-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EL5BKUcjvwV/10ApNr5/XO343qLLiKuN8TnT5egFP30pikm7ftBEWPPlE7AvRsso 5du41dKJplDul3bge+89xw== 0000950123-06-005808.txt : 20060505 0000950123-06-005808.hdr.sgml : 20060505 20060505120211 ACCESSION NUMBER: 0000950123-06-005808 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060228 FILED AS OF DATE: 20060505 DATE AS OF CHANGE: 20060505 EFFECTIVENESS DATE: 20060505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY MUNICIPAL INCOME OPPORTUNITIES TRUST II CENTRAL INDEX KEY: 0000847593 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05793 FILM NUMBER: 06811502 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBOSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: X1 ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: MSDW MUNICIPAL INCOME OPPORTUNITIES TRUST II DATE OF NAME CHANGE: 19981221 FORMER COMPANY: FORMER CONFORMED NAME: MUNICIPAL INCOME OPPORTUNITIES TRUST II DATE OF NAME CHANGE: 19930510 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL INCOME OPPORTUNITIES TRUST II DATE OF NAME CHANGE: 19920703 N-CSR 1 y18632nvcsr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05793 Morgan Stanley Municipal Income Opportunities Trust II (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: February 28, 2006 Date of reporting period: February 28, 2006 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Municipal Income Opportunities Trust II performed during the annual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. FUND REPORT For the year ended February 28, 2006 MARKET CONDITIONS A range of events influenced the fixed income markets during the 12-month period ending February 28, 2006. Among them, the Gulf Coast hurricanes and soaring energy prices led to concerns about whether the economy could sustain its growth. In the wake of Hurricane Katrina, some observers initially believed the economy would suffer significant adverse after-effects. As the weeks progressed, however, it became apparent that the impact on the economy would be much smaller and more temporary than anticipated. Even the sharply higher energy prices failed to interrupt the positive economic momentum and real gross domestic product growth continued at a good pace throughout the period. Given the economy's solid growth and relatively low inflation, the Federal Open Market Committee (the "Fed") continued raising the federal funds target rate. Through eight increases of 25 basis points each, the Fed increased the target rate from 2.50 percent at the start of the period to 4.50 percent at the close. The minutes from the Fed's January meeting indicated that further tightening may occur. Yields on short- and intermediate-term municipal bonds followed the target rate and rose steadily. In contrast, the yields of long-term bonds declined for the period overall, reflecting strong demand for longer maturities and the market's perception that inflation was under control. Accordingly, the slope of the yield curve flattened as the difference between short-term and long-term interest rates narrowed substantially. Representative yields on 30-year AAA rated municipal bonds began the period at 4.50 percent and ended at 4.30 percent, having ranged from a low of 4.20 percent in June to a high of 4.65 percent in November. Investors' quest for yield favored lower-quality bonds over high-grade issues and kept credit spreads relatively tight. (Credit spreads measure the incremental yield investors require to assume additional credit risk. When credit spreads tighten, lower-rated issues typically outperform.) Long-term municipal volume increased 13 percent to a record $408 billion in 2005. The flatter yield curve and low long-term interest rates encouraged municipalities to refinance their debt. Refundings accounted for 30 percent of annual volume, a nearly 50 percent increase over 2004. In the first two months of calendar year 2006, volume dropped 25 percent compared to the same period in 2005. The municipal-to-Treasury yield ratio, which gauges the performance between the two markets, remained attractive for tax-exempt bonds. During the year, the ratio of 30-year municipals to 30-year Treasuries averaged 97 percent. (The higher the ratio, the greater the attractiveness of municipal yields relative to Treasury yields.) As a result, institutional investors--such as hedge funds and arbitrage accounts--that normally focus on taxable bond sectors "crossed-over" to purchase municipal bonds. Demand from individual investors was less robust, given the low absolute level of yields. PERFORMANCE ANALYSIS For the 12-month period ended February 28, 2006, Morgan Stanley Municipal Income Opportunities Trust II's (OIB's) net asset value (NAV) increased from $8.78 to 2 $9.04 per share. Based on this change plus reinvestment of tax-free dividends totaling $0.4925 per share, the Fund's total NAV return was 9.16 percent. OIB's value on the New York Stock Exchange (NYSE) moved from $8.00 to $8.77 per share during the same period. Based on this change plus reinvestment of tax-free dividends, the Fund's total market return was 16.23 percent. On February 28, 2006, OIB's NYSE market price was at a 2.99 percent discount to its NAV. During the fiscal year, the Fund purchased and retired 549,055 shares of common stock at a weighted average market discount of 6.26 percent. Monthly dividends for the first quarter of 2006, declared in December, were unchanged at $0.0425 per share. The dividend reflects the current level of the Fund's net investment income. OIB's level of undistributed net investment income was $0.099 per share on February 28, 2006, versus $0.093 per share 12 months earlier.(1) At the end of the reporting period, all holdings in the Fund's portfolio were accruing interest. In anticipation of continued Fed tightening and generally higher interest rates, the Fund maintained a conservative interest rate strategy. At the end of February, the Fund's option-adjusted duration* was 6.0 years. Overall, the Fund's duration positioning tempered total returns when rates declined, but helped total returns when rates rose. As discussed in previous reports, the Fund invests primarily in higher yielding municipal bonds. Consistent with its focus on higher yielding securities, the Fund's exposure to below investment grade or non-rated issues was gradually increased to more than two-thirds of assets by the close of the period. This security mix had a positive impact on performance as lower quality bonds outperformed the general municipal bond market. Reflecting a commitment to diversification, the Fund's net assets of $147.5 million were invested among 12 long-term sectors and 95 credits. OIB's procedure for reinvesting all dividends and distributions in common shares is through purchases in the open market. This method helps support the market value of the Fund's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Fund may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. - ---------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future. (1) Income earned by certain securities in the portfolio may be subject to the federal alternative minimum tax (AMT). * A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond's duration, the greater the effect of interest-rate movements on its price. Typically, funds with shorter durations perform better in rising-interest-rate environments, while funds with longer durations perform better when rates decline. 3
TOP FIVE SECTORS Retirement & Life Care Facilities 20.6% Hospital 19.1 IDR/PCR* 14.2 Tax Allocation 10.5 Nursing & Health Related Facilities 10.3
LONG-TERM CREDIT ANALYSIS Aaa/AAA 1.3% Aa/AA 0.3 A/A 4.1 Baa/BBB 25.1 Ba/BB or Less 9.1 NR 60.1
* Industrial Development/Pollution Control Revenue Data as of February 28, 2006. Subject to change daily. All percentages for top five sectors are as a percentage of net assets and all percentages for long-term credit analysis are as a percentage of total long-term investments. These data are provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC, WASHINGTON, DC 20549-0102. 4 DISTRIBUTION BY MATURITY (% of Long-Term Portfolio) As of February 28, 2006 WEIGHTED AVERAGE MATURITY: 21 YEARS(A) 0-5 5 6-10 6 11-15 10 16-20 16 21-25 29 26-30 31 30+ 3
(a) Where applicable maturities reflect mandatory tenders, puts and call dates. Portfolio structure is subject to change. Geographic Summary of Investments Based on Market Value as a Percent of Net Assets Alabama................. 1.4% Arkansas................ 1.4 California.............. 5.1 Colorado................ 3.1 Connecticut............. 2.5 District of Columbia.... 0.6 Florida................. 4.5 Georgia................. 0.7 Hawaii.................. 1.1 Idaho................... 0.5 Illinois................ 5.7 Indiana................. 2.6 Iowa.................... 3.9 Kansas.................. 1.5% Kentucky................ 1.4 Louisiana............... 0.5 Maine................... 0.3 Maryland................ 3.7 Massachusetts........... 2.5 Michigan................ 0.4 Missouri................ 5.0 Nevada.................. 5.0 New Hampshire........... 3.5 New Jersey.............. 6.8 New York................ 8.1 North Carolina.......... 0.7 Ohio.................... 0.5% Oklahoma................ 0.8 Pennsylvania............ 5.7 South Carolina.......... 1.6 Tennessee............... 1.4 Texas................... 4.4 Vermont................. 1.4 Virginia................ 9.4 Wisconsin............... 1.3 Joint exemptions*....... (0.6) ---- Total +................. 98.4% ====
- --------------- * Joint exemptions have been included in each geographic location. + Does not include open short futures contracts with an underlying face amount of $5,259,375 with unrealized depreciation of $8,340. 5 CALL AND COST (BOOK) YIELD STRUCTURE (Based on Long-Term Portfolio) As of February 28, 2006 YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS(A) 2006(a) 10 2007 7 2008 9 2009 12 2010 3 2011 10 2012 7 2013 15 2014 10 2015 9 2016+ 8
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 6.5% 2006(a) 7.3 2007 6.3 2008 6.1 2009 6.4 2010 6.8 2011 7.7 2012 6.5 2013 6.8 2014 6.5 2015 5.6 2016+ 5.5
(a) May include issues initially callable in previous years. (b) Cost or "book" yield is the annual income earned on a portfolio investment based on its original purchase price before the Fund's operating expenses. For example, the Fund is earning a book yield of 7.3% on 10% of the long-term portfolio that is callable in 2006. Portfolio structure is subject to change. 6 Morgan Stanley Municipal Income Opportunities Trust II PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (95.5%) Educational Facilities Revenue (5.1%) $ 1,200 ABAG Finance Authority for Nonprofit Corporations, California, National Center for International Schools COPs.................................................... 7.50% 05/01/11 $ 1,230,396 2,000 San Diego County, California, The Burnham Institute COPs.................................................... 6.25 09/01/29 2,192,860 1,000 Illinois Finance Authority, Fullerton Village Student Housing Ser 2004 A...................................... 5.125 06/01/35 1,014,710 500 South Berwick, Maine, Berwick Academy Ser 1998............ 5.55 08/01/23 508,495 500 Maryland Industrial Development Financing Authority, Our Lady of Good Counsel High School Ser 2005 A............. 6.00 05/01/35 524,940 2,000 New Hampshire Higher Educational & Health Facilities Authority, Colby - Sawyer College Ser 1996.............. 7.50 06/01/26 2,051,900 ------------ - -------- 7,523,301 7,200 ------------ - -------- Hospital Revenue (19.1%) 2,000 Colbert County - Northwest Health Care Authority, Alabama, Helen Keller Hospital Ser 2003.......................... 5.75 06/01/27 2,069,520 2,000 Baxter County, Arkansas, Baxter County Regional Hospital Impr & Refg Ser 1999 B.................................. 5.625 09/01/28 2,054,300 2,000 Colorado Health Facilities Authority, Poudre Valley Health Ser 2005 F.............................................. 5.00 03/01/25 2,034,100 1,500 Indiana Health Facility Financing Authority, Riverview Hospital Ser 2002....................................... 6.125 08/01/31 1,615,455 600 Gaylord Hospital Financing Authority, Michigan, Otsego Memorial Hospital Ser 2004.............................. 6.50 01/01/37 622,290 1,000 Nevada, Missouri, Nevada Regional Medical Center Ser 2001.................................................... 6.75 10/01/31 1,062,330 Henderson, Nevada, 3,000 Catholic Health West Ser 2004 Ser A..................... 5.625 07/01/24 3,231,300 2,000 Catholic Health West Ser 1998 Ser A..................... 5.125 07/01/28 2,034,860 New Hampshire Higher Educational & Health Facilities Authority, 1,000 Littleton Hospital Association Ser 1998 B............... 5.80 05/01/18 1,040,280 2,000 Littleton Hospital Association Ser 1998 B............... 5.90 05/01/28 2,042,740 2,000 New Jersey Health Care Facilities Financing Authority, Raritan Bay Medical Center Ser 1994..................... 7.25 07/01/27 2,051,200 2,000 Dutchess County Development Agency, New York, St Francis Hospital Refg Ser 2004 A................................ 7.50 03/01/29 2,192,060 615 Nassau County Industrial Development Agency, New York, North Shore Health Ser C+++............................. 5.625 11/01/10 650,738 1,000 Oklahoma Development Finance Authority, Comanche County Hospital 2000 Ser B..................................... 6.60 07/01/31 1,111,960 205 South Carolina Jobs Economic Development Authority, Palmetto Health Refg & Impr Ser 2003 C.................. 6.875 08/01/27 237,888
7 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 1,000 Knox County Health, Educational & Housing Facility Board, Tennessee, Baptist Health of East Tennessee Ser 2002.... 6.50% 04/15/31 $ 1,066,860 1,000 Decatur Hospital Authority, Texas, Wise Regional Health Ser 2004 A.............................................. 7.125 09/01/34 1,089,670 1,750 Wisconsin Health & Educational Facilities Authority, Beaver Dam Community Hospital Ser 2004 A................ 6.75 08/15/34 1,903,808 ------------ - -------- 28,111,359 26,670 ------------ - -------- Industrial Development/Pollution Control Revenue (14.2%) 815 Metropolitan Washington Airports Authority, District of Columbia & Virginia, CaterAir International Corp Ser 1991 (AMT)++............................................ 10.125 09/01/11 816,222 1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT).......... 6.00 06/01/27 1,520,970 2,000 Perry County, Kentucky, TJ International Inc Ser 1997 (AMT)................................................... 6.55 04/15/27 2,089,820 1,000 New Jersey Economic Development Authority, Continental Airlines Inc Ser 1999 (AMT)............................. 6.625 09/15/12 1,022,010 New York City Industrial Development Agency, New York 2,000 American Airlines Inc Ser 2005.......................... 7.75 08/01/31 2,162,520 2,000 Brooklyn Navy Yard Cogeneration Partners LP Ser 1997.... 5.65 10/01/28 2,003,720 2,000 7 World Trade Center LLC Ser 2005 A..................... 6.50 03/01/35 2,108,460 250 New York Counties Tobacco Trust IV, New York, Ser 2005 A....................................................... 5.00 06/01/45 243,893 1,500 TSASC Inc, New York, Ser 2006-1........................... 5.125 06/01/42 1,490,085 1,600 Carbon County Industrial Development Authority, Pennsylvania, Panther Creek Partners Refg 2000 Ser (AMT)................................................... 6.65 05/01/10 1,690,400 1,000 Pennsylvania Economic Development Financing Authority, Reliant Energy Inc Ser 2001 A (AMT)..................... 6.75 12/01/36 1,066,700 1,000 Brazos River Authority, Texas, TXU Electric Co Refg Ser 1999 A (AMT)............................................ 7.70 04/01/33 1,172,870 Pittsylvania County Industrial Development Authority, Virginia, 500 Multi-Trade LP Ser 1994 A (AMT)......................... 7.45 01/01/09 508,910 3,000 Multi-Trade LP Ser 1994 A (AMT)......................... 7.55 01/01/19 3,052,320 ------------ - -------- 20,948,900 20,165 ------------ - -------- Mortgage Revenue - Multi-Family (2.4%) 500 Honolulu, Hawaii, Waipahu Towers GNMA Collateralized 1995 Ser A (AMT)............................................. 6.90 06/20/35 510,315 Alexandria Redevelopment & Housing Authority, Virginia, 2,000 Courthouse Commons Apts Ser 1990 A (AMT)................ 10.00 01/01/21 1,826,980 9,481 Courthouse Commons Apts Ser 1990 B (AMT)................ 0.00 01/01/21 1,133,598 ------------ - -------- 3,470,893 11,981 ------------ - --------
8 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Mortgage Revenue - Single Family (0.5%) $ 375 Colorado Housing Finance Authority, 1998 Ser B-3.......... 6.55% 05/01/25 $ 377,160 210 Chicago, Illinois, GNMA-Collateralized Ser 1998 A-1 (AMT)................................................... 6.45 09/01/29 215,783 200 Missouri Housing Development Commission, Homeownership GNMA/FNMA Collateralized 2000 Ser A-1 (AMT)............. 7.50 03/01/31 210,408 ------------ - -------- 803,351 785 ------------ - -------- Nursing & Health Related Facilities Revenue (10.3%) 2,000 Orange County Health Facilities Authority, Florida, Westminister Community Care Services Inc Ser 1999....... 6.75 04/01/34 2,072,560 1,000 Pinellas County Health Facilities Authority, Florida, Oaks of Clearwater Ser 2004.................................. 6.25 06/01/34 1,064,460 2,895 Iowa Health Facilities Development Financing Authority, Care Initiatives Ser 1996............................... 9.25 07/01/25 3,478,748 675 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 2003.............. 6.50++ 01/01/29 674,926 1,000 St Louis County Industrial Development Authority, Missouri, Pediatric Rehabilitation Center Ser 2003 A.... 6.625 11/15/35 1,038,340 700 Westside Habilitation Center, Louisiana, Intermediate Care Facility for the Mentally Retarded Refg Ser 1993........ 8.375 10/01/13 702,625 Massachusetts Development Finance Agency, 750 Evergreen Center Ser 2005............................... 5.50 01/01/35 762,007 1,375 New England Center for Children Ser 1998................ 5.875 11/01/18 1,405,759 1,000 Mount Vernon Industrial Development Agency, New York, Meadowview at the Wartburg Ser 1999..................... 6.15 06/01/19 1,030,610 2,940 Chester County Industrial Development Authority, Pennsylvania, RHA/PA Nursing Home Inc Ser 1989.......... 8.50 05/01/32 2,976,867 ------------ - -------- 15,206,902 14,335 ------------ - -------- Recreational Facilities Revenue (8.9%) 2,000 Sacramento Financing Authority, California, Convention Center Hotel 1999 Ser 2000 A............................ 6.25 01/01/30 2,083,720 Mashantucket (Western) Pequot Tribe, Connecticut, 1,010 Special 1996 Ser A (a).................................. 6.40 09/01/11 1,042,249 1,000 Special 1997 Ser B (a).................................. 5.75 09/01/27 1,031,470 1,500 Mohegan Tribe of Indians, Connecticut, Gaming Authority Ser 2001................................................ 6.25 01/01/31 1,610,160 2,000 Overland Park Development Corporation, Kansas, Convention Center Hotel Ser 2000 A................................. 7.375 01/01/32 2,169,840 3,000 St Louis Industrial Development Authority, Missouri, Kiel Center Refg Ser 1992 (AMT).............................. 7.75 12/01/13 3,041,700 2,000 Austin, Texas, Convention Center Hotel Ser 2000 A......... 6.70 01/01/32 2,115,820 ------------ - -------- 13,094,959 12,510 ------------ - --------
9 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Retirement & Life Care Facilities Revenue (20.6%) $ 500 Orange County Health Facilities Authority, Florida, Orlando Lutheran Towers Inc Ser 2005.................... 5.70% 07/01/26 $ 508,610 1,000 St Johns County Industrial Development Authority, Florida, Glenmoor Ser 1999 A..................................... 8.00 01/01/30 1,076,030 1,000 Hawaii Department of Budget & Finance, Kahala Nui 2003 Ser A....................................................... 8.00 11/15/33 1,162,970 1,000 Illinois Finance Authority, Landing at Plymouth Place Ser 2005 A.................................................. 6.00 05/15/37 1,008,860 Illinois Health Facilities Authority, 2,000 Smith Crossing Ser 2003 A............................... 7.00 11/15/32 2,140,920 1,000 Villa St Benedict Ser 2003 A-1.......................... 6.90 11/15/33 1,090,230 1,500 Westminster, Maryland, Caroll Lutheran Village Inc 2004 Ser A................................................... 6.25 05/01/34 1,593,720 1,500 Massachusetts Development Finance Agency, Loomis Communities Ser 1999 A.................................. 5.75 07/01/23 1,513,230 New Jersey Economic Development Authority, 1,000 Cedar Crest Village Inc Ser 2001 A...................... 7.25 11/15/31 1,086,810 2,000 Franciscan Oaks Ser 1997................................ 5.75 10/01/23 2,031,140 710 Lions Gate Ser 2005 A................................... 5.75 01/01/25 727,729 500 The Presbyterian Home at Montgomery Ser 2001 A.......... 6.375 11/01/31 523,410 1,000 United Methodist Homes of New Jersey Ser 1998........... 5.125 07/01/25 1,002,440 1,000 North Carolina Medical Care Commission, Given Estate Ser 2003 A.................................................. 6.50 07/01/32 1,072,620 1,000 Bucks County Industrial Development Authority, Pennsylvania, Ann's Choice Ser 2005A.................... 6.25 01/01/35 1,037,500 1,000 Montgomery County Industry Development Authority, Pennsylvania, Whitemarsh Community Ser 2005............. 6.25 02/01/35 1,052,290 1,000 Shelby County Health, Educational & Housing Facilities Board, Tennessee, Village at Germantown Ser 2003 A...... 7.25 12/01/34 1,038,710 1,000 Houston Health Facilities Development Corporation, Texas, Buckingham Senior Living Community Ser 2004 A........... 7.125 02/15/34 1,101,560 1,000 Lubbock, Health Facilities Development Corporation, Texas, Carillon Ser 2005 A..................................... 6.50 07/01/26 992,090 2,000 Vermont Economic Development Authority, Wake Robin Corp Ser 1999 A.............................................. 6.75 03/01/29 2,100,020 4,511 Chesterfield County Industrial Development Authority, Virginia, Brandermill Woods Ser 1998.................... 6.50 01/01/28 4,398,029 1,000 Peninsula Ports Authority of Virginia, Virginia Baptist Homes Ser 2003 A........................................ 7.375 12/01/32 1,116,400 1,000 Virginia Beach Development Authority, Virginia, Westminster-Canterbury Refg Ser 2005 A.................. 5.375 11/01/32 1,015,380 ------------ - -------- 30,390,698 29,221 ------------ - --------
10 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Tax Allocation Revenue (10.5%) $ 1,000 Carlsbad Assessment District No 2002-2001, California, Poinsettia Lane East Ser 2005 A......................... 5.20% 09/02/35 $ 1,005,640 1,000 Orange County Community Facilities District #86-2, California, Rancho Santa Margarita 1998 Ser A........... 5.55 08/15/17 1,028,690 2,000 Elk Valley Public Improvement Corporation, Colorado, Ser 2001 A.................................................. 7.30 09/01/22 2,145,060 1,000 Renaissance Commons Community Development District, Florida, Ser 2005 A..................................... 5.60 05/01/36 1,019,670 1,000 Atlanta, Georgia, Eastside Ser 2005 B..................... 5.40 01/01/20 1,027,760 500 Bolingbrook, Illinois, Sales Tax Ser 2005................. 0.00++ 01/01/24 454,170 1,000 Chicago, Illinois, Lake Shore East Ser 2002............... 6.75 12/01/32 1,087,240 750 Lincolnshire, Illinois, Special Service Area No 1-Sedgebrook Ser 2004................................... 6.25 03/01/34 800,918 2,000 Annapolis, Maryland, Park Place Ser 2005 A................ 5.35 07/01/34 2,037,080 1,250 Prince Georges County, Maryland, National Harbor Ser 2004.................................................... 5.20 07/01/34 1,271,662 2,000 Des Peres, Missouri, West County Center Ser 2002.......... 5.75 04/15/20 2,055,380 1,000 Clark County Special Impr District 142, Nevada, Mountains Edge Ser 2003........................................... 6.375 08/01/23 1,039,340 500 Allegheny County Redevelopment Authority, Pennsylvania, Pittsburgh Mills Ser 2004............................... 5.60 07/01/23 527,475 ------------ - -------- 15,500,085 15,000 ------------ - -------- Transportation Facilities Revenue (1.4%) 895 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A (Ambac)...................................... 5.85 10/01/13 957,748 1,000 Nevada Department of Business & Industry, Las Vegas Monorail 2nd Tier Ser 2000.............................. 7.375 01/01/40 1,047,870 ------------ - -------- 2,005,618 1,895 ------------ - -------- Other Revenue (1.1%) 1,500 New Jersey Economic Development Authority, Cigarette Tax - -------- Ser 2004................................................ 5.75 06/15/34 1,595,940 ------------ Refunded (1.4%) 1,795 South Carolina Jobs Economic Development Authority, Palmetto Health Refg Ser 2003 C......................... 6.875 08/01/13+ 2,137,845 ------------ - -------- 143,057 Total Tax-Exempt Municipal Bonds (Cost $134,032,346)........................... 140,789,851 ------------ - -------- Taxable Convertible Bond (0.4%) Airlines (0.4%) 633 UAL Corporation (Cost $633,080) (b) (c)................... 5.00 02/01/21 633,080 - -------- ------------
11 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Short-Term Tax-Exempt Municipal Obligations (2.5%) $ 700 Idaho Health Facilities Authority, St Luke's Regional Medical Center Ser 2000 (FSA) (Demand 03/01/06)......... 2.95*% 07/01/35 $ 700,000 2,200 Indiana Health Facility Financing Authority, Clarian Health Obligated Group Ser 2000 B (Demand 03/01/06)..... 2.97* 03/01/30 2,200,000 800 Cuyahoga County, Ohio, University Hospital of Cleveland Ser 1985 (Demand 03/01/06).............................. 2.91* 01/01/16 800,000 ------------ - -------- 3,700 Total Short-Term Tax-Exempt Municipal Obligations (Cost $3,700,000)............ 3,700,000 ------------ - --------
$147,390 Total Investments (Cost $138,365,426) (d) (e)...................... 98.4% 145,122,931 ======== Other Assets in Excess of Liabilities.............................. 1.6 2,358,711 ----- ------------ Net Assets......................................................... 100.0% $147,481,642 ===== ============
- --------------------- AMT Alternative Minimum Tax. COPs Certificates of Participation. * Current coupon of variable rate demand obligation. + Prerefunded to call date shown. ++ Joint exemption in locations shown. ++ Security is a "step-up" bond where the coupon increases on a predetermined future date. +++ A portion of this security has been physically segregated in connection with open futures contracts in the amount of $20,000. (a) Resale is restricted to qualified institutional investors. (b) Taxable convertible bond issued in reorganization. (c) A security with a total market value equal to $633,080 has been valued at its fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. (d) Securities have been designated as collateral in an amount equal to $5,231,172 in connection with open futures contracts. (e) The aggregate cost for federal income tax purposes is $138,276,660. The aggregate gross unrealized appreciation is $8,102,910 and the aggregate gross unrealized depreciation is $1,256,639, resulting in net unrealized appreciation of $6,846,271. Bond Insurance: - --------------- Ambac Ambac Assurance Corporation. FSA Financial Security Assurance Inc.
FUTURES CONTRACTS OPEN AT FEBRUARY 28, 2006:
DESCRIPTION/ UNDERLYING NUMBER OF DELIVERY MONTH FACE AMOUNT UNREALIZED CONTRACTS LONG/SHORT AND YEAR AT VALUE DEPRECIATION - ------------------------------------------------------------------------------ 50 Short U.S. Treasury Notes 5 yr June 2006 $(5,259,375) $(8,340) =======
12 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II FINANCIAL STATEMENTS Statement of Assets and Liabilities February 28, 2006 Assets: Investments in securities, at value (cost $138,365,426)..... $145,122,931 Cash........................................................ 58,116 Receivable for: Interest................................................ 2,378,685 Investments sold........................................ 226,028 Prepaid expenses and other assets........................... 3,437 ------------ Total Assets............................................ 147,789,197 ------------ Liabilities: Payable for: Shares of beneficial interest redeemed.................. 91,007 Investment advisory fee................................. 64,532 Variation margin........................................ 11,603 Administration fee...................................... 10,325 Transfer agent fee...................................... 9,422 Accrued expenses and other payables......................... 120,666 ------------ Total Liabilities....................................... 307,555 ------------ Net Assets.............................................. $147,481,642 ============ Composition of Net Assets: Paid-in-capital............................................. $146,428,544 Net unrealized appreciation................................. 6,749,165 Accumulated undistributed net investment income............. 1,611,563 Accumulated net realized loss............................... (7,307,630) ------------ Net Assets.............................................. $147,481,642 ============ Net Asset Value Per Share 16,319,790 shares outstanding (unlimited shares authorized of $.01 par value).......................................... $9.04 ============
13 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II FINANCIAL STATEMENTS continued Statement of Operations For the year ended February 28, 2006 Net Investment Income: Interest Income............................................. $ 9,294,318 ----------- Expenses Investment advisory fee..................................... 742,158 Administration fee.......................................... 118,745 Professional fees........................................... 68,419 Transfer agent fees and expenses............................ 42,708 Shareholder reports and notices............................. 37,584 Registration fees........................................... 16,242 Custodian fees.............................................. 9,897 Trustees' fees and expenses................................. 9,201 Other....................................................... 23,390 ----------- Total Expenses.......................................... 1,068,344 Less: expense offset........................................ (9,459) ----------- Net Expenses............................................ 1,058,885 ----------- Net Investment Income................................... 8,235,433 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain (Loss) on: Investments................................................. (6,895) Futures contracts........................................... 133,499 ----------- Net Realized Gain....................................... 126,604 ----------- Net Change in Unrealized Appreciation/Depreciation on: Investments................................................. 3,773,913 Futures contracts........................................... (52,665) ----------- Net Appreciation........................................ 3,721,248 ----------- Net Gain................................................ 3,847,852 ----------- Net Increase................................................ $12,083,285 ===========
14 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED FEBRUARY 28, 2006 FEBRUARY 28, 2005 ----------------- ----------------- Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 8,235,433 $ 8,290,269 Net realized gain........................................... 126,604 1,214,223 Net change in unrealized appreciation/depreciation.......... 3,721,248 1,236,801 ------------ ------------ Net Increase............................................ 12,083,285 10,741,293 Dividends to shareholders from net investment income........ (8,184,763) (8,550,219) Decrease from transactions in shares of beneficial interest.................................................. (4,585,611) (4,443,612) ------------ ------------ Net Decrease............................................ (687,089) (2,252,538) Net Assets: Beginning of period......................................... 148,168,731 150,421,269 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $1,611,563 and $1,573,069, respectively)................. $147,481,642 $148,168,731 ============ ============
15 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 1. Organization and Accounting Policies Morgan Stanley Municipal Income Opportunities Trust II (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Fund's investment objective is to provide current income exempt from federal income tax. The Fund was organized as a Massachusetts business trust on March 8, 1989 and commenced operations on June 30, 1989. The following is a summary of significant accounting policies: A. Valuation of Investments -- (1) portfolio securities are valued by an outside independent pricing service approved by the Trustees. The pricing service uses both a computerized grid matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the mean between the last reported bid and asked price. The portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. The Trustees believe that timely and reliable market quotations are generally not readily available for purposes of valuing tax-exempt securities and that the valuations supplied by the pricing service are more likely to approximate the fair value of such securities; (2) futures are valued at the latest sale price on the commodities exchange on which they trade unless it is determined that such price does not reflect their market value, in which case they will be valued at their fair value as determined in good faith under procedures established by and under the supervision of the Trustees; (3) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost; and (4) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily except where collection is not expected. C. Futures Contracts -- A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the 16 Morgan Stanley Municipal Income Opportunities Trust II NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 continued applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. D. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. E. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. F. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Advisory/Administration Agreements Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Adviser"), the Fund pays the Investment Adviser an advisory fee, calculated weekly and payable monthly, by applying the annual rate of 0.50% to the Fund's weekly net assets. Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund pays an administration fee, calculated weekly and payable monthly, by applying the annual rate of 0.08% to the Fund's weekly net assets. 3. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended February 28, 2006 aggregated $21,437,380 and $27,735,872, respectively. Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator, is the Fund's transfer agent. The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and 17 Morgan Stanley Municipal Income Opportunities Trust II NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 continued compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Aggregate pension costs for the year ended February 28, 2006 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,453. At February 28, 2006, the Fund had an accrued pension liability of $63,371 which is included in accrued expenses in the Statement of Assets and Liabilities. The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 4. Shares of Beneficial Interest Transactions in shares of beneficial interest were as follows:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE ---------- --------- ------------ Balance, February 29, 2004.................................. 17,440,745 $174,408 $159,575,531 Treasury shares purchased and retired (weighted average discount 9.55%)*.......................................... (571,900) (5,719) (4,437,893) Reclassification due to permanent book/tax differences...... -- -- (4,292,172) ---------- -------- ------------ Balance, February 28, 2005.................................. 16,868,845 168,689 150,845,466 Treasury shares purchased and retired (weighted average discount 6.26%)*.......................................... (549,055) (5,491) (4,580,120) ---------- -------- ------------ Balance, February 28, 2006.................................. 16,319,790 $163,198 $146,265,346 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 5. Dividends The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - ----------------- --------- ------------- -------------- December 27, 2005 $0.0425 March 3, 2006 March 17, 2006 March 28, 2006 0.0425 April 7, 2006 April 21, 2006 March 28, 2006 0.0425 May 5, 2006 May 19, 2006 March 28, 2006 0.0425 June 9, 2006 June 23, 2006
18 Morgan Stanley Municipal Income Opportunities Trust II NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 continued 6. Risks Relating to Certain Financial Instruments The Fund may invest a portion of its assets in residual interest bonds, which are inverse floating rate municipal obligations. The prices of these securities are subject to greater market fluctuations during periods of changing prevailing interest rates than are comparable fixed rate obligations. To hedge against adverse interest rate changes, the Fund may invest in financial futures contracts or municipal bond index futures contracts ("futures contracts"). These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 7. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund. 8. Federal Income Tax Status The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes, are reported as distributions of paid-in-capital. 19 Morgan Stanley Municipal Income Opportunities Trust II NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 continued The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED FEBRUARY 28, 2006 FEBRUARY 28, 2005 ----------------- ----------------- Tax-exempt income........................................... $ 8,184,763 $8,550,219 =========== ==========
As of February 28, 2006, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 1,647,641 Undistributed ordinary income............................... 384 Undistributed long-term gains............................... -- ----------- Net accumulated earnings.................................... 1,648,025 Capital loss carryforward*.................................. (6,500,491) Post-October losses......................................... (813,357) Temporary differences....................................... (127,350) Net unrealized appreciation................................. 6,846,271 ----------- Total accumulated earnings.................................. $ 1,053,098 ===========
- --------------------- * During the year ended February 28, 2006, the Fund utilized $889,856 of its net capital loss carryforward. As of February 28, 2006, the Fund had a net capital loss carryforward of $6,500,491 of which $173,449 will expire on February 28, 2009, $4,854,343 will expire on February 28, 2011 and $1,472,699 will expire on February 28, 2013 to offset future capital gains to the extent provided by regulations. As of February 28, 2006, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year), capital loss deferrals on wash sales, mark-to-market of open futures contracts, interest on bonds in default and book amortization of discounts on debt securities and permanent book/tax differences attributable to tax adjustments on debt securities sold by the Fund. To reflect reclassifications arising from the permanent differences, accumulated undistributed net investment income was charged and accumulated net realized loss was credited $12,176. 20 Morgan Stanley Municipal Income Opportunities Trust II FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED FEBRUARY 28 --------------------------------------------------------------------- 2006 2005 2004** 2003 2002 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period...................... $ 8.78 $ 8.62 $ 8.37 $ 8.44 $ 8.46 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income*................................ 0.50 0.48 0.49 0.51 0.51 Net realized and unrealized gain (loss)............... 0.23 0.15 0.25 (0.06) (0.02) ------ ------ ------ ------ ------ Total income from investment operations................... 0.73 0.63 0.74 0.45 0.49 ------ ------ ------ ------ ------ Less dividends from net investment income................. (0.49) (0.50) (0.51) (0.53) (0.52) ------ ------ ------ ------ ------ Anti-dilutive effect of acquiring treasury shares*........ 0.02 0.03 0.02 0.01 0.01 ------ ------ ------ ------ ------ Net asset value, end of period............................ $ 9.04 $ 8.78 $ 8.62 $ 8.37 $ 8.44 ====== ====== ====== ====== ====== Market value, end of period............................... $ 8.77 $ 8.00 $ 8.09 $ 7.51 $ 8.04 ====== ====== ====== ====== ====== Total Return+............................................. 16.23% 5.38% 14.90% (0.13)% 7.13% Ratios to Average Net Assets: Expenses.................................................. 0.72%(1) 0.89%(1) 0.96%(1) 0.94%(1) 0.95%(1) Net investment income..................................... 5.56% 5.62% 5.87% 6.09% 5.94% Supplemental Data: Net assets, end of period, in thousands................... $147,482 $148,169 $150,421 $150,510 $154,088 Portfolio turnover rate................................... 15% 16% 11% 8% 11%
- --------------------- * The per share amounts were computed using an average number of shares outstanding during the period. ** For the year ended February 29. + Total return is based upon the current market value on the last day of each period reported. Dividends and distributions are assumed to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total return does not reflect brokerage commissions. (1) Does not reflect the effect of expense offset of 0.01%.
21 See Notes to Financial Statements Morgan Stanley Municipal Income Opportunities Trust II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Morgan Stanley Municipal Income Opportunities Trust II: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Municipal Income Opportunities Trust II (the "Fund"), including the portfolio of investments, as of February 28, 2006, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund'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 Fund 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 Fund'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 February 28, 2006, by correspondence with the custodian. 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 Morgan Stanley Municipal Income Opportunities Trust II as of February 28, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York April 19, 2006 22 Morgan Stanley Municipal Income Opportunities Trust II REVISED INVESTMENT POLICY (UNAUDITED) On August 24, 2005, the Trustees of Morgan Stanley Municipal Income Opportunities Trust II (the "Fund") approved a change to the Fund's investment policy with respect to inverse floating rate municipal obligations whereby the Fund now would be permitted to invest up to 15% of its assets in inverse floating rate municipal obligations. The inverse floating rate municipal obligations in which the Fund will invest are typically created through a division of a fixed rate municipal obligation into two separate instruments, a short-term obligation and a long-term obligation. The interest rate on the short-term obligation is set at periodic auctions. The interest rate on the long-term obligation is the rate the issuer would have paid on the fixed income obligation: (i) plus the difference between such fixed rate and the rate on the short-term obligation, if the short-term rate is lower than the fixed rate; or (ii) minus such difference if the interest rate on the short-term obligation is higher than the fixed rate. The interest rates on these obligations generally move in the reverse direction of market interest rates. If market interest rates fall, the interest rate on the obligation will increase and if market interest rates increase, the interest rate on the obligation will fall. Inverse floating rate municipal obligations offer the potential for higher income than is available from fixed rate obligations of comparable maturity and credit rating. They also carry greater risks. In particular, the prices of inverse floating rate municipal obligations are more volatile, i.e., they increase and decrease in response to changes in interest rates to a greater extent than comparable fixed rate obligations. 23 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION Independent Trustees:
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** - --------------------------------------- ----------- -------------- ------------------------------ ------------- Michael Bozic (65) Trustee Since April Private Investor; Director or 197 c/o Kramer Levin Naftalis & Frankel LLP 1994 Trustee of the Retail Funds Counsel to the Independent Trustees (since April 1994) and the 1177 Avenue of the Americas Institutional Funds (since New York, NY 10036 July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (73) Trustee Since January Consultant; Director or 197 1031 N. Chartwell Court 1993 Trustee of the Retail Funds Salt Lake City, UT 84103 (since January 1993) and the Institutional Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp. (utility company); formerly Managing Director of Summit Ventures LLC (2000-2004) (lobbying and consulting firm); United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - --------------------------------------- ----------------------------------- Michael Bozic (65) Director of various business c/o Kramer Levin Naftalis & Frankel LLP organizations. Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 Edwin J. Garn (73) Director of Franklin Covey (time 1031 N. Chartwell Court management systems), BMW Bank of Salt Lake City, UT 84103 North America, Inc. (industrial loan corporation), Escrow Bank USA (industrial loan corporation); United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations.
24 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION continued
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** - --------------------------------------- ----------- -------------- ------------------------------ ------------- Wayne E. Hedien (72) Trustee Since Retired; Director or Trustee 197 c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since Counsel to the Independent Trustees September 1997) and the 1177 Avenue of the Americas Institutional Funds (since New York, NY 10036 July 2003); formerly associated with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Dr. Manuel H. Johnson (57) Trustee Since July Senior Partner, Johnson Smick 197 c/o Johnson Smick Group, Inc. 1991 International, Inc., a 888 16th Street, NW consulting firm; Chairman of Suite 740 the Audit Committee and Washington, D.C. 20006 Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); Co- Chairman and a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (63) Trustee Since July President, Kearns & Associates 198 c/o Kearns & Associates LLC 2003 LLC (investment consulting); PMB754 Deputy Chairman of the Audit 23852 Pacific Coast Highway Committee and Director or Malibu, CA 90265 Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust. Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - --------------------------------------- ----------------------------------- Wayne E. Hedien (72) Director of The PMI Group Inc. c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance); Counsel to the Independent Trustees Trustee and Vice Chairman of The 1177 Avenue of the Americas Field Museum of Natural History; New York, NY 10036 director of various other business and charitable organizations. Dr. Manuel H. Johnson (57) Director of NVR, Inc. (home c/o Johnson Smick Group, Inc. construction); Director of KFX 888 16th Street, NW Energy; Director of RBS Greenwich Suite 740 Capital Holdings (financial holding Washington, D.C. 20006 company). Joseph J. Kearns (63) Director of Electro Rent c/o Kearns & Associates LLC Corporation (equipment leasing), PMB754 The Ford Family Foundation, and the 23852 Pacific Coast Highway UCLA Foundation. Malibu, CA 90265
25 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION continued
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** - --------------------------------------- ----------- -------------- ------------------------------ ------------- Michael E. Nugent (69) Trustee Since July General Partner of Triumph 197 c/o Triumph Capital, L.P. 1991 Capital, L.P., a private 445 Park Avenue investment partnership; New York, NY 10022 Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (73) Trustee Since July Chairman of Lumelite Plastics 198 c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the 85 Charles Colman Blvd. Governance Committee and Pawling, NY 12564 Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - --------------------------------------- ----------------------------------- Michael E. Nugent (69) None. c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022 Fergus Reid (73) Trustee and Director of certain c/o Lumelite Plastics Corporation investment companies in the 85 Charles Colman Blvd. JPMorgan Funds complex managed by Pawling, NY 12564 J.P. Morgan Investment Management Inc.
26 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION continued Interested Trustees:
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Interested Trustee Registrant Time Served* Past 5 Years** Trustee*** - ------------------------------------- ----------- -------------- ------------------------------ ------------- Charles A. Fiumefreddo (72) Chairman of Since July Chairman and Director or 197 c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds Harborside Financial Center, and Trustee (since July 1991) and the Plaza Two, Institutional Funds (since Jersey City, NJ 07311 July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (58) Trustee Since June Director or Trustee of the 197 c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000) Harborside Financial Center, and the Institutional Funds Plaza Two, (since July 2003); Senior Jersey City, NJ 07311 Advisor of Morgan Stanley (since August 2000); Director of Dean Witter Realty Inc. Name, Age and Address of Interested Trustee Other Directorships Held by Trustee - ------------------------------------- ----------------------------------- Charles A. Fiumefreddo (72) None. c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ 07311 James F. Higgins (58) Director of AXA Financial, Inc. and c/o Morgan Stanley Trust The Equitable Life Assurance Harborside Financial Center, Society of the United States Plaza Two, (financial services). Jersey City, NJ 07311
- --------------------- * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the "Retail Funds"). ** The dates referenced below indicating commencement of services as Director/Trustee for the Retail Funds and the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds") reflect the earliest date the Director/Trustee began serving the Retail or Institutional Funds, as applicable. *** The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.). 27 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION continued Officers:
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years** - ----------------------------- --------------- -------------- ------------------------------------------------------------ Ronald E. Robison (67) President and Since May 2003 President (since September 2005) and Principal Executive 1221 Avenue of the Americas Principal Officer (since May 2003) of funds in the Fund Complex; New York, NY 10020 Executive President (since September 2005) and Principal Executive Officer Officer (since May 2003) of the Van Kampen Funds; Managing Director of Morgan Stanley, Morgan Stanley Investment Management and Morgan Stanley & Co. Incorporated; Managing Director and Director of Morgan Stanley Investment Advisors Inc.; Managing Director and (since May 2002) Director of Morgan Stanley Investment Management Inc., Managing Director and (since January 2005) Director of Van Kampen Asset Management and Van Kampen Investments Inc. Director, President (since February 2006) and Chief Executive Officer (since February 2006) of Morgan Stanley Services Company Inc., Director of Morgan Stanley Distributors Inc., Morgan Stanley Distribution, Inc. and Morgan Stanley Trust; Director of Morgan Stanley SICAV (since May 2004). Formerly, Executive Vice President (July 2003 to September 2005) of funds in the Fund Complex and the Van Kampen Funds; President and Director of the Institutional Funds (March 2001 to July 2003); Chief Global Operating Officer of Morgan Stanley Investment Management Inc.; Chief Administrative Officer of Morgan Stanley Investment Advisors Inc.; Chief Administrative Officer of Morgan Stanley Services Company Inc. (November 2003 to February 2006). J. David Germany (51) Vice President Since February Managing Director and (since December 2005) Chief Investment 25 Cabot Square, 2006 Officer -- Global Fixed Income of Morgan Stanley Investment Canary Wharf, London, Advisors Inc., Morgan Stanley Investment Management Inc., United Kingdom E144QA Van Kampen Asset Management and Van Kampen Advisors Inc.; Managing Director and Director of Morgan Stanley Investment Management Ltd.; Vice President (since February 2006) of the Retail and Institutional Funds. Dennis F. Shea (52) Vice President Since February Managing Director and (since February 2006) Chief Investment 1221 Avenue of the Americas 2006 Officer -- Global Equity of Morgan Stanley Investment New York, NY 10020 Advisors Inc., Morgan Stanley Investment Management Inc., Van Kampen Asset Management and Van Kampen Advisors Inc. Vice President (since February 2006) of the Retail and Institutional Funds. Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley. Barry Fink (51) Vice President Since February Managing Director of Morgan Stanley Investment Management, 1221 Avenue of the Americas 1997 Morgan Stanley Investment Advisors Inc. and Morgan Stanley New York, NY 10020 Investment Management Inc.; Vice President of the Retail Funds and (since July 2003) the Institutional Funds. Formerly, General Counsel (May 2000 to February 2006) of Morgan Stanley Investment Management; Secretary (October 2003 to February 2006), General Counsel (May 2004 to February 2006) and Director (July 1998 to January 2005) of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Secretary and General Counsel of Morgan Stanley Investment Management Inc. (November 2002 to February 2006); Secretary and Director of Morgan Stanley Distributors Inc.; Secretary (February 1997 to July 2003) and General Counsel (February 1997 to April 2004) of the Retail Funds; Vice President and Assistant General Counsel of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Distributors Inc. (February 1997 to December 2001).
28 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION continued
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years** - ----------------------------- --------------- -------------- ------------------------------------------------------------ Amy R. Doberman (43) Vice President Since July Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas 2004 Management (since July 2004); Vice President of the Retail New York, NY 10020 Funds and the Institutional Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); Secretary (since February 2006) and Managing Director (since July 2004) of Morgan Stanley Investment Advisors Inc., Morgan Stanley Services Company Inc., Morgan Stanley Investment Management Inc., Van Kampen Asset Management, Van Kampen Advisors Inc. and Van Kampen Investments Inc.; Secretary (since February 2006) of Morgan Stanley Distributors Inc. and Morgan Stanley Distribution, Inc. Formerly, Managing Director and General Counsel -- Americas, UBS Global Asset Management (July 2000 to July 2004). Carsten Otto (42) Chief Since October Managing Director and U.S. Director of Compliance for Morgan 1221 Avenue of the Americas Compliance 2004 Stanley Investment Management (since October 2004); Managing New York, NY 10020 Officer Director and Chief Compliance Officer (since February 2005) of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Investment Management Inc. and (since June 2004) of Van Kampen Asset Management, Van Kampen Advisors Inc. and Van Kampen Investments Inc. Formerly, Assistant Secretary and Assistant General Counsel of the Retail Funds. Stefanie V. Chang Yu (39) Vice President Since July Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas 2003 Morgan Stanley Investment Advisors Inc., Morgan Stanley New York, NY 10020 Investment Management Inc., Van Kampen Asset Management, Van Kampen Advisors Inc. and Van Kampen Investments Inc. Vice President of the Retail Funds (since July 2002) and the Institutional Funds (since December 1997). Formerly, Secretary of Van Kampen Asset Management Inc., Van Kampen Advisors Inc. and Van Kampen Investments Inc. (December 2002 to February 2006); Secretary of Morgan Stanley Distribution, Inc. (October 2005 to February 2006). Francis J. Smith (40) Treasurer and Treasurer Executive Director of Morgan Stanley Investment Advisors c/o Morgan Stanley Trust Chief Financial since July Inc. and Morgan Stanley Services Company Inc.; Treasurer and Harborside Financial Center, Officer 2003 and Chief Chief Financial Officer of the Retail Funds (since July Plaza Two, Financial 2003). Formerly, Vice President of the Retail Funds Jersey City, NJ 07311 Officer since (September 2002 to July 2003). September 2002 Thomas F. Caloia (59) Vice President Since July Executive Director of Morgan Stanley Investment Advisors c/o Morgan Stanley Trust 2003 Inc. and Morgan Stanley Services Company Inc.; Assistant Harborside Financial Center, Treasurer of Morgan Stanley Investment Advisors Inc., Morgan Plaza Two, Stanley Services Company Inc. and Morgan Stanley Jersey City, NJ 07311 Distributors Inc.; Vice President of the Retail Funds. Formerly, Treasurer of the Retail Funds (April 1989-July 2003).
29 Morgan Stanley Municipal Income Opportunities Trust II TRUSTEE AND OFFICER INFORMATION continued
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years** - ----------------------------- --------------- -------------- ------------------------------------------------------------ Mary E. Mullin (38) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas 2003 Morgan Stanley Investment Advisors Inc. and Morgan Stanley New York, NY 10020 Investment Management Inc.; Secretary of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999).
- --------------------- * This is the earliest date the Officer began serving the Retail Funds. Each Officer serves an indefinite term, until his or her successor is elected. ** The dates referenced below indicating commencement of service as an Officer for the Retail and Institutional Funds reflect the earliest date the Officer began serving the Retail or Institutional Funds, as applicable. In accordance with Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the Fund's Annual CEO Certification certifying as to compliance with NYSE's Corporate Governance Listing Standards was submitted to the Exchange on July 19, 2005. The Fund's Principal Executive Officer and Principal Financial Officer Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the Fund's N-CSR and are available on the Securities and Exchange Commission's Web site at http://www.sec.gov. 2006 FEDERAL TAX NOTICE (UNAUDITED) For the year ended February 28, 2006, all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. 30 (This Page Intentionally Left Blank) TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid OFFICERS Charles A. Fiumefreddo Chairman of the Board Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu Vice President Francis J. Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 Investments and services offered through Morgan Stanley DW Inc., member SIPC. (c) 2006 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Municipal Income Opportunities Trust II Annual Report February 28, 2006 [MORGAN STANLEY LOGO] 38554RPT-RA06-00311P-Y02/06 Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) The Fund has not amended its Code of Ethics during the period covered by the shareholder report presented in Item 1. (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit 12 A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. 2 Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown: 2006
REGISTRANT COVERED ENTITIES(1) AUDIT FEES ................. $ 31,616 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 540(2) $ 5,190,300 TAX FEES ......... $ 4,449(3) $ 2,044,491 ALL OTHER FEES ... $ -- $ -- TOTAL NON-AUDIT FEES ....... $ 4,989 $ 7,234,791 TOTAL ...................... $ 36,605 $ 7,234,791
2005
REGISTRANT COVERED ENTITIES(1) AUDIT FEES ................. $ 30,116 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 452(2) $ 3,746,495(2) TAX FEES ......... $ 4,585(3) $ 79,800(4) ALL OTHER FEES ... $ -- $ -- TOTAL NON-AUDIT FEES ....... $ 5,037 $ 3,826,295 TOTAL ...................... $ 35,153 $ 3,826,295
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. (3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant's tax returns. (4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. (5) All other fees represent project management for future business applications and improving business and operational processes. 3 (e)(1) The audit committee's pre-approval policies and procedures are as follows: APPENDIX A AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED AND AMENDED JULY 23, 2004,(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("general pre-approval"); or require the specific pre-approval of the Audit Committee or its delegate ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. - ------------------------ (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time. 4 The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters 5 not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be 6 rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: Morgan Stanley Retail Funds --------------------------- Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Van Kampen Asset Management Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB 7 Morgan Stanley Institutional Funds ---------------------------------- Morgan Stanley Investment Management Inc. Morgan Stanley Investment Advisors Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. (a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J. Kearns, Michael Nugent and Fergus Reid. (b) Not applicable. Item 6. See Item 1. 8 Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Fund invests in exclusively non-voting securities and therefore this item is not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies FUND MANAGEMENT PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed by members of the Municipal Fixed Income team. The team consists of portfolio managers and analysts. Current members of the team jointly and primarily responsible for the day-to-day management of the Fund's portfolio are James F. Willison and Wayne D. Godlin, Managing Directors of the Investment Adviser and Gerard J. Lian, an Executive Director of the Investment Adviser. Mr. Willison has been associated with the Investment Adviser in an investment management capacity since January 1980 and began managing the Fund at inception. Mr. Godlin has been associated with the Investment Adviser in an investment management capacity since May 1988 and began managing the Fund in October 2001. Mr. Lian has been associated with the Investment Adviser in an investment management capacity since December 1991 and began managing the Fund in February 2003. The composition of the team may change without notice from time to time. OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS The following information is as of February 28, 2006. As of February 28, 2006, Mr. Willison managed 21 mutual funds with a total of approximately $7.0 billion in assets; no pooled investment vehicles other than mutual funds; and no other accounts. As of February 28, 2006, Mr. Godlin managed five mutual funds with a total of approximately $6.5 billion in assets; no pooled investment vehicles other than mutual funds; and no other accounts. As of February 28, 2006, Mr. Lian managed three mutual funds with a total of approximately $389.7 million in assets; no pooled investment vehicles other than mutual funds; and no other accounts. Because the portfolio managers may manage assets for other investment companies, pooled investment vehicles, and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), there may be an incentive to favor one 9 client over another resulting in conflicts of interest. For instance, the Investment Adviser may receive fees from certain accounts that are higher than the fee it receives from the Fund, or it may receive a performance-based fee on certain accounts. In those instances, the portfolio managers may have an incentive to favor the higher and/or performance-based fee accounts over the Fund. The Investment Adviser has adopted trade allocation and other policies and procedures that it believes are reasonably designed to address these and other conflicts of interest. PORTFOLIO MANAGER COMPENSATION STRUCTURE Portfolio managers receive a combination of base compensation and discretionary compensation, comprising a cash bonus and several deferred compensation programs described below. The methodology used to determine portfolio manager compensation is applied across all funds/accounts managed by the portfolio manager. BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary compensation based on the level of their position with the Adviser. DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation can include: - - Cash Bonus; - - Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a mandatory program that defers a portion of discretionary year-end compensation into restricted stock units or other awards based on Morgan Stanley common stock that are subject to vesting and other conditions; - - Investment Management Deferred Compensation Plan (IMDCP) awards -- a mandatory program that defers a portion of discretionary year-end compensation and notionally invests it in designated funds advised by the Investment Adviser or its affiliates. The award is subject to vesting and other conditions. Portfolio managers must notionally invest a minimum of 25% to a maximum of 75% of the IMDCP deferral into a combination of the designated funds they manage that are included in the IMDCP fund menu, which may or may not include the Fund; - - Voluntary Deferred Compensation Plans -- voluntary programs that permit certain employees to elect to defer a portion of their discretionary year-end compensation and directly or notionally invest the deferred amount: (1) across a range of designated investment funds, including funds advised by the adviser or its affiliates; and/or (2) in Morgan Stanley stock units. 10 Several factors determine discretionary compensation, which can vary by portfolio management team and circumstances. In order of relative importance, these factors include: - - Investment performance. A portfolio manager's compensation is linked to the pre-tax investment performance of the Funds/accounts managed by the portfolio manager. Investment performance is calculated for one-, three- and five-year periods measured against a fund's/account's primary benchmark (as set forth in the fund's prospectus), indices and/or peer groups where applicable. Generally, the greatest weight is placed on the three- and five-year periods. - - Revenues generated by the investment companies, pooled investment vehicles and other accounts managed by the portfolio manager. - - Contribution to the business objectives of the Investment Adviser. - - The dollar amount of assets managed by the portfolio manager. - - Market compensation survey research by independent third parties. - - Other qualitative factors, such as contributions to client objectives. - - Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the Global Investor Group, a department within Morgan Stanley Investment Management that includes all investment professionals. SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS As of February 28, 2006, the dollar range of securities beneficially owned by each portfolio manager in the Fund is shown below: James F. Willison: None Wayne D. Godlin: None Gerard J. Lian: None (1) Not included in the table above, the portfolio manager has made investments in more or more mutual funds managed by the same portfolio management team pursuant to a similar strategy. 11 Item 9. Closed-End Fund Repurchases REGISTRANT PURCHASE OF EQUITY SECURITIES
Period (a) Total (b) Average Price (c) Total Number of (d) Maximum Number Number of Paid per Share (or Shares (or Units) (or Approximate Shares (or Unit) Purchased as Part Dollar Value) of Units) of Publicly Shares (or Units) Purchased Announced Plans or that May Yet Be Programs Purchased Under the Plans or Programs March 1, 2005- 52,035 7.8372 March 31, 2005 N/A N/A April 1, 2005- 41,900 7.9527 April 30, 2005 N/A N/A May 1, 2005- 35,820 8.1263 May 31, 2005 N/A N/A June 1, 2005- 42,900 8.1991 June 30, 2005 N/A N/A July 1, 2005- 44,000 8.4028 July 31, 2005 N/A N/A August 1, 2005- 33,600 8.4293 August 31, 2005 N/A N/A September 1, 2005- 37,700 8.3713 September 30, 2005 N/A N/A October 1, 2005- 43,500 8.4767 October 31, 2005 N/A N/A November 1, 2005- 72,000 8.3833 November 30, 2005 N/A N/A December 1, 2005- 57,700 8.5486 December 31, 2005 N/A N/A January 1, 2006- 45,500 8.7504 January 31, 2006 N/A N/A February 1, 2006- 42,400 8.7601 February 28, 2006 N/A N/A Total 549,055 8.3532 N/A N/A
12 Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Municipal Income Opportunities Trust II /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2006 /s/ Francis Smith Francis Smith Principal Financial Officer April 19, 2006 14 EX-99.CODE ETH 2 y18632exv99wcodeeth.txt CODE OF ETHICS EXHIBIT 12 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL ----------------------------------------------------------- OFFICERS -------- ADOPTED SEPTEMBER 28, 2004, AS AMENDED SEPTEMBER 20, 2005 --------------------------------------------------------- I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the 15 Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended t o, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly); - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. 16 Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and 17 - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(2) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, - ------------------------- (2) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." 18 which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. 19 VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - ------------------------- Date:_____________________ 20 EXHIBIT A --------- FUND LIST AT SEPTEMBER 20, 2005 RETAIL FUNDS - ------------ OPEN-END RETAIL FUNDS TAXABLE MONEY MARKET FUNDS -------------------------- 1. Active Assets Government Securities Trust ("AA Government") 2. Active Assets Institutional Government Securities Trust ("AA Institutional Government") 3. Active Assets Institutional Money Trust ("AA Institutional Money") 4. Active Assets Money Trust ("AA Money") 5. Morgan Stanley Liquid Asset Fund Inc. ("Liquid Asset") 6. Morgan Stanley U.S. Government Money Market Trust ("Government Money") TAX-EXEMPT MONEY MARKET FUNDS ----------------------------- 7. Active Assets California Tax-Free Trust ("AA California") 8. Active Assets Tax-Free Trust ("AA Tax-Free") 9. Morgan Stanley California Tax-Free Daily Income Trust ("California Tax-Free Daily") 10. Morgan Stanley New York Municipal Money Market Trust ("New York Money") 11. Morgan Stanley Tax-Free Daily Income Trust ("Tax-Free Daily") EQUITY FUNDS ------------ 12. Morgan Stanley Aggressive Equity Fund ("Aggressive Equity")+ 13. Morgan Stanley Allocator Fund ("Allocator Fund")+ 14. Morgan Stanley American Opportunities Fund ("American Opportunities")+ 15. Morgan Stanley Biotechnology Fund ("Biotechnology Fund")+ 16. Morgan Stanley Capital Opportunities Trust ("Capital Opportunities")+ 17. Morgan Stanley Developing Growth Securities Trust ("Developing Growth")+ 18. Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth")+ 19. Morgan Stanley Equally-Weighted S&P 500 Fund ("Equally-Weighted S&P 500")+ 20. Morgan Stanley European Equity Fund Inc. ("European Equity")+ 21. Morgan Stanley Financial Services Trust ("Financial Services")+ 22. Morgan Stanley Fundamental Value Fund ("Fundamental Value")+ 23. Morgan Stanley Global Advantage Fund ("Global Advantage")+ 21 24. Morgan Stanley Global Dividend Growth Securities ("Global Dividend Growth")+ 25. Morgan Stanley Global Utilities Fund ("Global Utilities")+ 26. Morgan Stanley Growth Fund ("Growth Fund")+ 27. Morgan Stanley Health Sciences Trust ("Health Sciences")+ 28. Morgan Stanley Income Builder Fund ("Income Builder")+ 29. Morgan Stanley Information Fund ("Information Fund")+ 30. Morgan Stanley International Fund ("International Fund")+ 31. Morgan Stanley International SmallCap Fund ("International SmallCap")+ 32. Morgan Stanley International Value Equity Fund ("International Value")+ 33. Morgan Stanley Japan Fund ("Japan Fund")+ 34. Morgan Stanley KLD Social Index Fund ("KLD Social Index")+ 35. Morgan Stanley Mid-Cap Value Fund (Mid-Cap Value")+ 36. Morgan Stanley Multi-Asset Class Fund ("Multi-Asset Class")+ 37. Morgan Stanley Nasdaq-100 Index Fund ("Nasdaq-100")+ 38. Morgan Stanley Natural Resource Development Securities Inc. ("Natural Resource")+ 39. Morgan Stanley Pacific Growth Fund Inc. ("Pacific Growth")+ 40. Morgan Stanley Real Estate Fund ("Real Estate")+ 41. Morgan Stanley Small-Mid Special Value Fund (Small-Mid Special Value")+ 42. Morgan Stanley S&P 500 Index Fund ("S&P500 Index")+ 43. Morgan Stanley Special Growth Fund ("Special Growth")+ 44. Morgan Stanley Special Value Fund ("Special Value")+ 45. Morgan Stanley Total Market Index Fund ("Total Market Index")+ 46. Morgan Stanley Total Return Trust ("Total Return")+ 47. Morgan Stanley Utilities Fund ("Utilities Fund")+ 48. Morgan Stanley Value Fund ("Value Fund")+ BALANCED FUNDS -------------- 49. Morgan Stanley Balanced Growth Fund ("Balanced Growth")+ 50. Morgan Stanley Balanced Income Fund ("Balanced Income")+ ASSET ALLOCATION FUND --------------------- 51. Morgan Stanley Strategist Fund ("Strategist Fund")+ TAXABLE FIXED-INCOME FUNDS -------------------------- 52. Morgan Stanley Convertible Securities Trust ("Convertible Securities")+ 53. Morgan Stanley Flexible Income Trust ("Flexible Income")+ 54. Morgan Stanley Income Trust ("Income Trust")+ 55. Morgan Stanley High Yield Securities Inc. ("High Yield Securities")+ 56. Morgan Stanley Limited Duration Fund ("Limited Duration Fund") 57. Morgan Stanley Mortgage Securities Trust ("Mortgage Securities")+ 58. Morgan Stanley Limited Duration U.S. Treasury Trust ("Limited Duration Treasury") 59. Morgan Stanley Total Return Income Securities Fund ("Total Return Income")+ 22 60. Morgan Stanley U.S. Government Securities Trust ("Government Securities")+ TAX-EXEMPT FIXED-INCOME FUNDS ----------------------------- 61. Morgan Stanley California Tax-Free Income Fund ("California Tax-Free")+ 62. Morgan Stanley Limited Term Municipal Trust ("Limited Term Municipal") 63. Morgan Stanley New York Tax-Free Income Fund ("New York Tax-Free")+ 64. Morgan Stanley Tax-Exempt Securities Trust ("Tax-Exempt Securities")+ SPECIAL PURPOSE FUNDS --------------------- 65. Morgan Stanley Select Dimensions Investment Series ("Select Dimensions") - American Opportunities Portfolio - Balanced Growth Portfolio - Capital Opportunities Portfolio - Developing Growth Portfolio - Dividend Growth Portfolio - Equally-Weighted S&P 500 Portfolio - Flexible Income Portfolio - Global Equity Portfolio - Growth Portfolio - Money Market Portfolio - Utilities Portfolio 66. Morgan Stanley Variable Investment Series ("Variable Investment") - Aggressive Equity Portfolio - Dividend Growth Portfolio - Equity Portfolio - European Equity Portfolio - Global Advantage Portfolio - Global Dividend Growth Portfolio - High Yield Portfolio - Income Builder Portfolio - Information Portfolio - Limited Duration Portfolio - Money Market Portfolio - Income Plus Portfolio - S&P 500 Index Portfolio - Strategist Portfolio - Utilities Portfolio CLOSED-END RETAIL FUNDS TAXABLE FIXED-INCOME CLOSED-END FUNDS ------------------------------------- 23 67. Morgan Stanley Government Income Trust ("Government Income") 68. Morgan Stanley Income Securities Inc. ("Income Securities") 69. Morgan Stanley Prime Income Trust ("Prime Income") TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS ---------------------------------------- 70. Morgan Stanley California Insured Municipal Income Trust ("California Insured Municipal") 71. Morgan Stanley California Quality Municipal Securities ("California Quality Municipal") 72. Morgan Stanley Insured California Municipal Securities ("Insured California Securities") 73. Morgan Stanley Insured Municipal Bond Trust ("Insured Municipal Bond") 74. Morgan Stanley Insured Municipal Income Trust ("Insured Municipal Income") 75. Morgan Stanley Insured Municipal Securities ("Insured Municipal Securities") 76. Morgan Stanley Insured Municipal Trust ("Insured Municipal Trust") 77. Morgan Stanley Municipal Income Opportunities Trust ("Municipal Opportunities") 78. Morgan Stanley Municipal Income Opportunities Trust II ("Municipal Opportunities II") 79. Morgan Stanley Municipal Income Opportunities Trust III ("Municipal Opportunities III") 80. Morgan Stanley Municipal Premium Income Trust ("Municipal Premium") 81. Morgan Stanley New York Quality Municipal Securities ("New York Quality Municipal") 82. Morgan Stanley Quality Municipal Income Trust ("Quality Municipal Income") 83. Morgan Stanley Quality Municipal Investment Trust ("Quality Municipal Investment") 84. Morgan Stanley Quality Municipal Securities ("Quality Municipal Securities") +- Denotes Retail Multi-Class Fund INSTITUTIONAL FUNDS ------------------- OPEN-END INSTITUTIONAL FUNDS 1. Morgan Stanley Institutional Fund, Inc. ("Institutional Fund Inc.") Active Portfolios: - Active International Allocation Portfolio - Emerging Markets Portfolio - Emerging Markets Debt Portfolio - Equity Growth Portfolio - European Real Estate Portfolio - Focus Equity Portfolio 24 - Global Franchise Portfolio - Global Value Equity Portfolio - International Equity Portfolio - International Magnum Portfolio - International Small Cap Portfolio - Money Market Portfolio - Municipal Money Market Portfolio - Small Company Growth Portfolio - U.S. Real Estate Portfolio - Value Equity Portfolio Inactive Portfolios*: - China Growth Portfolio - Gold Portfolio - Large Cap Relative Value Portfolio - MicroCap Portfolio - Mortgage-Backed Securities Portfolio - Municipal Bond Portfolio - U.S. Equity Plus Portfolio 2. Morgan Stanley Institutional Fund Trust ("Institutional Fund Trust") Active Portfolios: - Advisory Foreign Fixed Income II Portfolio - Advisory Foreign Fixed Income Portfolio - Advisory Mortgage Portfolio - Balanced Portfolio - Core Plus Fixed Income Portfolio - Equity Portfolio - High Yield Portfolio - Intermediate Duration Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Limited Duration Portfolio - Mid-Cap Growth Portfolio - Municipal Portfolio - U.S. Core Fixed Income Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Small-Cap Value Portfolio - ------------------------- * Have not commenced or have ceased operations 25 - Value Portfolio Inactive Portfolios*: - Balanced Plus Portfolio - Growth Portfolio - Investment Grade Credit Advisory Portfolio - Mortgage Advisory Portfolio - New York Municipal Portfolio - Targeted Duration Portfolio - Value II Portfolio 3. The Universal Institutional Funds, Inc. ("Universal Funds") Active Portfolios: - Core Plus Fixed Income Portfolio - Emerging Markets Debt Portfolio - Emerging Markets Equity Portfolio - Equity and Income Portfolio - Equity Growth Portfolio - Global Franchise Portfolio - Global Value Equity Portfolio - High Yield Portfolio - International Magnum Portfolio - Mid-Cap Growth Portfolio - Money Market Portfolio - Small Company Growth Portfolio - Technology Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Real Estate Portfolio - Value Portfolio Inactive Portfolios*: - Balanced Portfolio - Capital Preservation Portfolio - Core Equity Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Latin American Portfolio - Multi-Asset Class Portfolio - Targeted Duration Portfolio - ------------ 26 4. Morgan Stanley Institutional Liquidity Funds ("Liquidity Funds") Active Portfolios: - Government Portfolio - Money Market Portfolio - Prime Portfolio - Tax-Exempt Portfolio - Treasury Portfolio Inactive Portfolios*: - Government Securities Portfolio - Treasury Securities Portfolio CLOSED-END INSTITUTIONAL FUNDS 5. Morgan Stanley Asia-Pacific Fund, Inc. ("Asia-Pacific Fund") 6. Morgan Stanley Eastern Europe Fund, Inc. ("Eastern Europe") 7. Morgan Stanley Emerging Markets Debt Fund, Inc. ("Emerging Markets Debt") 8. Morgan Stanley Emerging Markets Fund, Inc. ("Emerging Markets Fund") 9. Morgan Stanley Global Opportunity Bond Fund, Inc. ("Global Opportunity") 10. Morgan Stanley High Yield Fund, Inc. ("High Yield Fund") 11. The Latin American Discovery Fund, Inc. ("Latin American Discovery") 12 The Malaysia Fund, Inc. ("Malaysia Fund") 13. The Thai Fund, Inc. ("Thai Fund") 14. The Turkish Investment Fund, Inc. ("Turkish Investment") CLOSED-END FUND OF HEDGE FUNDS 15. Morgan Stanley Institutional Fund of Hedge Funds ("Fund of Hedge Funds") IN REGISTRATION MORGAN STANLEY RETAIL FUNDS 1. Morgan Stanley American Franchise Fund FUNDS OF HEDGE FUNDS 1. Morgan Stanley Absolute Return Fund 2. Morgan Stanley Institutional Fund of Hedge Funds II - --------------------------- * Have not commenced or have ceased operations 27 EXHIBIT B --------- INSTITUTIONAL FUNDS COVERED OFFICERS ---------------- Ronald E. Robison - President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS ---------------- Ronald E. Robison - President and Principal Executive Officer Francis Smith - Chief Financial Officer and Treasurer MORGAN STANLEY INDIA INVESTMENT FUND, INC. COVERED OFFICERS ---------------- Ronald E. Robison - President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer 28 EXHIBIT C --------- GENERAL COUNSEL --------------- Barry Fink 29 EX-99.CERT 3 y18632exv99wcert.txt CERTIFICATION EXHIBIT 12 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS -------------- I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Municipal Income Opportunities Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 30 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 19, 2006 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 31 EXHIBIT 12 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS -------------- I, Francis Smith, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Municipal Income Opportunities Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 32 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 19, 2006 /s/ Francis Smith Francis Smith Principal Financial Officer 33 EX-99.906CERT 4 y18632exv99w906cert.txt 906 CERTIFICATION SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Municipal Income Opportunities Trust II In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2006 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: April 19, 2006 /s/ Ronald E. Robison --------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Municipal Income Opportunities Trust II and will be retained by Morgan Stanley Municipal Income Opportunities Trust II and furnished to the Securities and Exchange Commission or its staff upon request. 34 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Municipal Income Opportunities Trust II In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 28, 2006 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: April 19, 2006 /s/ Francis Smith ---------------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Municipal Income Opportunities Trust II and will be retained by Morgan Stanley Municipal Income Opportunities Trust II and furnished to the Securities and Exchange Commission or its staff upon request. 35 -----END PRIVACY-ENHANCED MESSAGE-----