Eaton Vance Tax-Advantaged Dividend (NYSE: EVT, $27.33)

As the name implies, this fund has one primary objective: to provide a high level of total return on an after-tax basis. Eaton Vance was a pioneer in the growing tax-efficiency movement and is a specialist at shielding income and capital gains from the taxman.

The fund's veteran management team accomplishes this by focusing on dividends that qualify for favorable tax treatment, and using a variety of tactics to minimize capital gains distributions. However, even investors in lower tax brackets (or those investing in IRAs or other tax-sheltered accounts) will find EVT appealing.

Like many equity-income funds, EVT targets high-yielding sectors like financials, utilities and energy — which combined represent about two-thirds of the fund's $2.2 billion portfolio. And while the bulk of those assets are invested in domestic stocks, the fund does have a sizeable stake in many European markets as well. The end result is a globally diversified mix of over 100 large-cap value stocks, such as Chevron, Nokia and Bank of Ireland.

And with the careful use of leverage, the fund has been able to issue generous monthly distributions totaling $1.67 over the past year — for a hefty yield of 6.1%. Aside from the stable income stream, shareholders have also enjoyed market-beating total returns. In fact, EVT is tops among all large-cap value funds so far this year, and since inception in September 2003 the fund has delivered annualized NAV gains of +22.2% — well ahead of both its peer group average and the S&P 500.

Meanwhile, actual market gains have lagged that figure by about 275 basis points (2.75%) per year over the same period. With NAV gains sharply outpacing market gains, EVT is now worth $30.54 per share (the fund's net asset value) — but can be bought for just $27.33 per share.

That hefty 10.5% discount, combined with superior relative performance, reasonable expenses and (no surprise) excellent tax efficiency, is a big reason why EVT has earned top-notch "A" marks based on our proprietary ETF Composite ranking system.

SunAmerica Focused Alpha Large-Cap (NYSE: FGI, $18.93)

As might be expected from a focused portfolio, FGI is a relatively concentrated fund that stocks up heavily on its strongest investment ideas. In fact, the fund's entire portfolio consists of just 25 holdings — the top ten of which soak up about 50% of its $200 million asset base.

While that strategy might lead to increased volatility at times, it will also greatly magnify winning picks (unlike a fund with several hundred holdings, where the impact of any one stock is greatly diluted).

The "alpha" term in the fund's name is a performance metric that measures the excess risk-adjusted return that a fund delivers relative to a given benchmark. In other words, alpha can help gauge whether or not a fund's manager brings added value to the table and can measure the additional returns he/she has generated above and beyond those implied by the fund's volatility.

Superior alpha ratings suggest that shareholders are getting more bang for their buck and are enjoying higher returns than they might get from other funds with similar risk profiles. And while FGI is still relatively young, thus far it has done an excellent job of staying on course.

The portfolio is overseen by two veteran managers — BlackRock's Robert Doll, who provides ten of his favorite large-cap value stocks, and Tom Marsico, who adds ten large-cap growth selections. As a result, blue-chip giants like AT&T (NYSE: T, $40.60) provide some stability during times of volatility, while faster-growing companies like Las Vegas Sands (NYSE: LVS, $92.31) allow the fund to participate in strong market rallies.

Since its inception in 2005, FGI has only posted one negative quarter. And over the past year, the fund has delivered a total return of about +24% — outpacing 80% of its peer group.

Best of all, value-minded investors will really appreciate the fact that this premium fund is trading at a rock-bottom price — the discount currently stands at 10%, though it has been shrinking in recent months.

With a bargain price, a rich 6.3% yield, a superior track record and a strict focus on undervalued companies with sustainable competitive advantages, FGI is poised to deliver market-beating gains in the years ahead.

Action to Take —> The funds in the table above are not only sharply undervalued, but they also possess other positive attributes — all carry ETF Composite grades of "B-" or higher. Depending upon your portfolio needs, we think any of these funds are attractive candidates worthy of a closer look.

For all the reasons outlined above, Eaton Vance Tax-Advantaged Dividend Fund (NYSE: EVT, $27.33) looks particularly attractive. Therefore, we plan to add the fund to our "Buy-and-Hold" Portfolio at the opening bell on Friday, August 3, 2007.