Basic earnings per common share ("EPS") is computed by dividing income available to Morgan Stanley common shareholders by the weighted average number of common shares outstanding for the period. Common shares outstanding include common stock and vested restricted stock units ("RSUs") where recipients have satisfied either the explicit vesting terms or retirement eligibility requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. The Company calculates EPS using the two-class method and determines whether instruments granted in share-based payment transactions are participating securities (see Note 2 to the consolidated financial statements for the year ended December 31, 2010 in the Form 10-K). The following table presents the calculation of basic and diluted EPS (in millions, except for per share data):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Basic EPS:
Income from continuing operations	$	1,402		$	1,463		$	2,530		$	3,542
Net gain from discontinued operations		4			521			6			453

Net income		1,406			1,984			2,536			3,995
Net income applicable to noncontrolling interests		213			24			375			259

Net income applicable to Morgan Stanley		1,193			1,960			2,161			3,736
Less: Preferred dividends (Series A Preferred Stock)		(11	)		(11	)		(22	)		(22	)
Less: Preferred dividends (Series B Preferred Stock)		—			(196	)		(196	)		(392	)
Less: MUFG stock conversion		(1,726	)					(1,726	)
Less: Preferred dividends (Series C Preferred Stock)		(13	)		(13	)		(26	)		(26	)
Less: Allocation of earnings to participating RSUs(1):
From continuing operations		(1	)		(38	)		(3	)		(91	)
From discontinued operations		—			(16	)		—			(14	)
Less: Allocation of undistributed earnings to Equity Units(2):
From continuing operations		—			(67	)		—			(165	)
From discontinued operations		—			(41	)		—			(36	)

Earnings (loss) applicable to Morgan Stanley common shareholders	$	(558	)	$	1,578		$	188		$	2,990

Weighted average common shares outstanding		1,464			1,318			1,460			1,316

Earnings (loss) per basic common share:
Income (loss) from continuing operations	$	(0.38	)	$	0.84		$	0.12		$	1.96
Net gain from discontinued operations		—			0.36			0.01			0.31

Earnings (loss) per basic common share	$	(0.38	)	$	1.20		$	0.13		$	2.27

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Diluted EPS:
Earnings (loss) applicable to Morgan Stanley common shareholders	$	(558	)	$	1,578		$	188		$	2,990
Impact on income of assumed conversions:
Assumed conversion of Equity Units(2)
From continuing operations		—			91			—			91
From discontinued operations		—			41			—			41
Preferred stock dividends (Series B Preferred Stock)		—			196			—			392

Earnings (loss) applicable to common shareholders plus assumed conversions		(558	)		1,906			188			3,514

Weighted average common shares outstanding		1,464			1,318			1,460			1,316
Effect of dilutive securities:
Stock options and RSUs(1)		—			4			17			4
Series B Preferred Stock		—			310			—			310
Equity Units(2)		—			116			—			58

Weighted average common shares outstanding and common stock equivalents		1,464			1,748			1,477			1,688

Earnings (loss) per diluted common share:
Income (loss) from continuing operations	$	(0.38	)	$	0.80		$	0.12		$	1.82
Net income from discontinued operations		—			0.29			0.01			0.26

Earnings (loss) per diluted common share	$	(0.38	)	$	1.09		$	0.13		$	2.08

(1)	RSUs that are considered participating securities participate in all of the earnings of the Company in the computation of basic EPS, and therefore, such RSUs are not included as incremental shares in the diluted calculation.

(2)	See Note 15 to the consolidated financial statements for the year ended December 31, 2010 included in the Form 10-K for further information on Equity Units.

The following securities were considered antidilutive and, therefore, were excluded from the computation of diluted EPS: