Tax-Managed Growth Fund 1.2 (C)

A Word On The Markets  as of Mar 31, 2012

Investor confidence snapped back in the first quarter of 2012 as equity markets staged a powerful rally. After the extreme volatility of 2011, U.S. and global stocks began climbing in early January and continued their rapid ascent nearly uninterrupted before cooling slightly in late March. Several key market indices reached post-financial crisis highs during the quarter.

Among upbeat economic indicators, falling unemployment in the U.S. helped drive stocks higher, and even the long-depressed housing market showed signs of improvement. The Federal Reserve's renewed commitment to keeping interest rates low for the foreseeable future provided an additional tailwind. Concerns about political gridlock in Washington and the upcoming elections appeared to have little negative impact on the world markets for the time being. Encouraging steps toward resolving Europe's debt crisis boosted international markets and helped sustain U.S. stock gains. Cautionary influences on world markets included ongoing worries about China's slowing economy and elevated oil prices fueled by geopolitical tensions in the Middle East.

The breadth of the market rally across geographies and market segments was reflected in the returns delivered by the major U.S. and overseas indexes. The MSCI EAFE Index¹¹ rose 10.86% during the quarter, while the MSCI Emerging Markets Index¹² gained 14.08%. In the U.S., the S&P 500 Index² surged 12.59%, while the Dow Jones Industrial Average¹³ advanced 8.84%. Large-cap stocks narrowly outperformed their small-cap counterparts, with the Russell 1000 Index¹⁴ jumping 12.90% versus 12.44% for the Russell 2000 Index¹⁵. Across market capitalizations, growth stocks outperformed value stocks.

Performance Summary 

Eaton Vance Tax-Managed Growth Fund 1.2 outperformed its benchmark, the S&P 500 Index², for the quarter ended March 31, 2012, returning 12.70% at net asset value versus the benchmark's 12.59% return.

• Within the growth space, the market generally exhibited a preference for larger-capitalization and higher-quality stocks over smaller-cap, lower-quality names, providing a tailwind for the Fund.
• The Fund's outperformance relative to the benchmark was driven by sector allocation decisions. Stock selection results had a negative impact overall, but contributed modestly to relative performance in some individual sectors.
• The best-performing benchmark sectors were financials, information technology and consumer discretionary, while the weakest were utilities, telecommunication services and energy. Both the benchmark and the Fund posted positive returns in nine out of 10 sectors.

Contributors 

The Fund's over/underweight positions in certain sectors helped bolster performance relative to the benchmark, supported by stock selection decisions in a few sectors.

• Although the Fund underperformed the benchmark in utilities and telecommunication services, its sizable underweights in both sectors helped lift overall relative performance. Similarly, the Fund trailed the benchmark in information technology, but an overweight position in the strongly performing sector offset stock selection to a degree.
• The combination of an underweight position and stock selection in the energy sector contributed to relative performance. Most notably, the Fund was underweight the benchmark in Exxon Mobil and Chevron, both of which lagged the broader sector.
• Other notable individual contributors included wireless communications provider Qualcomm, global IT consulting firm Accenture, discount clothing retailer T.J. Maxx and coffee giant Starbucks.

Detractors 

Weakness in the information technology and health care sectors detracted from the Fund's performance relative to the benchmark, as did an overweight position in consumer staples.

• Stock selection in information technology had the largest negative impact on relative performance. The Fund's underweight position in Apple, which rose sharply during the quarter, was the primary individual detractor, while an underweight in Microsoft also detracted modestly.
• In health care, a position in leading biotechnology company Amgen coupled with overweights to a number of defensive pharmaceutical investments negatively affected relative performance in an environment that favored more cyclical names.
• Other key individual detractors included PepsiCo, which trailed the broad consumer discretionary sector by a wide margin, and an underweight to Bank of America, which rose sharply, during the quarter.

Investment Outlook And Fund Positioning 

Better employment and other data have raised hopes that U.S. economic growth may continue to accelerate in the period ahead, potentially giving investor sentiment an added boost. However, investors should not be surprised if the market pulls back later in 2012, particularly following the strong run-up we have just experienced. Much will depend on the pace of the U.S. recovery, the extent of China's economic slowdown, the global impact of high energy prices, political developments, and whether further progress is made in Europe.

We continue to emphasize high-quality, U.S.-centric, large-capitalization growth companies, which we believe may present attractive valuation and growth opportunities in an improved but still uncertain global economic environment.

At quarter-end, relative to the benchmark, the Fund's largest sector overweight was in consumer discretionary, while its largest underweight was in utilities.

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.

Fund invests in an affiliated investment company (Portfolio) with the same objective(s) and policies as the Fund. References to investments are to the Portfolio's holdings. 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. Market conditions may limit the ability to generate tax losses or to generate dividend income taxed at favorable tax rates. The Fund's ability to utilize various tax-managed techniques may be curtailed or eliminated in the future by tax legislation or regulation. 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.

Fund invests in an affiliated investment company (Portfolio) with the same objective(s) and policies as the Fund. References to investments are to the Portfolio's holdings. 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. Market conditions may limit the ability to generate tax losses or to generate dividend income taxed at favorable tax rates. The Fund's ability to utilize various tax-managed techniques may be curtailed or eliminated in the future by tax legislation or regulation. 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.