corporate earnings trends, upcoming U.S. budget negotiations and further developments out of Europe. These potential bumps in the road may bode well for stock pickers, as investors are likely to become more interested in company-specific fundamentals. We believe opportunities remain in global, dividend-paying companies.

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.

The information contained herein is provided for informational purposes only and does not constitute a solicitation of an offer to buy or sell Fund shares. Common shares of the Fund are only available for purchase and sale at current market price on a stock exchange. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to investment risks, including possible loss of principal invested. The Fund is not a complete investment program and you may lose money investing in the Fund. An investment in the Fund may not be appropriate for all investors.

The premium/discount is calculated as [(market price/NAV)-1].

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