Company: RFMZ
Filing Date: 2025-09-05
Form Type: N-CSR
Source: 0001398344-25-017693
Chunk: 1

Company: RiverNorth Flexible Municipal Income Fund II, Inc.
Filing Date: 2025-09-05
Form: N-CSR
Chunk 1
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 2025, though long-end yields remain elevated. Why does this matter?

As we’ve emphasized before, closed-end funds
(“CEFs”) are highly sensitive to current interest rate levels and expectations. A flat or inverted curve puts pressure on
funds using floating-rate leverage, where borrowing costs potentially exceed income from longer-term investments. As the yield curve has
flattened/re-steepened, our view is that sentiment around CEFs has improved. We believe that market volatility, discount dynamics, and
an elevated interest rate environment continue to drive investor behavior—and present opportunity.

For much of the past year, municipal bond investors
have continued to navigate a complex interest rate environment. While inflation has eased and the Fed has paused further hikes, both short
and long-term rates have persisted at higher levels than many expected. For long-duration strategies like municipal bonds and municipal
CEFs, we believe this has presented near-term valuation pressure—but also long-term opportunity.

During the fiscal year ended June 30, 2025, the RiverNorth
Flexible Municipal Income Fund II, Inc. (the “Fund”) generated a -3.40% total return on net asset value (“NAV”)
and a -3.65% total return on market price. The MacKay Shields (“MacKay”) managed sleeve of leveraged cash bonds was the primary
detractor, given the negative performance of the asset class over the reporting period. The municipal rate curve steepened and spreads
– notable on A and BBB rated paper – caused bond prices to decline.

While this impacted short-term results, the MacKay
team has remained focused on credit quality and duration discipline, believing that longer-dated municipal bonds currently offer among
the best value in fixed income, especially on a tax-equivalent basis.

The RiverNorth-managed CEF sleeve, making up roughly
40% of the portfolio, provided a modest positive contribution for the year. Though municipal CEF NAV declined approximately 2.5 - 3%,
that weakness was offset by discount narrowing. Throughout the year, the RiverNorth team capitalized on price volatility by actively rotating
into attractively discounted funds, while trimming exposure when discounts tightened. This tactical activity helped the Fund to protect
capital and generate incremental income.

The Fund sells U.S. Treasury futures to reduce the
net duration of the Fund. During the reporting period, these hedges detracted from performance. The Fund’s managed assets duration
was approximately 7 years, with net assets duration around 12