Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance
National Municipal Opportunities Trust (the Trust) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management
investment company. The Trust’s primary investment objective is to provide current income exempt from regular federal income tax. The Trust will, as a secondary investment objective, seek to achieve capital appreciation.
The following is a summary of significant accounting policies of the Trust. The policies are in conformity with accounting principles generally accepted in the United
States of America (U.S. GAAP). The Trust is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946.
A Investment Valuation — The following methodologies
are used to determine the market value or fair value of investments.
Debt Obligations. Debt obligations are generally valued on the basis of valuations
provided by third party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of
securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers
information regarding securities with similar characteristics to determine the valuation for a security. Short-term debt obligations purchased with a remaining maturity of sixty days or less for which a valuation from a third party pricing service
is not readily available may be valued at amortized cost, which approximates fair value.
Fair Valuation. Investments for which valuations or market quotations
are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Trust in a manner that most fairly reflects the security’s “fair value”,
which is the amount that the Trust might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing
context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer
or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded
securities), an analysis of the company’s or entity’s financial statements, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions and Related Income —
Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost. Interest income is recorded on the basis of interest
accrued, adjusted for amortization of premium or accretion of discount.
C Federal
Taxes — The Trust’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of
its taxable, if any, and tax-exempt net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary. The Trust
intends to satisfy conditions which will enable it to designate distributions from the interest income generated by its investments in non-taxable municipal securities, which are exempt from regular federal
income tax when received by the Trust, as exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to shareholders.
As of September 30, 2021, the Trust had no uncertain tax positions that would require financial statement recognition,
de-recognition, or disclosure. The Trust files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal
Revenue Service for a period of three years from the date of filing.
D Legal Fees — Legal fees and other related expenses incurred as part of negotiations of the terms and requirement of capital infusions, or that are expected to result in the restructuring of, or a plan of reorganization for, an
investment are recorded as realized losses. Ongoing expenditures to protect or enhance an investment are treated as operating expenses.
E Use of Estimates — The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
F Indemnifications — Under the Trust’s
organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Trust. Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have personal liability for the obligations of the Trust. However, the Trust’s Declaration of Trust contains an express disclaimer of liability on the part of Trust
shareholders and the By-laws provide that the Trust shall assume, upon request by the shareholder, the defense on behalf of any Trust shareholders. Moreover, the By-laws
also provide for indemnification out of Trust property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of
business, the Trust enters into agreements with service providers that may contain indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust
that have not yet occurred.
G Floating Rate Notes Issued in Conjunction with
Securities Held — The Trust may invest in residual interest bonds, also referred to as inverse floating rate securities, whereby the Trust may sell a variable or fixed rate bond for cash to a
Special-Purpose Vehicle (the SPV), (which is generally organized as a trust), while
Eaton Vance
National Municipal Opportunities Trust
September 30,
2021
Notes to Financial Statements (Unaudited) —
continued
at the same time, buying a residual interest in the assets and cash flows of the SPV. The bond is deposited into the SPV with the same CUSIP number as the bond sold to
the SPV by the Trust, and which may have been, but is not required to be, the bond purchased from the Trust (the Bond). The SPV also issues floating rate notes (Floating Rate Notes) which are sold to third-parties. The residual interest bond held by
the Trust gives the Trust the right (1) to cause the holders of the Floating Rate Notes to generally tender their notes at par, and (2) to have the Bond held by the SPV transferred to the Trust, thereby terminating the SPV. Should the
Trust exercise such right, it would generally pay the SPV the par amount due on the Floating Rate Notes and exchange the residual interest bond for the underlying Bond. Pursuant to generally accepted accounting principles for transfers and servicing
of financial assets and extinguishment of liabilities, the Trust accounts for the transaction described above as a secured borrowing by including the Bond in its Portfolio of Investments and the Floating Rate Notes as a liability under the caption
“Payable for floating rate notes issued” in its Statement of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the SPV for redemption
at par at each reset date. Accordingly, the fair value of the payable for floating rate notes issued approximates its carrying value. If measured at fair value, the payable for floating rate notes would have been considered as Level 2 in the
fair value hierarchy (see Note 6) at September 30, 2021. Interest expense related to the Trust’s liability with respect to Floating Rate Notes is recorded as incurred. The SPV may be terminated by the Trust, as noted above, or by the
occurrence of certain termination events as defined in the trust agreement, such as a downgrade in the credit quality of the underlying Bond, bankruptcy of or payment failure by the issuer of the underlying Bond, the inability to remarket Floating
Rate Notes that have been tendered due to insufficient buyers in the market, or the failure by the SPV to obtain renewal of the liquidity agreement under which liquidity support is provided for the Floating Rate Notes up to one year. At
September 30, 2021, the amount of the Trust’s Floating Rate Notes outstanding and the related collateral were $19,740,331 and $29,236,456 respectively. The range of interest rates on the Floating Rate Notes outstanding at
September 30, 2021 was 0.08% to 0.15%. For the six months ended September 30, 2021, the Trust’s average settled Floating Rate Notes outstanding and the average interest rate (annualized) including fees were $21,302,951 and 0.66%,
respectively.
In certain circumstances, the Trust may enter into shortfall and forbearance agreements with brokers by which the Trust agrees to reimburse the broker
for the difference between the liquidation value of the Bond held by the SPV and the liquidation value of the Floating Rate Notes, as well as any shortfalls in interest cash flows. The Trust had no shortfalls as of September 30, 2021.
The Trust may also purchase residual interest bonds in a secondary market transaction without first owning the underlying bond. Such transactions are not required to be
treated as secured borrowings. Shortfall agreements, if any, related to residual interest bonds purchased in a secondary market transaction are disclosed in the Portfolio of Investments.
The Trust’s investment policies and restrictions expressly permit investments in residual interest bonds. Such bonds typically offer the potential for yields
exceeding the yields available on fixed rate bonds with comparable credit quality and maturity. These securities tend to underperform the market for fixed rate bonds in a rising long-term interest rate environment, but tend to outperform the market
for fixed rate bonds when long-term interest rates decline. The value and income of residual interest bonds are generally more volatile than that of a fixed rate bond. The Trust’s investment policies do not allow the Trust to borrow money
except as permitted by the 1940 Act. Management believes that the Trust’s restrictions on borrowing money and issuing senior securities (other than as specifically permitted) do not apply to Floating Rate Notes issued by the SPV and included as
a liability in the Trust’s Statement of Assets and Liabilities. As secured indebtedness issued by an SPV, Floating Rate Notes are distinct from the borrowings and senior securities to which the Trust’s restrictions apply. Residual interest
bonds held by the Trust are securities exempt from registration under Rule 144A of the Securities Act of 1933.
H When-Issued Securities and Delayed Delivery Transactions — The Trust may purchase securities on a delayed delivery or when-issued
basis. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Trust maintains cash and/or security
positions for these commitments such that sufficient liquid assets will be available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest on settlement date. Such security purchases are subject to the risk that when delivered they will be worth less than the agreed upon payment price. Losses may
also arise if the counterparty does not perform under the contract.
I Interim
Financial Statements — The interim financial statements relating to September 30, 2021 and for the six months then ended have not been audited by an independent registered public accounting firm, but
in the opinion of the Trust’s management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders and Income Tax Information
The Trust intends to make monthly distributions of net investment income to common shareholders. In addition, at least annually, the Trust intends to distribute all or
substantially all of its net realized capital gains. Distributions are recorded on the ex-dividend date. Distributions to shareholders are determined in accordance with income tax regulations, which may differ
from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions
are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income.
At March 31, 2021, the Trust, for federal income tax purposes, had deferred capital losses of $3,457,449 which would reduce its taxable income arising from future
net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus would reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Trust of any liability
for federal income or excise tax. The deferred capital losses are treated as arising on the first day of the Trust’s next taxable year and retain the same short-term or long-term character as when originally deferred. Of the deferred capital
losses at March 31, 2021, $2,738,559 are short-term and $718,890 are long-term.
Eaton Vance
National Municipal Opportunities Trust
September 30,
2021
Notes to Financial Statements (Unaudited) —
continued
The cost and unrealized appreciation (depreciation) of investments of the Trust at September 30, 2021, as determined on a federal income tax basis, were as follows:
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Aggregate cost
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$
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290,795,907
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Gross unrealized appreciation
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$
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48,828,560
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Gross unrealized depreciation
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(383,490
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)
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Net unrealized appreciation
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$
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48,445,070
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3 Investment Adviser and Administrative Fee and Other Transactions with Affiliates
The investment adviser and administrative fee is earned by Eaton Vance Management (EVM), an indirect, wholly-owned subsidiary of
Morgan Stanley, as compensation for investment advisory and administrative services rendered to the Trust. The fee is computed at an annual rate as a percentage of the Trust’s average daily gross assets as follows and is payable monthly:
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Average Daily Gross Assets
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Annual Fee
Rate
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Up to and including $1.5 billion
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0.60
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%
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Over $1.5 billion
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0.59
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%
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Gross assets, as defined in the Trust’s investment advisory and administrative agreement with EVM, means total assets of the Trust,
including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any
type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other similar preference securities, (iii) the reinvestment of collateral received for
securities loaned in accordance with the Trust’s investment objectives and policies, and/or (iv) any other means. For purposes of this calculation, gross assets represent net assets plus the amount payable by the Trust to floating-rate
note holders. For the six months ended September 30, 2021, the investment adviser and administrative fee incurred by the Trust and the effective annual rate, as a percentage of average daily gross assets, were $1,093,021 and 0.60%,
respectively.
Trustees and officers of the Trust who are members of EVM’s organization receive remuneration for their services to the Trust out of the
investment adviser fee. Trustees of the Trust who are not affiliated with the investment adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the
six months ended September 30, 2021, no significant amounts have been deferred. Certain officers and Trustees of the Trust are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, aggregated $28,854,380
and $12,410,182, respectively, for the six months ended September 30, 2021.
5 Common Shares of Beneficial Interest and Shelf
Offering
Common shares issued by the Trust pursuant to its dividend reinvestment plan for the six months ended September 30, 2021 and year ended
March 31, 2021 were 3,110 and 1,129, respectively.
Pursuant to a registration statement filed with and declared effective on November 26, 2019 by the SEC,
the Trust is authorized to issue up to an additional 1,142,873 common shares through an equity shelf offering program (the “shelf offering”). Under the shelf offering, the Trust, subject to market conditions, may raise additional capital
from time to time and in varying amounts and offering methods at a net price at or above the Trust’s net asset value per common share. During the six months ended September 30, 2021 and year ended March 31, 2021, the Trust sold
167,480 and 18,175 common shares, respectively, and received proceeds (net of offering costs) of $3,822,381 and $403,249, respectively, through its shelf offering. The net proceeds in excess of the net asset value of the shares sold were $99,993 and
$8,210 for the six months ended September 30, 2021 and year ended March 31, 2021, respectively. Offering costs (other than the applicable sales commissions) incurred in connection with the shelf offering were borne directly by EVM. Eaton
Vance Distributors, Inc. (EVD), an affiliate of EVM, is the distributor of the Trust’s shares and is entitled to receive a sales commission from the Trust of 1.00% of the gross sales price per share, a portion of which is re-allowed to sales agents. The Trust was informed that the sales commissions retained by EVD during the six months ended September 30, 2021 and year ended March 31, 2021 were $7,722 and $815,
respectively.
Eaton Vance
National Municipal Opportunities Trust
September 30,
2021
Notes to Financial Statements (Unaudited) —
continued
In November 2013, the Board of Trustees initially approved a share repurchase program for the Trust. Pursuant to the reauthorization of the share repurchase program by
the Board of Trustees in March 2019, the Trust is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year at market prices when shares are trading at a discount to net asset value. The share
repurchase program does not obligate the Trust to purchase a specific amount of shares. There were no repurchases of common shares by the Trust for the six months ended September 30, 2021 and year ended March 31, 2021.
6 Fair Value Measurements
Under generally
accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the
three broad levels listed below.
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Level 1 – quoted prices in active markets for identical investments
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•
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Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates,
prepayment speeds, credit risk, etc.)
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•
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Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value
of investments)
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In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is
determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities.
At September 30, 2021, the hierarchy of inputs used in valuing the Trust’s investments, which are carried at value, were as follows:
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Asset Description
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Level 1
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Level 2
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Level 3
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Total
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Corporate Bonds
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$
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—
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$
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17,312,521
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$
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—
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$
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17,312,521
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Tax-Exempt Municipal Obligations
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—
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323,189,861
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—
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323,189,861
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Taxable Municipal Obligations
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—
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18,478,926
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—
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18,478,926
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Total Investments
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$
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—
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$
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358,981,308
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$
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—
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$
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358,981,308
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7 Risks and Uncertainties
Pandemic Risk
An outbreak of respiratory disease caused by a novel coronavirus
was first detected in China in late 2019 and subsequently spread internationally. This coronavirus has resulted in closing borders, enhanced health screenings, changes to healthcare service preparation and delivery, quarantines, cancellations,
disruptions to supply chains and customer activity, as well as general concern and uncertainty. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political,
social and economic risks and disrupt normal market conditions and operations. The impact of this outbreak has negatively affected the worldwide economy, the economies of individual countries, individual companies, and the market in general, and may
continue to do so in significant and unforeseen ways, as may other epidemics and pandemics that may arise in the future. Any such impact could adversely affect the Trust’s performance, or the performance of the securities in which the Trust
invests.
Eaton Vance
National Municipal Opportunities Trust
September 30,
2021