Eaton Vance Worldwide Health Sciences Fund 4th Quarter Commentary

A Word On The Markets

Global stock markets delivered mixed performance in the fourth quarter of 2016. While U.S stocks rose sharply following the U.S. presidential election to finish the period with solid gains, major international markets recorded more subdued or negative returns.

Stocks opened the period on the downside amid retreating oil prices, uncertainty about the U.S. presidential election and fears of a possible interest rate increase by the U.S. Federal Reserve (the Fed). Donald Trump’s victory in the U.S. presidential election marked a turning point for U.S. stocks, which soared following the November 8 election. The rally continued into December before stalling in the final weeks of the period.

The broad”‘based “Trump Bump” particularly favored financial stocks, which received another boost in mid”‘December when the Fed raised its benchmark interest rate. The Fed move came in response to continued improvement in the nation’s economy, which helped boost stocks in the three”‘month period. Positive reports during the period included higher consumer spending, declining unemployment and stronger U.S. exports. While U.S. stocks surged following the presidential election, global markets lagged amid uncertainty about U.S. trade policy under President”‘elect Trump.

The MSCI World Index1 finished the quarter up 1.86%, driven by strong returns within financials, energy and telecommunication services. Healthcare, which was down significantly in October leading up to the election, was the second worst performing sector (behind real estate) in the index.

Performance Summary

For the third quarter of 2016, the Worldwide Health Sciences Fund Class A Shares underperformed the MSCI World Healthcare Index (the Index), returning ”‘7.74% at NAV, vs. ”‘5.35% for the Index.

-- The fourth quarter was difficult for nearly all of the industries within the healthcare sector. Pharmaceuticals, which was hit hard in October as investors predicted a Hillary Clinton presidential victory, pulled down Index returns for the quarter. Equipment and supplies, healthcare technology and biotech were also down significantly during the quarter.

-- Healthcare providers & services was the lone positive”‘performing industry within healthcare during the quarter, as insurers and providers rallied post”‘election.

-- For the quarter, both negative stock selection and sector positioning relative to the Index were overall detractors to Fund performance.

-- The Fund’s overweight to the United States helped performance, as the U.S. outperformed much of the world during the quarter.

Additionally, the Fund’s underweight to Japan and avoidance of

Australia aided relative returns.

Contributors

Positive contributors for the Fund’s performance include:

-- The Fund’s overweight to biotechnology, as well as strong stock selection within the group, was the largest contributor to performance.

-- The Fund’s avoidance of healthcare technology companies had a positive impact on performance in the fourth quarter.

-- The top stock contributor for the quarter was Actelion (XSWX:ATLN, Financial), a Swiss”‘based biotechnology company which was up significantly during the quarter as the company is likely an attractive merger opportunity. The Fund is overweight Actelion.

-- Also within biotech, the Fund’s overweight to Celgene Inc. (CELG, Financial) was additive during the quarter, as the company posted strong third quarter earnings results, as well as a solid outlook for 2017. Incyte Corporation (INCY, Financial), a biopharma company which focuses on oncology and autoimmune diseases, also saw strong returns post”‘election, which boosted relative returns.

-- Additional contributors included Zoetis Inc (ZTS, Financial), an animal healthcare specialty company that announced a dividend increase and share repurchase program at the beginning of December, and non”‘index name, WellCare Health Plans (WCB, Financial), a U.S. based small”‘cap health care provider specializing in government”‘sponsored managed care services.

Detractors

Negative contributors for the Fund’s performance include:

-- Stock selection was negative overall for the quarter, led by healthcare equipment & supplies.

Selection within pharmaceuticals and life science tools was also a detractor to performance.

-- Relative performance was dampened by the Fund’s underweight to healthcare providers and services, which was the strongest area within healthcare during the month.

-- Stock detractors for the quarter included an overweight to Illumina (ILMN, Financial), a biomedical device and services company which announced disappointing third quarter earnings. Other detractors included Zimmer Biomet Holdings (ZBH, Financial), a healthcare equipment company that reported mixed third quarter results and lowered future guidance, and Santen Pharmaceuticals company, a Japanese”‘based pharma and medical device company that weakened during the quarter.

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.