Worldwide Health Sciences Fund (A) Share
Class

A

• A
• B
• C
• I
• R

A Word On The Markets  as of Mar 31, 2013

The first quarter of 2013 was a strong one for U.S. and global equity markets. Notably, the S&P 500 Index⁹ and Dow Jones Industrial Average¹⁰ both reached record closing levels during the period.

The rise in equities was mostly steady through the three-month period. A modest pause at the end of February was offset by a strong start to March. Global equity market returns were weaker than in the U.S., with investors generally showing slightly more confidence in the U.S. economic outlook. The S&P 500 Index⁹ returned 10.61% for the period, whereas the MSCI World Index² advanced 7.73%.

Health care stocks, as represented by the MSCI World Health Care Index,² also posted steady gains in the first quarter and significantly outperformed the broader equity market. The latter index returned 14.18% for the period.

Drug stocks, as represented by the NYSE Arca Pharmaceutical Index,¹¹ rose for the quarter but slightly underperformed the MSCI World Health Care Index.²
However, biotechnology stocks, as evidenced by the NASDAQ Biotechnology Index,¹² meaningfully outperformed the MSCI World Health Care Index during the period.

Performance Summary 

Eaton Vance Worldwide Health Sciences Fund (the Fund) outperformed its benchmark, the MSCI World Health Care Index (the Index),² for the quarter ended March 31, 2013, returning 14.87% for Class A shares at net asset value versus the Index’s 14.18% return.

• An overweight position in the biotechnology sector and positive stock selection in Japan were the main factors fueling the Fund’s relative outperformance for the quarter.
• Overall, large-cap pharmaceuticals were the largest contributor to absolute performance during the period. However, due to an underweight position in this sector, it was a drag on relative performance. This was partially offset by favorable positioning in generic and specialty pharmaceuticals
• Life science tools also aided Fund performance due to stock selection, as did health care facilities.
• Medical devices were a significant negative contributor due to an underweight position.

Contributors 

Sources of the Fund’s outperformance relative to the Index varied widely during the quarter. Exposure to biotechnology, Japan and individual stock selection were among the key drivers.

• Shares in hospital operator HCA Holdings Inc. were strong, as investors focused on how health insurance expansion may generate dollars for previously unreimbursed care.
• Shares in Incyte Corporation rebounded, as the launch of Jakafi (a treatment for bone marrow disorders) began to exceed lowered investor expectations.
• Large-cap biotechnology company Gilead Sciences Inc. continued to outperform due to a positive outlook for its hepatitis C oral treatment.
• Gene sequencing company Life Technologies Corporation was subject to M&A speculation during the quarter, helping to lift its stock price.

Detractors 

An underweight position in large-cap pharmaceutical stocks detracted from the Fund’s performance relative to the Index during the quarter.

• The Fund’s underweight positions in global health care giants Johnson & Johnson and Novartis and in biotechnology company Celgene Corporation detracted from relative performance.
• Specialty pharmaceutical firm Impax Laboratories Inc. hurt relative performance after the company disclosed that an FDA inspection of a key manufacturing facility uncovered additional compliance violations.
• Diagnostics company OraSure Technologies detracted from relative performance after issuing a lackluster earnings report with muted guidance.
• Medical device maker MAKO Surgical also hurt relative performance due to rumors that a competitor in the orthopedic surgery robotics market was successfully partnering with larger vendors.

Investment Outlook And Fund Positioning 

Despite the dramatic rise in health care stocks this past quarter, we believe that relative valuations are generally still not stretched given their historical averages, and that further multiple expansion is possible.

We are bullish on the state of health care stocks. R&D productivity is at its highest level since the 1990s. Positive clinical data often beget new drug approvals, which, in turn, drive revenues, earnings and, ultimately, share prices. Important medical developments that we believe will occur in 2013 include oncology, diabetes, hepatitis and cardiology.

Hence, we expect health care stocks to trade more on sector fundamentals rather than on macro issues for the remainder of the year. In particular, we look to catalysts such as regulatory activity and new clinical data releases to potentially fuel additional gains in the health care space.

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. 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.

About Risk 

Fund share values are sensitive to stock market volatility. Because the Fund investments may be concentrated in a particular industry, the Fund share value may fluctuate more than that of a less concentrated fund. 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. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. 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. 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.

About Risk 

Fund share values are sensitive to stock market volatility. Because the Fund investments may be concentrated in a particular industry, the Fund share value may fluctuate more than that of a less concentrated fund. 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. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, established companies. 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.