UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-CSR

Eaton Vance National Municipal Opportunities Trust

(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)

Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)

(617) 482-8260
(Registrant’s Telephone Number)

March 31
Date of Fiscal Year End

March 31, 2011
Date of Reporting Period

 

 

Item 1. Reports to Stockholders

Eaton Vance National Municipal Opportunities Trust Annual Report March 31, 2011

Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.

Annual Report March 31, 2011

Eaton Vance

National Municipal Opportunities Trust

Table of Contents

Management’s Discussion of Fund Performance			2
Performance and Fund Profile			4
Endnotes and Additional Disclosures			5
Financial Statements			6
Federal Tax Information			21
Annual Meeting of Shareholders			22
Dividend Reinvestment Plan			23
Management and Organization			25
Important Notices			27

Eaton Vance

National Municipal Opportunities Trust

March 31, 2011

Management’s Discussion of Trust Performance

 

Portfolio Managers Cynthia J. Clemson and Thomas M. Metzold, CFA

Eaton Vance National Municipal Opportunities Trust (the Trust) is a closed-end fund traded on the NYSE under the symbol “EOT.” It is designed to provide current income exempt from regular federal income tax and invests primarily in municipal obligations that, at the time of investment, are investment-grade quality.

Economic and Market Conditions

After beginning 2010 with 3.7% gross domestic product (GDP) growth, the U.S. economy slowed to 1.7% in the second quarter and then began a month-by-month trudge back to daylight, ending with fourth-quarter growth of 3.1%. Initial data suggest the economy maintained its fourth-quarter pace into 2011. Consumer spending (about two-thirds of GDP) grew at a 4.0% rate in the fourth quarter, the fastest since the final quarter of 2006. In 2011, however, concerns loomed that rising oil prices could constrain consumer spending and slow the U.S. economic recovery.

During the 12-month period ending March 31, 2011, acceleration in economic growth was due in part to massive stimulus by the Federal Reserve. The central bank, however, announced a June 2011 conclusion to its $600 billion quantitative easing program, leaving uncertainty about the economy’s growth pace thereafter. There were other clouds too. U.S. unemployment, while better, was still high at 8.8%, and there was virtually no good news in the U.S. housing market. At the same time, the nation is facing record budget deficits, a focus, if not a preoccupation, for President Obama and Congress as 2011 began.

For the first five months of the period (April–August 2010), the tax-exempt bond market was generally characterized by solid performance, declining yields and moderate demand. There was, however, growing concern about municipal credit quality. This concern was primarily triggered by large deficits, uncertainty about pension funding and the end of federal stimulus. It was exacerbated by significant media attention on the fiscal stress of some issuers.

In November and December of 2010, municipal bond prices declined precipitously. Initially, municipals followed a general weakening in the U.S. Treasury market, but they continued to drop in the wake of unprecedented outflows from retail investors, who were concerned by volatility and high-profile predictions of municipal bond defaults. Municipal bond supply also vaulted as 2010 closed, driven by issuers that came to market ahead of the termination of the taxable municipal Build America Bond program. The first quarter of 2011 saw a modest recovery in municipal bond prices, as retail investors calmed and institutional “cross-over” investors maneuvered to take advantage of relatively cheap yields on 5%-coupon, long-term, highly rated municipal bonds. Scant new issue supply helped shore up the market as well. At March 31, 2011, municipal bond yields looked attractive versus yields on U.S. Treasuries, particularly at the long end of the municipal bond curve.

During the 12-month period, the municipal bond market posted returns that were largely positive. Returns were higher for shorter-maturity bonds and declined as you moved up the maturity curve, registering in negative territory for bonds with the longest maturities. The Trust’s primary benchmark, the Barclays Capital Long (22+) Municipal Bond Index (the Index)—an unmanaged index of municipal bonds traded in the U.S. with maturities of 22 years or more—declined 1.48% for the period.¹

Management Discussion

In this difficult environment, the Trust underperformed the Index at net asset value (NAV) for the one-year period ending March 31, 2011. Management’s security selection benefited performance. This was especially true in regard to general obligation and water and sewer bonds, where the Trust was underweight relative to the Index but outperformed based on individual credit selection. Overweights to hospital and industrial development revenue bonds also helped, but a slight underexposure to the transportation sector was negative. In terms of credit quality, the Trust’s investments were concentrated

See Endnotes and Additional Disclosures on page 5.

Eaton Vance
National Municipal Opportunities Trust

March 31, 2011

Management’s Discussion of Trust Performance

 

in the AA to BBB range, with its investment-grade bonds performing in line with those of the Index. An allocation to non-investment-grade bonds detracted a bit, as did the Trust’s slightly longer duration profile. Also hampering performance was an overweight to zero-coupon bonds, which offset the benefits of allocations to higher-coupon bonds. A hedge position using Treasury futures—a strategy that management has used to help mitigate interest-rate risk—proved to be the most significant detractor from the Trust’s performance as Treasury interest rates declined during the period.

Management employed leverage in the Trust, through which additional exposure to the municipal market was achieved. Leverage has the impact of magnifying the Trust’s exposure to its underlying investments in both up and down markets.

Clearly, many state and local governments continue to face daunting fiscal problems. Yet many, even those with some of the most severe budget problems—Illinois, California, New York and New Jersey—have made real progress in bringing budgets into line through lower spending, higher taxes or both. Tax revenues have also been on the rise in many areas as the economy slowly improves. We will continue to monitor developments and make strategic adjustments to the portfolio as appropriate, while maintaining a long-term perspective, which we believe will serve municipal investors well over time.

% Total Return Performance 3/31/10 – 3/31/11
New York Stock Exchange (NYSE) Symbol		EOT
At NAV2			-2.61
At Market Price2			-1.60
Barclays Capital Long (22+) Municipal Bond Index1			-1.48
Lipper General Municipal Debt Funds (Leveraged) Classification at NAV1			-0.55	*

See page 4 for more performance information.

^* Source: Lipper.

See Endnotes and Additional Disclosures on page 5.

Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value or market price (as applicable) with all distributions reinvested. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month end, please refer to www.eatonvance.com.

Eaton Vance
National Municipal Opportunities Trust

March 31, 2011

Performance²

 

New York Stock Exchange (NYSE) Symbol		EOT
Inception Date 5/29/09
% Average Annual Total Returns at NAV
One Year			-2.61
Since Inception			7.34
% Average Annual Total Returns at market price, NYSE
One Year			-1.60
Since Inception			5.24
% Premium/(Discount) to NAV (3/31/11)			-3.57
% Market Yields
Market Yield3			6.66
Taxable-Equivalent Market Yield4			10.25
% RIB Leverage5			13.07

Comparative Performance (3/31/10 – 3/31/11)1		% Return
Barclays Capital Long (22+) Municipal Bond Index			-1.48	*
Lipper General Municipal Debt
Funds (Leveraged) Classification at NAV			-0.55	*

^* Source: Lipper.

Fund Profile

 

Rating Distribution⁶ (% of total investments)

 

The rating distribution bar chart includes the ratings of securities held by special purpose vehicles in which the Trust holds a residual interest. See Note 1 to the Trust’s financial statements. Absent such securities, the Trust’s rating distribution as of 3/31/11 is as follows (in %):⁶

AAA			2.6			BB					2.2
AA			28.6			B					5.7
A			23.0			CCC					1.3
BBB			32.4			Not Rated					4.2

See Endnotes and Additional Disclosures on page 5.

Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value or market price (as applicable) with all distributions reinvested. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month end, please refer to www.eatonvance.com.

Eaton Vance
National Municipal Opportunities Trust

March 31, 2011

Endnotes and Additional Disclosures

1.		It is not possible to invest directly in an Index or a Lipper Classification. Total returns shown for an Index do not reflect expenses that would have been incurred if an investor individually purchased or sold the securities represented in an Index. The Barclays Capital Long (22+) Municipal Bond Index is an unmanaged index of municipal bonds traded in the U.S. with maturities of 22 years or more. The Lipper total return is the average total return, at NAV, of funds that are in the Trust’s Lipper Classification. Lipper Classifications may include insured and uninsured funds, as well as leveraged and unleveraged funds. Index and Lipper returns are available as of month end only.
2.		Performance reflects the effects of leverage.
3.		Trust market yield is calculated by dividing the last regular dividend per common share in the period (annualized) by the market price at the end of the period.
4.		Taxable-equivalent figure assumes maximum federal income tax rate. A lower income tax rate would result in a lower tax-equivalent figure. The maximum federal income tax rate was 35% as of 3/31/11.
5.		The Trust employs leverage through the use of residual interest bond (RIB) financing. Leverage provides an opportunity for increased income but, at the same time, creates special risks (including the likelihood of greater volatility of NAV and market price of common shares). See “Floating Rate Notes Issued in Conjunction with Securities Held” in Note 1 to the financial statements for more information on RIB investments. RIB leverage represents the amount of Floating Rate Notes outstanding as of 3/31/11 as a percentage of Trust net assets plus Floating Rate Notes.
6.		Rating Distribution is determined by dividing the total market value of Trust issues by its total investments. Ratings are based on Moody’s, S&P or Fitch, as applicable. Credit ratings are based largely on the rating agency’s investment analysis at the time of rating and the rating assigned to any particular security is not necessarily a reflection of the issuer’s current financial condition. The rating assigned to a security by a rating agency does not necessarily reflect its assessment of the volatility of a security’s market value or of the liquidity of an investment in the security. If securities are rated differently by the rating agencies, the higher rating is applied.

The views expressed throughout this report are those of portfolio management and are current only through the end of the period of the report as stated on the cover. These views are subject to change at any time based upon market or other conditions, and the investment adviser disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund are based on many factors, may not be relied on as an indication of trading intent on behalf of any Eaton Vance fund. Portfolio information provided in the report may not be representative of the Trust’s current or future investments and may change due to active management.

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Portfolio of Investments

 

See Notes to Financial Statements.

6

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Portfolio of Investments — continued

 

See Notes to Financial Statements.

7

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Portfolio of Investments — continued

 

See Notes to Financial Statements.

8

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Portfolio of Investments — continued

 

The percentage shown for each investment category in the Portfolio of Investments is based on net assets.

 

 

At March 31, 2011, the concentration of the Trust’s investments in the various states, determined as a percentage of total investments is as follows:

 

Texas			14.1%
California			12.3%
Others, representing less than 10% individually			73.6%

 

The Trust invests primarily in debt securities issued by municipalities. The ability of the issuers of the debt securities to meet their obligations may be affected by economic developments in a specific industry or municipality. In order to reduce the risk associated with such economic developments, at March 31, 2011, 11.3% of total investments are backed by bond insurance of various financial institutions and financial guaranty assurance agencies. The aggregate percentage insured by an individual financial institution ranged from 0.1% to 5.2% of total investments.

 

 

See Notes to Financial Statements.

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Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Statement of Assets and Liabilities

 

 

See Notes to Financial Statements.

10

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Statement of Operations

 

 

See Notes to Financial Statements.

11

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Statements of Changes in Net Assets

 

 

 

See Notes to Financial Statements.

12

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Statement of Cash Flows

 

 

See Notes to Financial Statements.

13

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Financial Highlights

 

 

 

See Notes to Financial Statements.

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Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Notes to Financial Statements

 

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 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.

 

A Investment Valuation — Debt obligations (including short-term obligations with a remaining maturity of more than sixty days) 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 asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, 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 obligations purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value. Financial futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded. 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 value, or 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 all 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 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 entity’s financial condition, 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 municipal obligations, 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.

 

At March 31, 2011, the Trust had a net capital loss of $1,680,954 attributable to security transactions incurred after October 31, 2010. This net capital loss is treated as arising on the first day of the Trust’s taxable year ending March 31, 2012.

 

As of March 31, 2011, the Trust had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. Each of the Trust’s federal tax returns filed since the start of business on May 29, 2009 to March 31, 2011 remains subject to examination by the Internal Revenue Service.

 

D Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Trust. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Trust maintains with SSBT. All credit balances, if any, used to reduce the Trust’s custodian fees are reported as a reduction of expenses in the Statement of Operations.

 

E Organization and Offering Costs — Costs incurred by the Trust in connection with its organization are expensed. Costs incurred by the Trust in connection with the offering of its common shares are recorded as a reduction of additional paid-in capital.

 

F 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.

 

G Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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.

 

H 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 the defense on behalf of

 

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National Municipal Opportunities Trust

 

March 31, 2011

 

 

Notes to Financial Statements — continued

 

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.

 

I Floating Rate Notes Issued in Conjunction with Securities Held — The Trust may invest in inverse floating rate securities, also referred to as residual interest bonds, whereby the Trust may sell a variable or fixed rate bond to a broker for cash. At the same time, the Trust buys a residual interest in the assets and cash flows of a Special-Purpose Vehicle (the SPV), (which is generally organized as a trust), set up by the broker, often referred to as an inverse floating rate obligation (Inverse Floater). The broker deposits a bond into the SPV with the same CUSIP number as the bond sold to the broker 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 Inverse Floater 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 broker transfer the Bond held by the SPV to the Trust, thereby terminating the SPV. Should the Trust exercise such right, it would generally pay the broker the par amount due on the Floating Rate Notes and exchange the Inverse Floater 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 broker for redemption at par at each reset date. 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 broker upon 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 March 31, 2011, the amount of the Trust’s Floating Rate Notes outstanding and the related collateral were $44,430,000 and $65,599,559, respectively. The range of interest rates on Floating Rate Notes outstanding at March 31, 2011 was 0.25% to 0.31%. For the year ended March 31, 2011, the Trust’s average Floating Rate Notes outstanding and the average interest rate including fees were $46,846,438 and 0.86%, respectively.

 

The Trust may enter into shortfall and forbearance agreements with the broker by which the Trust agrees to reimburse the broker, in certain circumstances, 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 March 31, 2011.

 

The Trust may also purchase Inverse Floaters from brokers 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 Inverse Floaters purchased in a secondary market transaction are disclosed in the Portfolio of Investments. The Trust’s investment policies and restrictions expressly permit investments in Inverse Floaters. Inverse floating rate securities 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 inverse floating rate securities 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. Inverse Floaters held by the Trust are securities exempt from registration under Rule 144A of the Securities Act of 1933.

 

J Financial Futures Contracts — The Trust may enter into financial futures contracts. Upon entering into a financial futures contract, the Trust is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the purchase price (initial margin). Subsequent payments, known as variation margin, are made or received by the Trust each business day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Trust. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Trust may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.

 

K When-Issued Securities and Delayed Delivery Transactions — The Trust may purchase or sell 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 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. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

 

L Statement of Cash Flows — The cash amount shown in the Statement of Cash Flows of the Trust is the amount included in the Trust’s Statement of Assets and Liabilities and represents the cash on hand at its custodian and does not include any short-term investments.

 

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National Municipal Opportunities Trust

 

March 31, 2011

 

 

Notes to Financial Statements — continued

 

2 Distributions to Shareholders

 

The Trust intends to make monthly distributions of net investment income to shareholders. In addition, at least annually, the Trust intends to distribute all or substantially all of its net realized capital gains (reduced by available capital loss carryforwards from prior years, if any). Distributions are recorded on the ex-dividend date. The Trust distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted in the United States of America require that only distributions in excess of tax basis earnings and profits be 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.

 

The tax character of distributions declared for the year ended March 31, 2011 and the period ended March 31, 2010 was as follows:

 

 

 

During the year ended March 31, 2011, accumulated net realized loss was decreased by $841,690 and accumulated undistributed net investment income was decreased by $841,690 due to dividend redesignations and differences between book and tax accounting, primarily for accretion of market discount. These reclassifications had no effect on the net assets or net asset value per share of the Trust.

 

As of March 31, 2011, the components of distributable earnings (accumulated losses) and unrealized appreciation (depreciation) on a tax basis were as follows:

 

 

The differences between components of distributable earnings (accumulated losses) on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to futures contracts, accretion of market discount and inverse floaters.

 

3 Investment Adviser and Administration Fee and Other Transactions with Affiliates

 

The investment adviser and administration fee is earned by EVM as compensation for investment advisory and administrative services rendered to the Trust. The fee is computed at an annual rate of 0.60% of the Trust’s average daily gross assets up to $1.5 billion and 0.59% of average daily gross assets of $1.5 billion or more, and is payable monthly. Average daily gross assets include the principal amount of any indebtedness for money borrowed, including debt securities issued by the Trust. Average daily gross assets are calculated by adding to net assets the amount payable by the Trust to floating rate note holders. For the year ended March 31, 2011, the investment adviser and administration fee incurred by the Trust and the effective annual rate, as a percentage of average daily gross assets, were $2,204,966 and 0.60%, respectively.

 

Except for Trustees of the Trust who are not members of EVM’s organization, officers and Trustees receive remuneration for their services to the Trust out of the investment adviser and administration 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 year ended March 31, 2011, 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 $36,869,127 and $46,508,049, respectively, for the year ended March 31, 2011.

 

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National Municipal Opportunities Trust

 

March 31, 2011

 

 

Notes to Financial Statements — continued

 

5 Shares of Beneficial Interest

 

The Trust may issue common shares pursuant to its dividend reinvestment plan. Transactions in common shares were as follows:

 

 

 

6 Federal Income Tax Basis of Investments

 

The cost and unrealized appreciation (depreciation) of investments of the Trust at March 31, 2011, as determined on a federal income tax basis, were as follows:

 

 

7 Overdraft Advances

 

Pursuant to the custodian agreement, SSBT may, in its discretion, advance funds to the Trust to make properly authorized payments. When such payments result in an overdraft, the Trust is obligated to repay SSBT at the current rate of interest charged by SSBT for secured loans (currently, a rate above the Federal Funds rate). This obligation is payable on demand to SSBT. SSBT has a lien on the Trust’s assets to the extent of any overdraft. At March 31, 2011, the Trust had a payment due to SSBT pursuant to the foregoing arrangement of $398,355.

 

8 Financial Instruments

 

The Trust may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include financial futures contracts and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Trust has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered.

 

A summary of obligations under these financial instruments at March 31, 2011 is as follows:

 

 

At March 31, 2011, the Trust had sufficient cash and/or securities to cover commitments under these contracts.

 

The Trust is subject to interest rate risk in the normal course of pursuing its investment objectives. Because the Trust holds fixed-rate bonds, the value of these bonds may decrease if interest rates rise. The Trust purchases and sells U.S. Treasury futures contracts to hedge against changes in interest rates.

 

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National Municipal Opportunities Trust

 

March 31, 2011

 

 

Notes to Financial Statements — continued

 

The fair value of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) and whose primary underlying risk exposure is interest rate risk at March 31, 2011 was as follows:

 

 

 

The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations and whose primary underlying risk exposure is interest rate risk for the year ended March 31, 2011 was as follows:

 

 

 

The average notional amount of futures contracts outstanding during the year ended March 31, 2011, which is indicative of the volume of this derivative type, was approximately $18,000,000.

 

9 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.

 

 

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 March 31, 2011, the hierarchy of inputs used in valuing the Trust’s investments, which are carried at value, were as follows:

 

 

The Trust held no investments or other financial instruments as of March 31, 2010 whose fair value was determined using Level 3 inputs. At March 31, 2011, the value of investments transferred between Level 1 and Level 2, if any, during the year then ended was not significant.

 

19

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Trustees and Shareholders of Eaton Vance National Municipal Opportunities Trust:

 

We have audited the accompanying statement of assets and liabilities of Eaton Vance National Municipal Opportunities Trust (the “Trust”), including the portfolio of investments, as of March 31, 2011, and the related statement of operations and cash flows for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and the period from the start of business, May 29, 2009, to March 31, 2010. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Eaton Vance National Municipal Opportunities Trust as of March 31, 2011, the results of its operations and its cash flows for the year then ended, and the changes in its net assets and financial highlights for the year then ended and the period from the start of business, May 29, 2010 to March 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

 

DELOITTE & TOUCHE LLP

Boston, Massachusetts

May 13, 2011

 

20

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Federal Tax Information (Unaudited)

 

 

The Form 1099-DIV you receive in January 2012 will show the tax status of all distributions paid to your account in calendar year 2011. Shareholders are advised to consult their own tax adviser with respect to the tax consequences of their investment in the Trust. As required by the Internal Revenue Code and/or regulations, shareholders must be notified within 60 days of the Trust’s fiscal year end regarding exempt-interest dividends and capital gains dividends.

 

Exempt-Interest Dividends. The Trust designates 99.54% of dividends from net investment income as an exempt-interest dividend.

 

Capital Gains Dividends. The Trust designates $226,358 as a capital gain dividend.

 

21

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Annual Meeting of Shareholders

 

The Trust held its Annual Meeting of Shareholders on January 21, 2011. The following action was taken by the shareholders:

 

Item 1: The election of William H. Park and Ronald A. Pearlman as Class II Trustees of the Trust for a three-year term expiring in 2014.

 

 

22

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Dividend Reinvestment Plan

 

The Trust offers a dividend reinvestment plan (the Plan) pursuant to which shareholders automatically have distributions reinvested in common shares (the Shares) of the Trust unless they elect otherwise through their investment dealer. American Stock Transfer & Trust Company (AST), the Trust’s Transfer Agent, serves as agent for the shareholders in administering the Plan (Plan Agent). On the distribution payment date, if the net asset value per Share is equal to or less than the market price per Share plus estimated brokerage commissions, then new Shares will be issued. The number of Shares shall be determined by the greater of the net asset value per Share or 95% of the market price. Otherwise, Shares generally will be purchased on the open market by the Plan Agent. Distributions subject to income tax (if any) are taxable whether or not shares are reinvested.

 

If your Shares are in the name of a brokerage firm, bank, or other nominee, you can ask the firm or nominee to participate in the Plan on your behalf. If the nominee does not offer the Plan, you will need to request that your Shares be re-registered in your name with AST or you will not be able to participate.

 

The Plan Agent’s service fee for handling distributions will be paid by the Trust. Each participant will be charged their pro rata share of brokerage commissions on all open-market purchases.

 

Plan participants may withdraw from the Plan at any time by writing to the Plan Agent at the address noted on the following page. If you withdraw, you will receive shares in your name for all Shares credited to your account under the Plan. If a participant elects by written notice to the Plan Agent to have the Plan Agent sell part or all of his or her Shares and remit the proceeds, the Plan Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the proceeds.

 

If you wish to participate in the Plan and your Shares are held in your own name, you may complete the form on the following page and deliver it to the Plan Agent.

 

Any inquiries regarding the Plan can be directed to the Plan Agent at 1-866-439-6787.

 

23

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Application for Participation in Dividend Reinvestment Plan

 

 

 

The following authorization and appointment is given with the understanding that I may terminate it at any time by terminating my participation in the Plan as provided in the terms and conditions of the Plan.

 

Please print exact name on account

Shareholder signature                                   Date

Shareholder signature                                   Date

 

Please sign exactly as your common shares are registered. All persons whose names appear on the share certificate must sign.

 

YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.

 

This authorization form, when signed, should be mailed to the following address:

 

Eaton Vance National Municipal Opportunities Trust

c/o American Stock Transfer & Trust Company

P.O. Box 922

Wall Street Station

New York, NY 10269-0560

 

Number of Employees

The Trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.

 

Number of Shareholders

As of March 31, 2011, Trust records indicate that there are 8 registered shareholders and approximately 8,247 shareholders owning the Trust shares in street name, such as through brokers, banks, and financial intermediaries.

 

If you are a street name shareholder and wish to receive Trust reports directly, which contain important information about the Trust, please write or call:

 

Eaton Vance Distributors, Inc.

Two International Place

Boston, MA 02110

1-800-262-1122

 

New York Stock Exchange Symbol

 

The New York Stock Exchange symbol is EOT.

 

24

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Management and Organization

 

Fund Management. The Trustees of Eaton Vance National Municipal Opportunities Trust (the Trust) are responsible for the overall management and supervision of the Trust’s affairs. The Trustees and officers of the Trust are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. The “Noninterested Trustees” consist of those Trustees who are not “interested persons” of the Trust, as that term is defined under the 1940 Act. The business address of each Trustee and officer is Two International Place, Boston, Massachusetts 02110. As used below, “EVC” refers to Eaton Vance Corp., “EV” refers to Eaton Vance, Inc., “EVM” refers to Eaton Vance Management, “BMR” refers to Boston Management and Research and “EVD” refers to Eaton Vance Distributors, Inc. EVC and EV are the corporate parent and trustee, respectively, of EVM and BMR. EVD is the Trust’s principal underwriter and a wholly-owned subsidiary of EVM. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with EVM listed below. After his or her initial term, each Trustee serves for a three year term. Each officer serves until his or her successor is elected.

 

 

25

 

Eaton Vance

National Municipal Opportunities Trust

 

March 31, 2011

 

 

Management and Organization — continued

 

 

 

26