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: 811-07377

Morgan Stanley Capital Opportunities Trust
(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: November 30, 2005

Date of reporting period: May 31, 2005

Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Capital
Opportunities Trust performed during the semiannual 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.

THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.

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. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.

FUND REPORT

For the six-month period ended May 31, 2005

TOTAL RETURN FOR THE SIX MONTHS ENDED MAY 31, 2005

<Table>
<Caption>
LIPPER
RUSSELL MULTI-CAP
3000(R) GROWTH
GROWTH FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)

2.78% 2.35% 2.44% 2.87% 2.00% 1.30%
</Table>

THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES.
SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR STANDARDIZED
PERFORMANCE AND BENCHMARK INFORMATION.

MARKET CONDITIONS

The U.S. equity markets experienced mixed performance for the six month period
ending May 31, 2005. Overall, growth stocks trailed value stocks and more
defensive areas of the market, while large caps outperformed their smaller
counterparts. During the period, the Federal Open Market Committee continued to
raise the federal funds target at a "measured pace" through a series of 25
basis-point increases. These increases were largely anticipated by investors,
and did not cause major market disruptions. As balance sheets and earnings
growth improved, corporations became somewhat more willing to spend their cash
stockpiles; this translated into stock buybacks, increased dividends and capital
spending.

The reporting period opened on a bright note. Investors were encouraged by the
quick and decisive conclusion of the U.S. presidential election, as well as by
the decline in oil prices from October's highs. These factors helped set the
stage for a stock rally in November and December. This ebullience was not
long-lived, however. Despite the successful election in Iraq and the upward
revision of fourth quarter gross domestic product numbers, the market retreated
in the first months of 2005. Rising oil prices, inflationary concerns and the
potential for economic slowdown gave investors pause. The period ended on a more
upbeat note due in part to declining interest rates, tame inflation data and
other signs of a stable economy.

PERFORMANCE ANALYSIS

Morgan Stanley Capital Opportunities Trust outperformed the Russell 3000(R)
Growth Index and the Lipper Multi-Cap Growth Funds Index for the six months
ended May 31, 2005, assuming no deduction of applicable sales charges. The
Fund's financial services, consumer discretionary, and auto and transportation
exposures were the most beneficial contributors to performance relative to the
Russell benchmark.

Within the financial sector overall, the Fund was underweighted relative to the
Russell benchmark. This was advantageous given that the sector struggled amid
factors such as rising rates and concerns about economic growth. The Fund's
industry positioning within the financial sector also turned out to be helpful.
For example, the Fund avoided bank stocks, and instead favored diversified
financial services stocks, which were a source of good performance for the Fund.
Underweightings in several underperforming financial stocks (also relative to
the Russell benchmark) further enhanced returns.

In the consumer discretionary sector, an underweighted position in retail stocks
relative to the Russell benchmark also had a favorable impact. Other positives
included the Fund's overweight in restaurant

and consumer electronics stocks versus the Russell benchmark, as well as stock
selection within consumer electronics. The Fund's advertising position was also
beneficial. While the Fund's consumer discretionary exposure was beneficial
overall for returns, there were pockets of weakness, including consumer products
stocks, radio and TV broadcasters, education stocks and commercial service
stocks.

Stock selection within the autos and transportation sector helped relative
performance. The Fund also did not include recreational vehicles and boats
stocks, a strategy which turned out to be advantageous during the period in
terms of performance relative to the Russell Index.

Overall, the Fund's healthcare exposure detracted from performance. Among
individual healthcare industries, underweightings versus the Russell benchmark
in drug and pharmaceutical stocks, biotechnology research and production stocks,
as well as stock selection within these groups, slowed the Fund's pace versus
the index. Underweighted positions relative to the Russell Index in healthcare
facilities and electronics/medical systems also exerted a negative impact. That
said, while healthcare as a whole detracted from performance relative to the
index, the Fund was helped by its positioning within the medical and dental
instruments and supply sector and the healthcare services sector.

The Fund's underweighting in consumer staples versus the Russell benchmark also
turned out to be disadvantageous during the period. Performance was hindered by
a lack of exposure to beverages, drugs and grocery store chains, and soaps and
household chemicals stocks.

There is no guarantee that any securities mentioned will continue to perform
well or be held by the Fund in the future.

<Table>
<Caption>
TOP 10 HOLDINGS

Google, Inc. (Class A) 5.2%
eBay, Inc. 4.7
Ultra Petroleum Corp. (Canada) 4.7
Corporate Executive Board Co. (The) 4.1
Getty Images, Inc. 3.7
Station Casinos, Inc. 3.7
Royal Caribbean Cruises, Inc. 3.6
Yahoo! Inc. 3.1
America Movil S.A. de C.V. (Series L) (ADR)
(Mexico) 3.1
Dell, Inc. 3.0
</Table>

<Table>
<Caption>
TOP FIVE INDUSTRIES

Internet Software/Services 8.3%
Casino/Gaming 7.3
Other Consumer Services 6.7
Advertising/Marketing Services 5.7
Oil & Gas Production 4.7
</Table>

Data as of May 31, 2005. Subject to change daily. All percentages for top 10
holdings and top five industries are as a percentage of net assets. 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.

INVESTMENT STRATEGY

THE FUND WILL NORMALLY INVEST AT LEAST 65 PERCENT OF ITS ASSETS IN A PORTFOLIO
OF COMMON STOCKS OF COMPANIES WITH MARKET CAPITALIZATIONS, AT THE TIME OF
PURCHASE, WITHIN THE CAPITALIZATION RANGE OF THE COMPANIES COMPRISING THE LIPPER
MULTI-CAP GROWTH FUNDS INDEX, WHICH AS OF FEBRUARY 28, 2005 WAS APPROXIMATELY
$32.3 MILLION TO $405.2 BILLION. THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY
INVESTMENT ADVISORS INC., FOLLOWS A FLEXIBLE INVESTMENT PROGRAM IN SEEKING TO
ACHIEVE THE FUND'S INVESTMENT OBJECTIVE. THE INVESTMENT ADVISER FOCUSES ON
COMPANIES IT BELIEVES HAVE CONSISTENT OR RISING EARNINGS GROWTH RECORDS,
POTENTIAL FOR STRONG FREE CASH FLOW AND COMPELLING BUSINESS STRATEGIES. IN THIS
REGARD, THE INVESTMENT ADVISER STUDIES COMPANY DEVELOPMENTS, INCLUDING BUSINESS
STRATEGY AND FINANCIAL RESULTS. VALUATION IS VIEWED IN THE CONTEXT OF PROSPECTS
FOR SUSTAINABLE EARNINGS AND CASH FLOW GROWTH. THE INVESTMENT ADVISER GENERALLY
CONSIDERS SELLING A PORTFOLIO HOLDING WHEN IT DETERMINES THAT THE HOLDING NO
LONGER SATISFIES ITS INVESTMENT CRITERIA.

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.

PROXY VOTING POLICIES AND PROCEDURES

A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE
VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE
FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE 12-MONTH PERIOD
ENDED JUNE 30, 2004, IS AVAILABLE WITHOUT CHARGE BY VISITING THE MUTUAL FUND
CENTER ON OUR WEB SITE AT WWW.MORGANSTANLEY.COM. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
HTTP://WWW.SEC.GOV.

HOUSEHOLDING NOTICE

TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.

PERFORMANCE SUMMARY

AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED MAY 31, 2005

<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 07/28/97) (since 02/27/96) (since 07/28/97) (since 07/28/97)
SYMBOL CPOAX CPOBX CPOCX CPODX

1 YEAR 12.96%(3) 12.02%(3) 12.16%(3) 13.23%(3)
7.03(4) 7.02(4) 11.16(4) --
5 YEARS (14.48)(3) (15.15)(3) (15.12)(3) (14.30)(3)
(15.40)(4) (15.49)(4) (15.12)(4) --
SINCE INCEPTION 4.68(3) 4.25(3) 3.90(3) 4.89(3)
3.96(4) 4.25(4) 3.90(4) --
</Table>

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. For the most recent month-end performance figures, please visit
morganstanley.com or speak with your financial advisor. Investment returns and
principal value will fluctuate and fund shares, when redeemed, may be worth more
or less than their original cost. The table does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Performance for Class A, Class B, Class C, and Class D shares will
vary due to differences in sales charges and expenses.

* The maximum front-end sales charge for Class A is 5.25%.

** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The
CDSC declines to 0% after six years.

+ The maximum contingent deferred sales charge for Class C is 1% for shares
redeemed within one year of purchase.

++ Class D has no sales charge.

(1) The Russell 3000(R) Growth Index measures the performance of those
companies in the Russell 3000(R) Index with higher price-to-book ratios and
higher forecasted growth values. Indexes are unmanaged and their returns do
not include any sales charges or fees. Such costs would lower performance.
It is not possible to invest directly in an index.

(2) The Lipper Multi-Cap Growth Funds Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Multi-Cap Growth Funds classification. The Index, which is adjusted for
capital gains distributions and income dividends, is unmanaged and should
not be considered an investment. There are currently 30 funds represented
in this Index.

(3) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.

(4) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.

EXPENSE EXAMPLE

As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including management fees; distribution and service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 12/01/04 - 05/31/05.

ACTUAL EXPENSES

The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.

<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
12/01/04 -
12/01/04 05/31/05 05/31/05
------------- ------------- ---------------

CLASS A
Actual (2.78% return)....................................... $1,000.00 $1,027.80 $ 7.23
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,017.80 $ 7.19
CLASS B
Actual (2.35% return)....................................... $1,000.00 $1,023.50 $11.05
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,014.01 $11.00
CLASS C
Actual (2.44% return)....................................... $1,000.00 $1,024.40 $10.65
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,014.41 $10.60
CLASS D
Actual (2.87% return)....................................... $1,000.00 $1,028.70 $ 6.02
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,019.00 $ 5.99
</Table>

- ------------------

* Expenses are equal to the Fund's annualized expense ratio of 1.43%, 2.19%,
2.11% and 1.19% respectively, multiplied by the average account value over
the period, multiplied by 182/365 (to reflect the one-half year period).

INVESTMENT ADVISORY AGREEMENT APPROVAL

NATURE, EXTENT AND QUALITY OF SERVICES

The Board of Trustees of the Fund (the "Board") reviewed and considered the
nature and extent of the investment advisory services provided by the Investment
Adviser under the Advisory Agreement, including portfolio management, investment
research and equity and fixed income securities trading. The Board also reviewed
and considered the nature and extent of the non-advisory, administrative
services provided by the Fund's Administrator under the Administration
Agreement, including accounting, clerical, bookkeeping, compliance, business
management and planning, and the provision of supplies, office space and
utilities. (The Investment Adviser and the Administrator together are referred
to as the "Adviser" and the Advisory and Administration Agreements together are
referred to as the "Management Agreement.") The Board also compared the nature
of the services provided by the Adviser with similar services provided by
non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper").

The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and investment advisory services to the Fund. The
Board determined that the Adviser's portfolio managers and key personnel are
well qualified by education and/or training and experience to perform the
services in an efficient and professional manner. The Board concluded that the
nature and extent of the advisory and administrative services provided were
necessary and appropriate for the conduct of the business and investment
activities of the Fund. The Board also concluded that the overall quality of the
advisory and administrative services was satisfactory.

PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS

The Board reviewed the Fund's performance for one-, three- and five-year periods
ended November 30, 2004, as shown in reports provided by Lipper (the "Lipper
Reports"), compared to the performance of comparable funds selected by Lipper
(the "performance peer group"), and noted that the Fund's performance was lower
than its performance peer group average for the three-and five-year periods, but
better for the one-year period. The Board concluded that the Fund's overall
performance was satisfactory in view of the significant improvement during the
most recent year.

FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS

The Board reviewed the management fee rate and the total expense ratio of the
Fund. The Board noted that: (i) the Fund's management fee rate was slightly
higher than the average management fee rate for funds, selected by Lipper (the
"expense peer group"), managed by other advisers with investment strategies
comparable to those of the Fund, as shown in the Lipper Report for the Fund, and
(ii) the Fund's total expense ratio was slightly lower than the average total
expense ratio of the funds included in the Fund's expense peer

group. The Board concluded that the Fund's management fee and total expenses
were competitive with those of the Fund's expense peer group.

FEES RELATIVE TO OTHER FUNDS MANAGED BY THE ADVISER WITH COMPARABLE INVESTMENT
STRATEGIES

The Board reviewed the advisory and administrative fees (together, the
"management fee") paid by the Fund under the Management Agreement. The Board
noted that the rate was comparable to the management fee rates charged by the
Adviser to any other funds it manages with investment strategies comparable to
those of the Fund.

BREAKPOINTS AND ECONOMIES OF SCALE

The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it includes breakpoints. The Board also
reviewed the level of the Fund's management fee and noted that the fee, as a
percentage of the Fund's net assets, would decrease as net assets increase
because the management fee includes breakpoints. The Board concluded that the
Fund's management fee would reflect economies of scale as assets increase.

PROFITABILITY OF ADVISER AND AFFILIATES

The Board considered and reviewed information concerning the costs incurred and
profits realized by the Adviser and its affiliates during the last two years
from their relationship with the Fund and the Morgan Stanley Fund Complex and
reviewed with the Controller of the Adviser the cost allocation methodology used
to determine the Adviser's profitability. Based on their review of the
information they received, the Board concluded that the profits earned by the
Adviser and its affiliates were not excessive in light of the advisory,
administrative and other services provided to the Fund.

FALL-OUT BENEFITS

The Board considered so-called "fall-out benefits" derived by the Adviser and
its affiliates from their relationship with the Fund and the Fund Complex, such
as "float" benefits derived from handling of checks for purchases and
redemptions of Fund shares through a broker-dealer affiliate of the Adviser and
"soft dollar" benefits (discussed in the next section). The Board also
considered that a broker-dealer affiliate of the Adviser receives from the Fund
12b-1 fees for distribution and shareholder services. The Board also considered
that an affiliate of the Adviser, through a joint venture, receives revenue in
connection with trading done on behalf of the Fund through an electronic trading
system network ("ECN"). The Board concluded that the float benefits and the
above-referenced ECN-related revenue were relatively small and that the 12b-1
fees were competitive with those of other broker-dealer affiliates of investment
advisers of mutual funds.

SOFT DOLLAR BENEFITS

The Board considered whether the Adviser realizes any benefits as a result of
brokerage transactions executed through "soft dollar" arrangements. Under such
arrangements, brokerage commissions paid by the Fund and/or other funds managed
by the Adviser would be used to pay for research that a securities broker
obtains from third parties, or to pay for both research and execution services
from securities brokers who effect transactions for the Fund. The Adviser
informed the Board that it does not use Fund commissions to pay for third party
research. It does use commissions to pay for research which is bundled with
execution services. The Board recognized that the receipt of such research from
brokers may reduce the Adviser's costs but concluded that the receipt of such
research strengthens the investment management resources of the Adviser, which
may ultimately benefit the Fund and other funds in the Fund Complex.

ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS

The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.

HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER

The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.

OTHER FACTORS AND CURRENT TRENDS

The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.

GENERAL CONCLUSION

After considering and weighing all of the above factors, the Board concluded it
would be in the best interest of the Fund and its shareholders to approve
renewal of the Management Agreement for another year.

Morgan Stanley Capital Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2005 (UNAUDITED)

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------

Common Stocks (98.5%)
Advertising/Marketing
Services (5.7%)
170,200 Getty Images, Inc.*...... $ 12,737,768
163,500 Lamar Advertising Co.
(Class A)*.............. 6,837,570
------------
19,575,338
------------
Air Freight/Couriers
(1.8%)
107,750 C.H. Robinson Worldwide,
Inc. ................... 6,160,068
------------
Apparel/Footwear Retail
(2.0%)
202,800 Chico's FAS, Inc.*....... 6,937,788
------------
Biotechnology (0.8%)
74,100 Gen-Probe, Inc.*......... 2,879,526
------------
Casino/Gaming (7.3%)
306,700 International Game
Technology.............. 8,642,806
194,200 Station Casinos, Inc. ... 12,642,420
75,990 Wynn Resorts, Ltd.*...... 3,560,132
------------
24,845,358
------------
Chemicals: Agricultural
(2.8%)
170,440 Monsanto Co. ............ 9,715,080
------------
Computer Processing
Hardware (3.0%)
253,800 Dell, Inc.*.............. 10,124,082
------------
Construction Materials
(1.1%)
76,800 Rinker Group, Ltd. (ADR)
(Australia)............. 3,590,400
------------
Discount Stores (2.6%)
60,500 Sears Holdings Corp.*.... 8,875,350
------------
Electronic Production
Equipment (1.6%)
187,300 Tessera Technologies,
Inc.*................... 5,514,112
------------
</Table>

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------

Financial Conglomerates
(1.5%)
132,150 Brascan Corp. (Class A)
(Canada)................ $ 5,095,704
------------
Financial Publishing/
Services (1.4%)
111,600 Moody's Corp. ........... 4,828,932
------------
Gas Distributors (1.4%)
77,800 Questar Corp. ........... 4,904,512
------------
Hotels/Resorts/
Cruiselines (3.6%)
263,400 Royal Caribbean Cruises,
Ltd. (Liberia).......... 12,145,374
------------
Internet Retail (1.0%)
96,100 Amazon.com, Inc.*........ 3,412,511
------------
Internet Software/
Services (8.3%)
64,300 Google, Inc. (Class
A)*..................... 17,901,120
284,400 Yahoo! Inc.*............. 10,579,680
------------
28,480,800
------------
Investment Banks/ Brokers
(4.2%)
17,270 Chicago Mercantile
Exchange (The).......... 3,733,601
196,994 Greenhill & Co., Inc. ... 7,028,746
43,200 Legg Mason, Inc. ........ 3,550,176
------------
14,312,523
------------
Managed Health Care
(1.3%)
94,200 UnitedHealth Group,
Inc. ................... 4,576,236
------------
Medical Distributors
(1.6%)
122,100 Patterson Companies,
Inc.*................... 5,542,119
------------
Medical Specialties
(4.0%)
40,300 Alcon, Inc.
(Switzerland)........... 4,121,481
89,400 Dade Behring Holdings,
Inc.*................... 5,976,390
53,144 Kinetic Concepts,
Inc.*................... 3,414,502
------------
13,512,373
------------
</Table>

See Notes to Financial Statements
11

Morgan Stanley Capital Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2005 (UNAUDITED) continued

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------

Miscellaneous Commercial
Services (4.1%)
200,450 Corporate Executive Board
Co. (The)............... $ 13,987,401
------------
Oil & Gas Production
(4.7%)
594,080 Ultra Petroleum Corp.
(Canada)*............... 16,164,917
------------
Other Consumer Services
(6.7%)
426,900 eBay, Inc.*.............. 16,226,469
78,400 Strayer Education,
Inc. ................... 6,820,800
------------
23,047,269
------------
Other Metals/ Minerals
(1.1%)
90,400 Cameco Corp. (Canada).... 3,738,040
------------
Packaged Software (3.9%)
110,600 Adobe Systems, Inc. ..... 3,656,436
304,800 Red Hat, Inc.*........... 3,852,672
286,600 Salesforce.com, Inc.*.... 5,800,784
------------
13,309,892
------------
Property - Casualty
Insurers (3.0%)
2,302 Berkshire Hathaway, Inc.
(Class B)*.............. 6,468,620
5,650 White Mountains Insurance
Group, Ltd. (Bermuda)... 3,754,425
------------
10,223,045
------------
Real Estate Investment
Trusts (1.4%)
141,300 Plum Creek Timber Co.,
Inc. ................... 4,952,565
------------
Recreational Products
(4.1%)
188,400 Electronic Arts, Inc.*... 9,898,536
112,400 Shanda Interactive
Entertainment, Ltd.
(ADR) (Cayman
Islands)*............... 4,141,940
------------
14,040,476
------------
</Table>

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------

Restaurants (1.7%)
97,235 P.F. Chang's China
Bistro, Inc.*........... $ 5,763,118
------------
Semiconductors (1.2%)
96,100 Marvell Technology Group,
Ltd. (Bermuda)*......... 3,936,256
------------
Services to the Health
Industry (1.3%)
90,100 Stericycle, Inc.*........ 4,470,762
------------
Specialty
Telecommunications (2.1%)
399,116 Crown Castle
International Corp.*.... 7,096,282
------------
Telecommunication
Equipment (1.8%)
160,500 QUALCOMM, Inc. .......... 5,980,230
------------
Wholesale Distributors
(1.3%)
124,950 SCP Pool Corp. .......... 4,475,709
------------
Wireless
Telecommunications (3.1%)
184,000 America Movil S.A. de
C.V. (Series L) (ADR)
(Mexico)................ 10,429,120
------------
Total Common Stocks
(Cost $289,663,468)...... 336,643,268
------------
</Table>

See Notes to Financial Statements
12

Morgan Stanley Capital Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2005 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------

Short-Term Investment (0.4%)
Repurchase Agreement
$ 1,249 Joint repurchase
agreement account 3.04%
due 06/01/05 (dated
05/31/05; proceeds
$1,249,105) (a)
(Cost $1,249,000)....... $ 1,249,000
------------
</Table>

<Table>

Total Investments
(Cost $290,912,468) (b)..... 98.9% 337,892,268
Other Assets in Excess of
Liabilities................. 1.1 3,927,737
----- ------------
Net Assets.................. 100.0% $341,820,005
===== ============
</Table>

- ---------------------------------------------------

<Table>

ADR American Depositary Receipt.
* Non-income producing security.
(a) Collateralized by federal agency and U.S. Treasury
obligations.
(b) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes.
The aggregate gross unrealized appreciation is
$55,457,453 and the aggregate gross unrealized
depreciation is $8,477,653, resulting in net
unrealized appreciation of $46,979,800.
</Table>

See Notes to Financial Statements
13

Morgan Stanley Capital Opportunities Trust
SUMMARY OF INVESTMENTS - MAY 31, 2005 (UNAUDITED)

<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------------------

Internet Software/Services.................................. $ 28,480,800 8.3%
Casino/Gaming............................................... 24,845,358 7.3
Other Consumer Services..................................... 23,047,269 6.7
Advertising/Marketing Services.............................. 19,575,338 5.7
Oil & Gas Production........................................ 16,164,917 4.7
Investment Banks/Brokers.................................... 14,312,523 4.2
Recreational Products....................................... 14,040,476 4.1
Miscellaneous Commercial Services........................... 13,987,401 4.1
Medical Specialties......................................... 13,512,373 4.0
Packaged Software........................................... 13,309,892 3.9
Hotels/Resorts/Cruiselines.................................. 12,145,374 3.6
Wireless Telecommunications................................. 10,429,120 3.1
Property - Casualty Insurers................................ 10,223,045 3.0
Computer Processing Hardware................................ 10,124,082 3.0
Chemicals: Agricultural..................................... 9,715,080 2.8
Discount Stores............................................. 8,875,350 2.6
Specialty Telecommunications................................ 7,096,282 2.1
Apparel/Footwear Retail..................................... 6,937,788 2.0
Air Freight/Couriers........................................ 6,160,068 1.8
Telecommunication Equipment................................. 5,980,230 1.8
Restaurants................................................. 5,763,118 1.7
Medical Distributors........................................ 5,542,119 1.6
Electronic Production Equipment............................. 5,514,112 1.6
Financial Conglomerates..................................... 5,095,704 1.5
Real Estate Investment Trusts............................... 4,952,565 1.4
Gas Distributors............................................ 4,904,512 1.4
Financial Publishing/Services............................... 4,828,932 1.4
Managed Health Care......................................... 4,576,236 1.3
Wholesale Distributors...................................... 4,475,709 1.3
Services to the Health Industry............................. 4,470,762 1.3
Semiconductors.............................................. 3,936,256 1.2
Other Metals/Minerals....................................... 3,738,040 1.1
Construction Materials...................................... 3,590,400 1.1
Internet Retail............................................. 3,412,511 1.0
Biotechnology............................................... 2,879,526 0.8
Repurchase Agreement........................................ 1,249,000 0.4
------------ ----
$337,892,268 98.9%
============ ====
</Table>

See Notes to Financial Statements
14

Morgan Stanley Capital Opportunities Trust
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
May 31, 2005 (unaudited)

<Table>

Assets:
Investments in securities, at value
(cost $290,912,468)....................................... $337,892,268
Receivable for:
Investments sold........................................ 4,376,262
Dividends............................................... 178,673
Shares of beneficial interest sold...................... 89,419
Foreign withholding taxes reclaimed..................... 7,900
Prepaid expenses and other assets........................... 133,705
--------------
Total Assets............................................ 342,678,227
--------------
Liabilities:
Payable for:
Shares of beneficial interest redeemed.................. 412,741
Investment advisory fee................................. 196,245
Distribution fee........................................ 155,120
Administration fee...................................... 23,432
Accrued expenses and other payables......................... 70,684
--------------
Total Liabilities....................................... 858,222
--------------
Net Assets.............................................. $341,820,005
==============
Composition of Net Assets:
Paid-in-capital............................................. $1,059,609,476
Net unrealized appreciation................................. 46,979,800
Accumulated net investment loss............................. (2,578,999)
Accumulated net realized loss............................... (762,190,272)
--------------
Net Assets.............................................. $341,820,005
==============
Class A Shares:
Net Assets.................................................. $103,985,236
Shares Outstanding (unlimited authorized, $.01 par value)... 6,854,931
Net Asset Value Per Share............................... $15.17
==============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)......... $16.01
==============
Class B Shares:
Net Assets.................................................. $140,186,505
Shares Outstanding (unlimited authorized, $.01 par value)... 9,766,066
Net Asset Value Per Share............................... $14.35
==============
Class C Shares:
Net Assets.................................................. $13,678,848
Shares Outstanding (unlimited authorized, $.01 par value)... 956,747
Net Asset Value Per Share............................... $14.30
==============
Class D Shares:
Net Assets.................................................. $83,969,416
Shares Outstanding (unlimited authorized, $.01 par value)... 5,448,870
Net Asset Value Per Share............................... $15.41
==============
</Table>

See Notes to Financial Statements
15

Morgan Stanley Capital Opportunities Trust
FINANCIAL STATEMENTS continued

Statement of Operations
For the six months ended May 31, 2005 (unaudited)

<Table>

Net Investment Loss:

Income
Dividends (net of $18,437 foreign withholding tax).......... $ 770,597
Interest.................................................... 41,179
------------
Total Income............................................ 811,776
------------
Expenses
Investment advisory fee..................................... 1,206,719
Distribution fee (Class A shares)........................... 36,860
Distribution fee (Class B shares)........................... 1,146,185
Distribution fee (Class C shares)........................... 66,729
Transfer agent fees and expenses............................ 641,663
Administration fee.......................................... 144,086
Shareholder reports and notices............................. 57,508
Professional fees........................................... 36,460
Registration fees........................................... 28,180
Custodian fees.............................................. 14,220
Trustees' fees and expenses................................. 2,126
Other....................................................... 9,842
------------
Total Expenses.......................................... 3,390,578
------------
Net Investment Loss..................................... (2,578,802)
------------
Net Realized and Unrealized Gain (Loss):
Net realized gain........................................... 25,978,063
Net change in unrealized appreciation....................... (15,074,109)
------------
Net Gain................................................ 10,903,954
------------
Net Increase................................................ $ 8,325,152
============
</Table>

16
See Notes to Financial Statements

Morgan Stanley Capital Opportunities Trust
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 2005 NOVEMBER 30, 2004
------------- -----------------
(unaudited)

Increase (Decrease) in Net Assets:

Operations:
Net investment loss......................................... $ (2,578,802) $ (5,736,646)
Net realized gain........................................... 25,978,063 65,829,419
Net change in unrealized appreciation....................... (15,074,109) 7,968,794
------------ -------------
Net Increase............................................ 8,325,152 68,061,567

Net decrease from transactions in shares of beneficial
interest.................................................. (55,430,402) (101,101,025)
------------ -------------
Net Decrease............................................ (47,105,250) (33,039,458)

Net Assets:
Beginning of period......................................... 388,925,255 421,964,713
------------ -------------
End of Period
(Including accumulated net investment losses of $2,578,999
and $197, respectively)..................................... $341,820,005 $ 388,925,255
============ =============
</Table>

17
See Notes to Financial Statements

Morgan Stanley Capital Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2005 (UNAUDITED)

1. Organization and Accounting Policies

Morgan Stanley Capital Opportunities Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek long-term capital appreciation. The Fund was organized as a Massachusetts
business trust on October 17, 1995 and commenced operations on February 27,
1996. On July 28, 1997, the Fund converted to a multiple class share structure.

The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within eighteen
months, six years and one year, respectively. Class D shares are not subject to
a sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.

The following is a summary of significant accounting policies:

A. Valuation of Investments -- (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Adviser"), determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are expected to materially affect the value of
such securities, such valuations may be adjusted to reflect the estimated fair
value of such securities as of the close of the NYSE, as determined in good
faith by the Fund's Trustees or by the Investment

Morgan Stanley Capital Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2005 (UNAUDITED) continued

Adviser using a pricing service and/or procedures approved by the Trustees of
the Fund; (6) certain portfolio securities may be valued by an outside pricing
service approved by the Fund's Trustees; and (7) 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.

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.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Adviser, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.

D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.

E. 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 income to its
shareholders. Accordingly, no federal income tax provision is required.

F. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.

G. 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.

Morgan Stanley Capital Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2005 (UNAUDITED) continued

2. Investment Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement, the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
annual rate of 0.67% to the portion of daily net assets not exceeding $500
million; 0.645% to the portion of daily net assets exceeding $500 million but
not exceeding $2 billion; 0.62% to the portion of daily net assets exceeding $2
billion, but not exceeding $3 billion; and 0.595% to the portion of daily net
assets in excess of $3 billion.

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, accrued daily and payable monthly, by applying the
annual rate of 0.08% to the Fund's daily net assets.

3. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up
to 1.0% of the lesser of: (a) the average daily aggregate gross sales of the
Class B shares since the inception of the Fund (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's inception upon which
a contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the
average daily net assets of Class C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$57,661,411 at May 31, 2005.

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except

Morgan Stanley Capital Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2005 (UNAUDITED) continued

that expenses representing a gross sales credit to Morgan Stanley Financial
Advisors or other selected broker-dealer representatives may be reimbursed in
the subsequent calendar year. For the six months ended May 31, 2005, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.24% and 0.92%, respectively.

The Distributor has informed the Fund that for the six months ended May 31,
2005, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $207,968 and $894, respectively
and received $10,907 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.

4. Security Transactions and Transactions with Affiliates

The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended May 31, 2005 aggregated
$182,817,918 and $236,307,263, respectively. Included in the aforementioned
transactions are purchases and sales of $48,678, and $171,957, respectively,
with other Morgan Stanley funds, including a realized gain of $35,991.

For the six months ended May 31, 2005, the Fund incurred brokerage commission of
$6,179 with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser,
Administrator and Distributor, for portfolio transactions executed on behalf of
the Fund.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.

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.

Morgan Stanley Capital Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2005 (UNAUDITED) continued

5. Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 2005 NOVEMBER 30, 2004
---------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- -------------

CLASS A SHARES
Sold........................................ 97,554 $ 1,442,980 218,320 $ 2,905,617
Conversion from Class B..................... 6,342,658 89,456,726 -- --
Redeemed.................................... (350,326) (5,125,158) (329,827) (4,334,639)
---------- ------------- ---------- -------------
Net increase (decrease) - Class A........... 6,089,886 85,774,548 (111,507) (1,429,022)
---------- ------------- ---------- -------------
CLASS B SHARES
Sold........................................ 324,485 4,579,456 1,290,040 16,302,495
Conversion to Class A....................... (6,694,381) (89,456,726) -- --
Redeemed.................................... (3,184,956) (44,631,741) (7,057,510) (88,972,119)
---------- ------------- ---------- -------------
Net decrease - Class B...................... (9,554,852) (129,509,011) (5,767,470) (72,669,624)
---------- ------------- ---------- -------------
CLASS C SHARES
Sold........................................ 41,910 583,330 135,960 1,706,112
Redeemed.................................... (219,601) (3,072,116) (366,484) (4,602,110)
---------- ------------- ---------- -------------
Net decrease - Class C...................... (177,691) (2,488,786) (230,524) (2,895,998)
---------- ------------- ---------- -------------
CLASS D SHARES
Sold........................................ 327,486 4,908,588 885,837 11,881,649
Redeemed.................................... (943,887) (14,115,741) (2,685,984) (35,988,030)
---------- ------------- ---------- -------------
Net increase - Class D...................... (616,401) (9,207,153) (1,800,147) (24,106,381)
---------- ------------- ---------- -------------
Net decrease in Fund........................ (4,259,058) $ (55,430,402) (7,909,648) $(101,101,025)
========== ============= ========== =============
</Table>

6. 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.

During the year ended November 30, 2004, the Fund utilized $65,727,342 of its
net capital loss carryforward. As of November 30, 2004, the Fund had a net
capital loss carryforward of

Morgan Stanley Capital Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2005 (UNAUDITED) continued

$788,144,285 of which $404,111,604 will expire on November 30, 2009 and
$384,032,681 will expire on November 30, 2010 to offset future capital gains to
the extent provided by regulations.

As of November 30, 2004, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.

7. Legal Matters

The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint generally alleges that defendants,
including the Fund, violated their statutory disclosure obligations and
fiduciary duties by failing properly to disclose (i) that the Investment Adviser
and certain affiliates of the Investment Adviser allegedly offered economic
incentives to brokers and others to recommend the funds advised by the
Investment Adviser or its affiliates to investors rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Adviser or
its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their efforts to recommend these funds to investors. The
complaint seeks, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants have moved to dismiss the
action and intend to otherwise vigorously defend it. On March 10, 2005,
Plaintiffs sought leave to supplement their complaint to assert claims on behalf
of other investors. While the Fund and Adviser believe that each has meritorious
defenses, the ultimate outcome of this matter is not presently determinable at
this early stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.

Morgan Stanley Capital Opportunities Trust
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED NOVEMBER 30,
MONTHS ENDED ---------------------------------------------------
MAY 31, 2005 2004 2003 2002 2001 2000
------------ ------- -------- -------- -------- --------
(unaudited)

Class A Shares
Selected Per Share Data:

Net asset value, beginning of period.............. $14.76 $12.35 $ 9.53 $15.97 $26.86 $33.83
------ ------ ------ ------ ------ ------

Income (loss) from investment operations:
Net investment loss++......................... (0.06) (0.12) (0.12) (0.16) (0.20) (0.33)
Net realized and unrealized gain (loss)....... 0.47 2.53 2.94 (6.28) (10.69) (5.76)
------ ------ ------ ------ ------ ------

Total income (loss) from investment operations.... 0.41 2.41 2.82 (6.44) (10.89) (6.09)
------ ------ ------ ------ ------ ------

Less distributions from:
Net realized gain............................. -- -- -- -- -- (0.77)
Paid-in-capital............................... -- -- -- -- -- (0.11)
------ ------ ------ ------ ------ ------

Total distributions............................... -- -- -- -- -- (0.88)
------ ------ ------ ------ ------ ------

Net asset value, end of period.................... $15.17 $14.76 $12.35 $ 9.53 $15.97 $26.86
====== ====== ====== ====== ====== ======

Total Return+..................................... 2.78 %(1) 19.51% 29.59% (40.33)% (40.54)% (18.72)%

Ratios to Average Net Assets(3):
Expenses.......................................... 1.43 %(2) 1.47% 1.52% 1.43% 1.13% 1.11%
Net investment loss............................... (0.98)%(2) (0.93)% (1.22)% (1.26)% (1.02)% (0.82)%

Supplemental Data:
Net assets, end of period, in thousands........... $103,985 $11,290 $10,826 $9,339 $21,509 $48,068
Portfolio turnover rate........................... 51 %(1) 120% 179% 94% 25% 17%
</Table>

- ---------------------

<Table>

++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>

24
See Notes to Financial Statements

Morgan Stanley Capital Opportunities Trust
FINANCIAL HIGHLIGHTS continued

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED NOVEMBER 30,
MONTHS ENDED ---------------------------------------------------------
MAY 31, 2005 2004 2003 2002 2001 2000
------------ -------- --------- --------- -------- -----------
(unaudited)

Class B Shares
Selected Per Share Data:

Net asset value, beginning of period..... $14.02 $11.83 $ 9.19 $15.53 $26.35 $33.36
------ ------ ------ ------ ----- -----

Income (loss) from investment operations:
Net investment loss++................ (0.12) (0.21) (0.19) (0.25) (0.37) (0.51)
Net realized and unrealized gain
(loss)............................... 0.45 2.40 2.83 (6.09) (10.45) (5.62)
------ ------ ------ ------ ----- -----

Total income (loss) from investment
operations.............................. 0.33 2.19 2.64 (6.34) (10.82) (6.13)
------ ------ ------ ------ ----- -----

Less distributions from:
Net realized gain.................... -- -- -- -- -- (0.77)
Paid-in-capital...................... -- -- -- -- -- (0.11)
------ ------ ------ ------ ----- -----

Total distributions...................... -- -- -- -- -- (0.88)
------ ------ ------ ------ ----- -----

Net asset value, end of period........... $14.35 $14.02 $11.83 $ 9.19 $15.53 $26.35
====== ====== ====== ====== ===== =====

Total Return+............................ 2.35 %(1) 18.51% 28.73% (40.82)% (41.06)% (19.12)%

Ratios to Average Net Assets(3):
Expenses................................. 2.19 %(2) 2.24% 2.29% 2.20% 2.02% 1.58%
Net investment loss...................... (1.74)%(2) (1.70)% (1.99)% (2.03)% (1.91)% (1.29)%

Supplemental Data:
Net assets, end of period, in
thousands............................... $140,187 $270,955 $296,711 $292,533 $705,388 $1,413,820
Portfolio turnover rate.................. 51 %(1) 120% 179% 94% 25% 17%
</Table>

- ---------------------

<Table>

25
See Notes to Financial Statements

Morgan Stanley Capital Opportunities Trust
FINANCIAL HIGHLIGHTS continued

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED NOVEMBER 30,
MONTHS ENDED ----------------------------------------------------
MAY 31, 2005 2004 2003 2002 2001 2000
------------ -------- -------- -------- -------- --------
(unaudited)

Class C Shares
Selected Per Share Data:

Net asset value, beginning of period............ $13.96 $11.77 $ 9.15 $15.43 $26.19 $33.24
------ ------ ------ ------ ------ ------

Income (loss) from investment operations:
Net investment loss++....................... (0.12) (0.21) (0.19) (0.22) (0.37) (0.62)
Net realized and unrealized gain (loss)..... 0.46 2.40 2.81 (6.06) (10.39) (5.55)
------ ------ ------ ------ ------ ------

Total income (loss) from investment
operations..................................... 0.34 2.19 2.62 (6.28) (10.76) (6.17)
------ ------ ------ ------ ------ ------

Less distributions from:
Net realized gain........................... -- -- -- -- -- (0.77)
Paid-in-capital............................. -- -- -- -- -- (0.11)
------ ------ ------ ------ ------ ------

Total distributions............................. -- -- -- -- -- (0.88)
------ ------ ------ ------ ------ ------

Net asset value, end of period.................. $14.30 $13.96 $11.77 $ 9.15 $15.43 $26.19
====== ====== ====== ====== ====== ======

Total Return+................................... 2.44 %(1) 18.61% 28.63% (40.70)% (41.08)% (19.31)%

Ratios to Average Net Assets(3):
Expenses........................................ 2.11 %(2) 2.23% 2.29% 1.98% 2.02% 1.86%
Net investment loss............................. (1.66)%(2) (1.69)% (1.99)% (1.81)% (1.91)% (1.56)%

Supplemental Data:
Net assets, end of period, in thousands......... $13,679 $15,837 $16,069 $14,701 $32,016 $61,822
Portfolio turnover rate......................... 51 %(1) 120% 179% 94% 25% 17%
</Table>

- ---------------------

<Table>

26
See Notes to Financial Statements

Morgan Stanley Capital Opportunities Trust
FINANCIAL HIGHLIGHTS continued

Class D Shares
Selected Per Share Data:

Net asset value, beginning of period............ $14.98 $12.51 $ 9.62 $16.10 $27.04 $33.97
------ ------ ------ ------ ------ ------

Income (loss) from investment operations:
Net investment loss++....................... (0.06) (0.09) (0.10) (0.12) (0.18) (0.24)
Net realized and unrealized gain (loss)..... 0.49 2.56 2.99 (6.36) (10.76) (5.81)
------ ------ ------ ------ ------ ------

Total income (loss) from investment
operations..................................... 0.43 2.47 2.89 (6.48) (10.94) (6.05)
------ ------ ------ ------ ------ ------

Total distributions............................. -- -- -- -- -- (0.88)
------ ------ ------ ------ ------ ------

Net asset value, end of period.................. $15.41 $14.98 $12.51 $ 9.62 $16.10 $27.04
====== ====== ====== ====== ====== ======

Total Return+................................... 2.87 %(1) 19.74% 30.04% (40.25)% (40.46)% (18.52)%

Ratios to Average Net Assets(3):
Expenses........................................ 1.19 %(2) 1.24% 1.29% 1.20% 1.02% 0.86%
Net investment loss............................. (0.74)%(2) (0.70)% (0.99)% (1.03)% (0.91)% (0.57)%

Supplemental Data:
Net assets, end of period, in thousands......... $83,969 $90,844 $98,359 $85,534 $94,203 $23,815
Portfolio turnover rate......................... 51 %(1) 120% 179% 94% 25% 17%
</Table>

- ---------------------

<Table>

++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Calculated based on the net asset value as of the last
business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>

27
See Notes to Financial Statements

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

Mitchell M. Merin
President

Ronald E. Robison
Executive Vice President and Principal Executive Officer

Joseph J. McAlinden
Vice President

Barry Fink
Vice President

Amy R. Doberman
Vice President

Carsten Otto
Chief Compliance Officer

Stefanie V. Chang
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

The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.

This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO]

MORGAN STANLEY FUNDS

Morgan Stanley
Capital Opportunities Trust
Semiannual Report
May 31, 2005

[MORGAN STANLEY LOGO]

38568RPT-RA05-00564P-Y05/05

Item 2. Code of Ethics.

Not applicable for semiannual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semiannual reports.

Item 4. Principal Accountant Fees and Services

Not applicable for semiannual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semiannual reports.

Item 6.

Refer to Item 1.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.

Not applicable for semiannual reports.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable to reports filed by closed-end funds.

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 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.

Item 12. Exhibits

(a) Code of Ethics - Not applicable for semiannual reports.

(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.

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 Capital Opportunities Trust

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
July 20, 2005

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
July 20, 2005

/s/ Francis Smith
Francis Smith
Principal Financial Officer
July 20, 2005