February 18, 2004

Fund in Focus: Eaton Vance Tax-Managed Growth Fund

Duncan Richardson, manager since 1990.S&P Rank: 3 StarsTax Efficiency Through Low Turnover

Feb. 13, 2004 -- For Duncan Richardson, manager of Eaton Vance Tax-Managed Growth 1.1/A (ETTGX) since 1990, the two keys to tax-efficient investing are long holding periods and tax loss discipline.

"Minimizing turnover is the key to avoiding unnecessary taxes," says Richardson, who recommends "a five-year to forever" investment horizon as the starting point for tax efficiency.

"Equally important for tax efficiency is using tax losses when you have them," Richardson explains. "We try to minimize investment mistakes and maximize tax benefits by carrying over any losses." The fund's sell discipline is triggered when a holding goes down by 10% or its fundamentals change dramatically.

The Eaton Vance fund's team of analysts -- with average of over 17 years of investment experience -- follows a bottom-up fundamental approach to find quality companies with multiple-year growth prospects. To lessen risk, the fund holds a large number of stocks, currently over 600 holdings. To further reduce risk, the fund's sector weightings are relatively neutral compared with the S&P 500-stock index, the fund's benchmark.

The fund's top ten holdings are "typically leaders within their industries with good profit characteristics and good growth prospects," Richardson says. The fund's top ten holdings, as of Dec. 31, 2003, were Amer Intl Group (AIG), 2.05%; PepsiCo Inc. (PEP), 1.73%; Intel Corp. (INTC), 1.66%; Morgan Stanley (MWD), 1.57%; Pfizer, Inc. (PFE), 1.57%; United Parcel`B` (UPS), 1.50%; Microsoft Corp. (MSFT), 1.48%; Genl Electric (GE), 1.46%; BP Plc (BP), 1.42%; and Amgen Inc. (AMGN), 1.36%.

The fund has performed favorably with low volatility in recent years relative to its peers and its benchmark. For the past three years through 2003, the portfolio fell 3.8% versus a drop of 5.1% for the average large-cap blend fund and a loss of 4.1% for the S&P 500. The fund has an annualized standard deviation of 16.3% compared with 18.0% for its peers and 18.3% for the index.

Although the fund had double-digit gains last year, it underperformed its benchmark in 2003. "Last year was a very low-quality year and we would typically expect to underperform in that environment," Richardson says. "We tend to focus on lower volatility stocks and avoid low quality stocks, which were some of the most dramatic outperformers last year," he adds.

Going forward, Richardson is optimistic about the overall market, particularly for large-cap higher quality names. He believes the economic recovery is on track and top line growth will bring heavy earnings gains in 2004.

Eaton Vance Tax-Managed Growth is distributed through a hub-and-spoke structure. The 1.1/A offering is closed to new investors, but Eaton Vance Tax-Managed Growth 1.2/A (EXTGX) is open to new investors.

-- Daniela Valle

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