S-3

As filed with the Securities and Exchange Commission on June 22, 2004

Registration No. 333-            

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM S-3

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

CAPSTEAD MORTGAGE CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	75-2027937
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

8401 North Central Expressway
Suite 800
Dallas, Texas 75225-4410
(214) 874-2323
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

Phillip A. Reinsch

8401 North Central Expressway

Suite 800

Dallas, Texas 75225-4410

(214) 874-2323

(Name, address, including zip code, and telephone number

including area code, of agent for service)

The Commission is requested to send copies of all communication to:

David Barbour
Andrews Kurth LLP
1717 Main Street
Suite 3700
Dallas, Texas 75201
(214) 659-4400

     Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement, as determined by market conditions.

     If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or reinvestment plans, please check the following box x

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration for the same offering. o

     If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

Title of each class		Proposed maximum		Proposed maximum
of securities to	Amount to be	offering price		aggregate		Amount of
be registered	registered	per unit(1)		offering price(1)		registration fee
Common Stock, $0.01 par value	1,600,000 shares	$	14.85	$	23,760,000.00	$	3,010.39
$1.26 Cumulative Convertible Preferred Stock, Series B, $0.10 par value	100,000 shares	$	12.99	$	1,299,000.00	$	164.83

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c), based upon the average of the high and low sales prices of the Common Stock and the Series B Preferred Stock on June 21, 2004 as reported on the New York Stock Exchange.

     The Registrant hereby amends this Registration Statement on such date or such dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED JUNE 22, 2004

CAPSTEAD

Capstead Mortgage Corporation

Common Stock
and
$1.26 Cumulative Convertible Preferred Stock, Series B

You should carefully consider the risk factors beginning on page 4 of this prospectus.

Through this prospectus, Capstead Mortgage Corporation may offer and sell from time to time up to 1,600,000 shares of our common stock, and up to 100,000 shares of our $1.26 Cumulative Convertible Preferred Stock, Series B which are listed on the New York Stock Exchange under the symbols “CMO” and “CMOPB”, respectively.

     We may sell all or a portion of the shares of stock offered pursuant to this prospectus through agents, to or through underwriters or dealers. We are a party to a sales agreement with Brinson Patrick Securities Corporation as sales manager, relating to the sale of shares offered pursuant to this prospectus. The sales manager is not required to sell any specific number or dollar amount of shares, but will use its best efforts to sell the shares offered by this prospectus. Such sales will be at market prices prevailing at the time of the sale. On [   ], the last reported sales price on the New York Stock Exchange of our common stock was $[   ] per share, and the last reported sales price of our preferred stock, Series B, was $[   ] per share. The compensation to the sales manager for sales of common and preferred stock will be at commission rates ranging from 3.0% to 2.0% of the gross sales price per share, depending upon the aggregate sales proceeds raised by the sales manager in each year under the sales agreement. The sales manager will be deemed to be an underwriter, within the meaning of the Securities Act, in connection with any sales of common or preferred shares on our behalf. See “Description of Sales Agreement” and “Plan of Distribution”.

     You should rely only on the information contained or incorporated by reference in this prospectus and in any prospectus supplement accompanying this prospectus and that we have referred you to. We have not authorized anyone to provide you with information that is different. You should not assume that the information in this prospectus or in any prospectus supplement is accurate as of any date other than the date on the front of those documents. References in this prospectus to “we,” “us,” “our” and “the company” are to Capstead Mortgage Corporation.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is June     , 2004.

TABLE OF CONTENTS

WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION OF INFORMATION WE FILE WITH THE SEC BY REFERENCE
FORWARD-LOOKING INFORMATION
ABOUT CAPSTEAD MORTGAGE CORPORATION
RISK FACTORS
USE OF PROCEEDS
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
DESCRIPTION OF SALES AGREEMENT
DESCRIPTION OF SECURITIES
PLAN OF DISTRIBUTION
TAXATION
LEGAL MATTERS
EXPERTS
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
	Item 14. Other Expenses of Issuance and Distribution
	Item 15. Indemnification of Directors and Officers
	Item 16. Exhibits
	Item 17. Undertakings
SIGNATURES
POWER OF ATTORNEY
Form of Brinson Patrick Sales Agreement
Opinion/Consent of Andrews Kurth LLP
Opinion/Consent of Hogan & Hartson L.L.P.
Opinion/Consent of Andrews Kurth LLP
Consent of Ernst & Young LLP

WHERE YOU CAN FIND MORE INFORMATION

     We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov and at the public reference rooms of the New York Stock Exchange, 20 Broad Street, New York, New York and the Pacific Stock Exchange, 115 Sansome Street, San Francisco, California.

     We have filed a registration statement with the SEC on Form S-3 relating to the securities offered by this prospectus. This prospectus does not contain all of the information included in the registration statement. You may refer to the registration statement and the related exhibits for more information about the securities offered by this prospectus. The statements we make in this prospectus regarding the content of any documents filed as exhibits to the registration statement are not necessarily complete, and you should refer to the filed copy for additional information. All our statements about these documents are qualified in their entirety by the exhibits to the registration statement.

INCORPORATION OF INFORMATION WE FILE
WITH THE SEC BY REFERENCE

     The SEC allows us to “incorporate by reference” the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until all the securities offered under this prospectus are sold. This prospectus is part of the registration statement we filed with the SEC.

1.	Our Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
2.	Our definitive Proxy Statement dated March 5, 2004, issued in connection with our annual stockholders’ meeting.
3.	Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004.

     You may view and obtain copies of these filings in the Investor Relations section of our website at www.capstead.com. You may also request a copy of these filings, at no cost, by writing or telephoning us at Capstead Mortgage Corporation, 8401 N. Central Expressway, Suite 800, Dallas, Texas 75225, telephone (214) 874-2323, Attention: Investor Relations.

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FORWARD-LOOKING INFORMATION

     This prospectus contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that inherently involve risks and uncertainties. Our actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of our investments and unforeseen factors. Relative to our investments in financial assets, these factors may include, but are not limited to, changes in general economic conditions, the availability of suitable investments, fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments, deterioration in credit quality and ratings, the effectiveness of risk management strategies, the impact of leverage, liquidity of secondary markets and credit markets, increases in costs and other general competitive factors. Relative to direct investments in real estate, these factors may include, but are not limited to, lessee performance under lease agreements, changes in general as well as local economic conditions and real estate markets, increases in competition and inflationary pressures, changes in the tax and regulatory environment including zoning and environmental laws, uninsured losses or losses in excess of insurance limits and the availability of adequate insurance coverage at reasonable costs. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” beginning on page 4 of this prospectus. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

ABOUT CAPSTEAD MORTGAGE CORPORATION

     We were incorporated on April 15, 1985 in Maryland and commenced operations in September 1985. We are a mortgage investment firm operating as a real estate investment trust (“REIT”) that earns income from investing in real estate-related assets on a leveraged basis and from other investment strategies. These investments currently include, but are not limited to, adjustable-rate single-family residential mortgage-backed securities issued by government-sponsored entities, either Fannie Mae, Freddie Mac or Ginnie Mae. In addition, we have made limited investments in credit sensitive commercial real estate-related assets, including the direct ownership of real estate.

     We and our qualified REIT subsidiaries have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and intend to continue to do so. As a result of this election, we and our qualified REIT subsidiaries are not taxed at the corporate level on taxable income distributed to stockholders, provided that certain REIT qualification tests are met. Certain other affiliated entities, which are consolidated with us for financial reporting purposes, are not consolidated for federal income tax purposes because such entities have elected taxable REIT subsidiary tax-status. All taxable income of taxable REIT subsidiaries is subject to federal and state income taxes, where applicable.

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RISK FACTORS

     The following information, which you should carefully consider, identifies certain significant sources of risk associated with an investment in our common stock and our Series B Preferred Stock.

Changes in interest rates may adversely affect our earnings

Our earnings currently depend primarily on the difference or “spread” between the interest we receive on our mortgage securities and other investments, and the interest we pay on our related borrowings, which are generally based on 30-day LIBOR, an index that reflects prevailing short-term interest rates. The resulting spread may be reduced or even be negative in a rising short-term interest rate environment.

Because a substantial portion of our mortgage investments currently consist of adjustable-rate mortgage securities, the risk of rising short-term interest rates is offset to some extent by increases in the rates of interest earned on the underlying adjustable-rate mortgage loans, a portion of which reset each month based on underlying indices (generally 1-year Constant Maturity U.S. Treasury Note Rates).

Since only a portion of the adjustable-rate mortgage loans underlying our securities reset each month, and the terms of an adjustable rate mortgage loan generally limit the amount of these increases during any single interest rate adjustment period and over the life of the loan, interest rates on borrowings can rise to levels that may exceed the interest rates on the underlying loans contributing to lower or even negative financing spreads.

Declines in these indices during periods of falling short-term interest rates will negatively affect yields on adjustable-rate mortgage securities as the underlying adjustable-rate loans reset at lower interest rates. If declines in these indices exceed declines in our borrowing rates, our earnings may be adversely affected.

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An increase in prepayments may adversely affect our earnings

Another effect of changes in interest rates is that, as long-term interest rates decrease, the rate of principal prepayments on mortgage loans underlying our mortgage investments generally increases. Prolonged periods of high prepayments can significantly reduce the expected life of our mortgage investments; therefore, the actual yields realized can be lower due to faster amortization of premiums.

The availability of suitable investments at attractive pricing may adversely affect our earnings

To the extent proceeds of prepayments on our mortgage investments are not reinvested or cannot be reinvested at a rate of interest at least equal to the rate previously earned on those investments, our earnings may be adversely affected. We cannot assure you that we will be able to acquire suitable investments at attractive pricing and in a timely manner to replace portfolio runoff as it occurs or that we will maintain the current composition of our investments, consisting primarily of adjustable-rate mortgage securities.

The value of our mortgage assets fluctuates with changes in interest rates and market liquidity which could result in losses

We periodically sell mortgage assets, which may increase our income volatility because of the recognition of transactional gains or losses. These sales may become attractive or prudent as the value of our mortgage assets fluctuates with changes in interest rates and market liquidity. At other times, we may shift our investment focus, resulting in asset sales.

During periods of rising interest rates or falling market liquidity, the value of our mortgage assets can decline, leading to increased margin calls and reducing our liquidity. In the event of a margin call, our lenders may require us to pledge additional collateral to re-establish the ratio of the value of our collateral to the amount of our borrowing. If we are

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unable or unwilling to pledge additional collateral, our lenders can liquidate our collateral under adverse market conditions. Any such liquidation would likely result in a loss to us.

We may invest in derivatives to mitigate our interest rate and prepayment risks on our mortgage investments

We may invest in derivative financial instruments from time to time with the goal of achieving more stable financing spreads on a portion of our mortgage investment portfolio. As of the date of this filing, we did not own any derivative financial instruments for this purpose.

Some of our current or future investments may be more credit sensitive than our other investments

We continue to evaluate suitable real estate-related investments, which may include credit sensitive assets that generally earn higher yields due largely to a higher risk of default and reduced liquidity. We believe that such investments, when combined with the prudent use of leverage, can provide attractive returns over the long term. Suitable investments may include credit sensitive commercial and residential mortgage assets.

Commercial mortgage assets are generally viewed as exposing an investor to greater risk of loss than residential mortgage assets because commercial mortgage assets are typically secured by larger loans to fewer obligors than residential mortgage assets. Commercial property values and net operating income are subject to volatility, and net operating income may be sufficient or insufficient to cover debt service on the related mortgage loan at any given time. The repayment of loans secured by income-producing properties is typically dependent upon the successful operation of the related real estate project and the ability of the applicable property to produce net operating income rather than upon the liquidation value of the underlying real estate. Even when the current net operating income

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is sufficient to cover debt service, there can be no assurance that this will continue to be the case in the future.

Additionally, commercial properties may not readily be convertible to alternative uses if such properties were to become unprofitable due to competition, age of improvements, decreased demand, regulatory changes or other factors. The conversion of commercial properties to alternate uses generally requires substantial capital expenditures, which may or may not be available.

The availability of credit for commercial mortgage loans is significantly dependent upon economic conditions in the markets where such properties are located, as well as the willingness and ability of lenders to make such loans. The availability of funds in the credit markets fluctuates and there can be no assurance that the availability of such funds will increase above, or will not contract below current levels. In addition, the availability of similar commercial properties, and the competition for available credit, may affect the ability of potential purchasers to obtain financing for the acquisition of properties. This could effect the repayment of commercial mortgages.

Credit sensitive residential mortgages differ from commercial mortgages in several important ways, yet can still carry substantial credit risk. Residential mortgage-backed securities typically are secured by smaller loans to more obligors than commercial mortgage-backed securities, thus spreading the risk of mortgagor default. However, most of the mortgages supporting credit sensitive residential mortgage-backed securities are made to homeowners that do not qualify for agency loan programs for reasons including loan size, financial condition, or work or credit history that may be indicative of higher risk of default than loans qualifying for such programs. As with commercial mortgages, in instances of default we may incur losses if proceeds from sales of the underlying collateral are less than the unpaid principal balances of the mortgage loans and related foreclosure costs. However, with

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residential mortgages, this risk may be mitigated by various forms of credit enhancements including, but not limited to, primary mortgage insurance.

Through the process of securitizing both commercial and residential mortgages, credit risk can be heightened or minimized. Senior classes in multi-class securitizations generally have first priority over cash flows from a pool of mortgages and, as a result, carry the least risk, highest investment ratings and the lowest yields. Typically a securitization will also have mezzanine classes and subordinated classes. Mezzanine classes will generally have lower credit ratings, higher yields and may have average lives that are longer than the senior classes. Subordinate classes are junior in the right to receive cash flow from the underlying mortgages, thus providing credit enhancement to the senior and mezzanine classes. As a result, subordinated securities will have even lower credit ratings and higher yields because of the elevated risk of credit loss inherent in these securities.

The availability of capital from external sources to finance investments in credit-sensitive commercial and residential mortgage assets that are not financed to maturity at acquisition may be diminished during periods of mortgage finance market illiquidity. Additionally, if market conditions deteriorate resulting in substantial declines in value of these assets, sufficient capital may not be available to support the continued ownership of these assets, requiring them to be sold at a loss.

If the value of our investments is adversely affected by changes in interest rates, market liquidity or the credit quality of our investment portfolio, the book value of our common stock may decline

Most of our mortgage investments are debt securities that we carry at fair value on our balance sheet. Changes in the fair value of these investments are reflected in our stockholders’ equity. The fair value of these investments fluctuates with changes in

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interest rates and market liquidity, and such changes will generally be reflected in the book value of our common stock. Similarly, changes in credit quality can affect the fair value of our investments. The book value of our common stock will also be affected by other factors, including the level of dividend distributions and depreciation charges on net-leased real estate; however, temporary changes in the fair value of investments other than debt securities will generally not affect the book value of our common stock.

Our real estate investments may subject us to risks of ownership

The direct ownership of commercial real estate involves a number of risks. With our first acquisition of real estate in 2002, we have attempted to mitigate these risks by entering into a long-term “net-lease” arrangement whereby the lessee is responsible for the ongoing operation and management of the properties and for paying all expenses associated with the operation of the properties. Although reduced by this net-lease arrangement, risks of ownership remain, including:

• The risk that changes in economic conditions or real estate markets may adversely affect the value of our properties.

• The risk that, during inflationary periods, which are generally accompanied by rising interest rates, increases in operating costs and borrowing rates may be greater than increases in lessee revenues from operating properties. Over an extended period of time, this could result in lessee defaults.

• The risk that a deterioration of local conditions could adversely affect the ability of a lessee to profitably operate a property. For instance, an oversupply of senior living properties could hamper the leasing of senior living units at favorable rates. This could ultimately affect the value of our properties.

• The risk that changes in tax, zoning or other

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	laws could make our properties less attractive or less profitable.
•	The risk that our lessees will not elect to renew their leases when the terms expire. If a lessee does not renew its lease or otherwise defaults on its lease obligations, there is no assurance that we will be able to obtain a substitute lessee on acceptable terms. If we cannot obtain another qualified operator to lease a property, we may be required to modify the property for a different use, which may involve significant capital expenditures and delays in re-leasing the property.
•	The risk that lessees will not perform under their leases, reducing our income from the leases or requiring us to assume costs (such as real estate taxes, insurance, utilities and maintenance) that are the lessees’ responsibility under net-leases. In the case of special-purpose real estate such as senior living facilities, compliance with licensing requirements could complicate or delay the transfer of operational control of such properties. This could lead to a significant cash flow burden for us to service the debt and otherwise maintain the properties.
•	The risk that lessees will not be able to obtain insurance at a commercially reasonable cost. Net-leases generally require the lessee to carry comprehensive liability, casualty, workers’ compensation and rental loss insurance. The required coverage is typical of the type, and amount, customarily obtained by an owner of similar properties. However, there are some types of losses, such as catastrophic acts of nature, for which insurance cannot be obtained at a commercially reasonable cost. If there is an uninsured loss or a loss in excess of insurance limits, we could lose both the revenues generated by the affected property and the capital invested in the property. We would, however, remain obligated to repay

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	any mortgage indebtedness or other obligations related to the property.
•	The risk of a failure to comply with applicable regulatory requirements. Our real estate investments are subject to various federal, state and local regulatory requirements, including without limitation, the Americans with Disabilities Act (the “ADA”). The ADA requires that public accommodations reasonably accommodate individuals with disabilities and that new construction or alterations be made to commercial facilities to conform to accessibility guidelines. Failure to comply with the ADA can result in injunctions, fines, and damage awards to private parties and additional capital expenditures to remedy noncompliance. Existing requirements may change and compliance with future requirements may involve significant unanticipated expenditures. Although typically these expenditures would be the responsibility of the lessee under the terms of net-leases, if the lessees fail to perform these obligations, we may be required to do so.
•	Under federal, state and local environmental laws, we may be required to investigate and clean up any release of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or actual responsibility, simply because of current or past ownership of the real estate. If unidentified environmental problems arise, we may have to make substantial payments, which could adversely affect our cash flow and our ability to make distributions to stockholders. This is so because:

1.	We may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination.
2.	The law may impose clean-up

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	responsibility and liability on us regardless of whether we knew of or caused the contamination. Even if more than one person is responsible for the contamination, each person who shares legal liability under environmental laws may be held responsible for all of the clean-up costs.
3.	Governmental entities and third parties may sue us for damages and costs associated with a contaminated site.

• The risks associated with the sale of real property. We may desire to sell a property in the future because of changes in market conditions or poor lessee performance or to avail ourselves of other opportunities. We may also be required to sell a property in the future to meet our debt obligations or to avoid a default. Unlike investments in mortgage securities, real estate cannot always be sold quickly, and there can be no assurance that we can sell any of our properties at a favorable price or that a prospective buyer will view our existing lease or operating arrangements favorably. In addition, a property may require restoration or modification before we are able to sell it.

We have not established a minimum dividend payment level

We intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that most, if not all, of our REIT taxable income in each year (subject to certain adjustments) is distributed. This will enable us to meet certain REIT distribution requirements, which are part of the requirements that must be met to qualify for the tax benefits accorded to a REIT under the Code. We have not established a minimum dividend payment level and our ability to pay dividends may be adversely affected due to the risk factors described in this prospectus. All distributions will be made at

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the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT status and such other factors as our board of directors may deem relevant from time to time.

Our failure to qualify as a REIT would have adverse tax consequences

Many REIT-related tax requirements are highly technical and complex. The determination of whether we and our qualified REIT subsidiaries are taxable as a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult or impossible for us to remain qualified as a REIT. If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first fail to qualify. If we fail to qualify as a REIT, we would have to pay significant income taxes and would therefore have less money available for investments or for distributions to our stockholders. This would likely have a significant adverse effect on the value of our securities. In addition, the tax law would no longer require us to make distributions to our stockholders.

We have certain distribution requirements

As a REIT, we are generally required to distribute at least 90% of our annual REIT taxable income, excluding any net capital gains. This distribution requirement limits the amount we may have available for other business purposes, including amounts to fund our growth.

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Failure to maintain an exemption from the Investment Company Act would harm our results of operations

The Investment Company Act of 1940, as amended (the “Investment Company Act”), exempts entities that are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. We intend to conduct our business so as not to become regulated as an investment company under the Investment Company Act. If we fail to qualify for this exemption, our ability to use leverage would be substantially reduced and we would be unable to conduct our business as described in this prospectus.

Under the current interpretation of the SEC staff, in order to qualify for this exemption we must maintain at least 55% of our assets directly in these qualifying real estate interests. Mortgage-backed securities that do not represent all of the certificates issued with respect to an underlying pool of mortgages may be treated as separate from the underlying mortgage loans and, thus, may not qualify for purposes of the 55% requirement. Therefore, our ownership of these mortgage backed securities is limited by the provisions of the Investment Company Act.

In satisfying the 55% requirement under the Investment Company Act, we treat as qualifying interests mortgage-backed securities issued with respect to an underlying pool as to which we hold all issued certificates. If the SEC or its staff adopts a contrary interpretation of such treatment, we could be required to sell a substantial amount of our mortgage-backed securities under potentially adverse market conditions. Further, in our attempts to ensure that we continue to qualify for the exemption under the Investment Company Act, we might be precluded from acquiring mortgage-backed securities if their yield is higher than the yield on mortgage-backed securities that could be purchased in a manner consistent with the exemption. These factors may lower or eliminate our net income.

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Issuances of large amounts of our stock could cause our price to decline

As of [        ], there were [        ] shares of our common stock and [        ] shares of our Series B Preferred Stock outstanding. This prospectus may be used for the issuance of additional shares of our common stock or Series B Preferred Stock. The continuing availability of new shares in the market may decrease or limit increases in the market prices of these securities.

We may change our policies without stockholder approval

Our board of directors and management determine all of our policies, including our investment, financing and distribution policies and may amend or revise these policies at any time without a vote of our stockholders. Policy changes could adversely affect our financial condition, results of operations, the market price of our common stock and/or Series B Preferred Stock or our ability to pay dividends or distributions.

USE OF PROCEEDS

     Unless otherwise specified in the applicable prospectus supplement for any offering of the shares of stock offered pursuant to this prospectus, the net proceeds from the stock offered by us will be available for general corporate purposes. These general corporate purposes may include, without limitation, repayment of maturing obligations, redemption of outstanding indebtedness, financing future acquisitions (including acquisitions of real estate-related companies or real estate-related assets), capital expenditures and working capital. Pending any such uses, we may invest the net proceeds from the sale of any stock offered pursuant to this prospectus or related prospectus supplement in short-term investments, or may use them to reduce short-term indebtedness.

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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS

     The following table sets forth the historical ratios of earnings to combined fixed charges and our preferred stock dividends for the periods indicated:

Three Months Ended

Year Ended December 31,

March 31, 2004

2003

2002

2001

2000

1999

Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends(a)

1.51:1

1.49:1

1.40:1

1.22:1

0.87:1

1.07:1

(a) Includes fixed charges relating to CMOs issued by our finance subsidiaries. Excluding interest expense on CMO debt, the ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.61:1, 1.82:1, 2.03:1, 1.46:1, 0.77:1, and 1.14:1, respectively, for the periods indicated.

DESCRIPTION OF SALES AGREEMENT

     We may sell our common stock and our $1.26 cumulative convertible Preferred Stock designated as “Series B Preferred Stock” from time to time (1) through arrangements with underwriters or dealers, (2) directly to one or more purchasers, or (3) through agents. We have entered into a sales agreement with Brinson Patrick Securities Corporation (“Brinson Patrick”) with respect to sales of up to 1,600,000 shares of our common stock and up to 100,000 shares of our Series B Preferred Stock, and may enter into other sales agreements with other sales agents or underwriters in the future. Under the terms of the Brinson Patrick sales agreement, we may issue and sell shares of our common stock and Series B Preferred Stock from time to time through Brinson Patrick, as our sales agent. We have agreed to provide indemnification and contribution to Brinson Patrick against certain liabilities, including liabilities under the Securities Act.

Certain Terms of the Sales Agency Agreement

     Sales pursuant to the Brinson Patrick sales agreement may be effected on a daily basis. The compensation to Brinson Patrick for sales of common stock and Series B Preferred Stock under the Brinson Patrick sales agreement shall be at the following commission rates:

     • 3.0% of the gross sales price per shares (“sales proceeds”) for the first $8 million of aggregate sales proceeds raised under the sales agreement in each year;

     • 2.5% of sales proceeds for the next $4 million of aggregate sales proceeds raised in such year; and

     • 2.0% of sales proceeds for any additional aggregate sales proceeds raised in such year.

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For purposes of determining the appropriate commission rates, each year shall begin on January 1 and end on the following December 31. The remaining proceeds, after further deduction for any transaction fees imposed by any governmental or self-regulatory organization in respect to such sale shall constitute the net proceeds to us for such shares of stock.

     The offering of common stock and Series B Preferred Stock pursuant to the Brinson Patrick sales agreement will terminate upon the earlier of (i) the sale of all shares of common stock and Series B Preferred Stock subject thereto or (ii) termination of the Brinson Patrick sales agreement. The Brinson Patrick sales agreement may be terminated by us or by Brinson Patrick upon written notice and in certain other circumstances specified therein.

DESCRIPTION OF SECURITIES

General

     Our authorized capital stock currently consists of 100,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.10 per share. As of [   ], there were [   ] shares of our common stock, [   ] shares of our $1.60 Cumulative Preferred Stock designated as “Series A Preferred Stock” and [   ] shares of our Series B Preferred Stock issued and outstanding. The common stock, Series A Preferred Stock and Series B Preferred Stock are listed on the New York Stock Exchange.

Common Stock

     Each share of common stock is entitled to one vote. The outstanding shares of common stock are fully paid and non-assessable. Holders of shares of common stock do not have cumulative voting rights or preference, conversion, exchange, subscription or preemptive rights. Subject to our obligations to pay dividends on all shares of our outstanding preferred stock, each share of common stock is entitled to participate equally in dividends on the common stock when and as declared by our board of directors and in the distribution of our assets upon liquidation after payment of our liabilities and liquidation preferences with regard to our preferred stock. The foregoing summary does not purport to be a complete description of our common stock and is subject to, and qualified in its entirety by reference to, our charter and bylaws, in each case as amended and supplemented to date and filed as exhibits to the registration statement.

Series A Preferred Stock and Series B Preferred Stock

     General. In November 1989, a wholly-owned subsidiary of ours was merged with and into Strategic Mortgage Investments, Inc., a Maryland corporation (“Strategic”), and each outstanding share of Strategic common stock was converted into one share of our Series A Preferred Stock. In December 1992, Tyler Cabot Mortgage Securities Fund, Inc., a Maryland corporation (“Tyler Cabot”), was merged with and into us, and each outstanding share of Tyler Cabot common stock was converted into one share of our Series B Preferred Stock. The Series A Preferred Stock and Series B Preferred Stock are fully paid and non-assessable and neither has preemptive rights. The Series A Preferred Stock ranks on a parity with the Series B Preferred

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Stock, and each rank on a parity with any other series of our preferred stock which is not by its terms made junior or senior to the Series A Preferred Stock or Series B Preferred Stock with respect to the payment of dividends and distribution of assets in liquidation.

     Dividends. Holders of the Series B Preferred Stock are entitled to receive, when, as and if declared by our board of directors out of funds legally available therefor, cumulative preferential cash dividends at the annual rate of $1.26 per share, and no more, payable in equal monthly installments on each monthly dividend payment date. Holders of the Series A Preferred Stock are entitled to receive, when, as and if declared by our board of directors out of funds legally available therefor, cumulative preferential cash dividends at the rate of $1.60 per annum per share, and no more, payable in equal quarterly installments on each March 31, June 30, September 30 and December 31. Whenever dividends are in arrears and until all accrued and unpaid dividends on shares of Series A Preferred Stock and Series B Preferred Stock outstanding have been paid in full and the then current dividend on each such series shall have been paid or declared and sufficient funds set aside for payment thereof, we may not declare or pay dividends on the common stock or any other class or series of capital stock ranking junior to the Series A Preferred Stock and the Series B Preferred Stock in respect of dividends or redeem, purchase or otherwise acquire for consideration any shares of common stock or stock ranking junior to the Series A Preferred Stock or Series B Preferred Stock.

     Liquidation Rights. In the event of any liquidation, dissolution or winding up of our company, whether voluntary or involuntary, the holders of the Series A Preferred Stock and the Series B Preferred Stock will be entitled to receive out of our assets available for distribution to stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of shares of common stock or junior stock:

     • in the case of the Series A Preferred Stock, an amount equal to $16.40 per share of Series A Preferred Stock; and

     • in the case of Series B Preferred Stock, an amount per share of Series B Preferred Stock equal to $11.38 per share of Series B Preferred Stock,

plus, in each case, dividends accumulated and unpaid to the date of final distribution. If we consolidate or merge with or into any other corporation or transfer of all or any part of our assets for cash, property or securities, it will not be considered a liquidation, dissolution or winding-up of our company.

     Voting Rights. Except as indicated below, as otherwise provided in our charter or as required under the Maryland General Corporation Law, the holders of shares of our Series A Preferred Stock and Series B Preferred Stock will not have voting rights. If at any time all or any portion of the dividends on the Series A Preferred Stock or Series B Preferred Stock shall be in arrears and unpaid for any two or more dividend periods (whether or not consecutive), then the number of directors constituting our board of directors shall be increased by two in case of such arrearages on one of the Series A Preferred Stock or Series B Preferred Stock and four in the case of arrearages on both. The holders of Series A Preferred Stock and Series B Preferred Stock, voting separately as a class, will each be entitled to elect two directors to fill such newly created

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directorships. At such time as all dividends in default have been paid in full and dividends for the current quarterly period have been paid or declared and a sufficient sum for payment has been set aside, the term of any director then in office solely as a result of the voting rights described in this paragraph will terminate.

     The affirmative vote of at least two-thirds of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, in each case voting separately as a class, will be required to:

     • create or increase the number of authorized shares of any class of our stock ranking prior to the Series A Preferred Stock or Series B Preferred Stock as to dividends or distributions upon liquidation;

     • authorize any reclassification of Series A Preferred Stock or Series B Preferred Stock; or

     • amend, alter or repeal any provisions of our charter, which would adversely affect the rights, powers, or preferences of the Series A Preferred Stock or Series B Preferred Stock.

     So long as 20% or more of the aggregate number of shares of Series B Preferred Stock issued in connection with the Tyler Cabot merger remain outstanding, the affirmative vote of at least a majority of the outstanding shares of such Series B Preferred Stock will be required for the sale, lease or conveyance by us of all or substantially all of our property or business, or our consolidation or merger with any other corporation unless the corporation resulting from such consolidation or merger will have after such consolidation or merger no class of shares either authorized or outstanding ranking prior to or on a parity with the Series B Preferred Stock except the same number of shares ranking prior to or on a parity with the Series B Preferred Stock and having the same rights and preferences as our authorized and outstanding shares immediately preceding such consolidation or merger, and each holder of Series B Preferred Stock immediately preceding such consolidation or merger shall receive the same number of shares, with the same rights and preferences, of the resulting corporation.

     Except as described herein or otherwise required by law, no consent of the holders of Series B Preferred Stock will be required for:

     • our creation of any indebtedness of any kind;

     • the creation, or increase or decrease in the amount, of any class or series of our stock ranking on a parity with, or not ranking prior to, the Series B Preferred Stock as to dividends or as to amounts distributable upon liquidation; or

     • any increase or decrease in the amount of our authorized common stock or any increase, decrease or change in the par value thereof.

     Redemption. Neither the Series A Preferred Stock nor the Series B Preferred Stock is subject to mandatory redemption and neither is entitled to the benefit of a sinking fund. We may, at our option, redeem the Series A Preferred Stock, in whole or in part, for cash in an amount per

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share equal to $16.40 plus accumulated and unpaid dividends to the date of redemption, whether or not earned or declared. In addition, we may, at our option, redeem the Series B Preferred Stock, in whole or in part, for cash in an amount per share equal to $12.50 plus accumulated and unpaid dividends to the date of redemption, whether or not earned or declared.

     Conversion Rights. Holders of the Series A Preferred Stock may, at their option, convert shares of Series A Preferred Stock into shares of our common stock at the rate of 1.4871 shares of our common stock for each share of Series A Preferred Stock converted. Holders of Series B Preferred Stock may, at their option, convert shares of Series B Preferred Stock into shares of the our common stock at the rate of 0.5730 shares of our common stock for each share of Series B Preferred Stock converted. The conversion rates of the Series A Preferred Stock and the Series B Preferred Stock are subject to adjustment in certain circumstances.

Redemption or Repurchase of Capital Stock to Maintain Our Status as a REIT

     Our charter provides that if our board of directors determines in good faith that the direct or indirect ownership of our stock has or may become concentrated to an extent which would cause us to fail to qualify or be qualified as a REIT under Sections 856(a)(5) or (6) of the Code, or similar provisions of successor statutes, we may redeem or repurchase any number of shares of common stock and/or preferred stock sufficient to maintain or bring such ownership into conformity with the Code and may refuse to transfer or issue shares of common stock and/or preferred stock to any person whose acquisition would result in our being unable to conform with the requirements of the Code. In general, Code Sections 856(a)(5) and (6) provide that, as a REIT, we must have at least 100 beneficial owners for 335 days of each taxable year and that we cannot qualify as a REIT if, at any time during the last half of our taxable year, more than 50% in value of our outstanding stock is owned, directly or indirectly, by or for not more than five individuals. In addition, our charter provides that we may redeem or refuse to transfer any shares of our capital stock to the extent necessary to prevent the imposition of a penalty tax as a result of ownership of those shares by certain disqualified organizations, including governmental bodies and tax-exempt entities that are not subject to tax on unrelated business taxable income. The redemption or purchase price for those shares shall be equal to the fair market value of those shares as reflected in the closing sales price for those shares if then listed on a national securities exchange, or the average of the closing sales prices for those shares if then listed on more than one national securities exchange, or if those shares are not then listed on a national securities exchange, the latest bid quotation for the shares if then traded over-the-counter on the last business day for which closing prices are available immediately preceding the day on which notices of such acquisitions are sent or, if no such closing sales prices or quotations are available, then the net asset value of those shares as determined by our board of directors in accordance with the provisions of applicable law.

Special Statutory Requirements For Certain Transactions

     The following summary of certain provisions of the Maryland General Corporations Law and of our charter and the bylaws does not purport to be complete and is subject to and qualified

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in its entirety by reference to Maryland law and to our charter and the bylaws, copies of which are filed with the SEC.

     Business Combination Statute. Under the Maryland General Corporations Law, certain “business combinations” (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who directly or indirectly beneficially owns 10% or more of the voting power of the corporation’s shares or an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation (an “Interested Stockholder”) or an affiliate of such an Interested Stockholder are prohibited for five years after the most recent date on which the Interested Stockholder becomes an Interested Stockholder. Thereafter, any such business combination must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and (b) two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the Interested Stockholder with whom (or with whose affiliate) the business combination is to be effected, unless, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the Maryland General Corporations Law) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the Interested Stockholder becomes an Interested Stockholder.

     Control Share Acquisition Statute. The Maryland General Corporations Law provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiror, and by officers of the corporation or by directors who are employees of the corporation. “Control shares” are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power except solely by virtue of a revocable proxy, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: (1) one-tenth or more but less than one-third of all voting power, (2) one-third or more but less than a majority of all voting power, or (3) a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval within any level of voting power set forth above. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares

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(except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of such shares are considered and not approved.

     If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, (b) to acquisitions approved or exempted by the charter or bylaws of the corporation and adopted at any time before the acquisition of shares, or (c) to the acquisition of shares within one-tenth or more but less than one-fifth of all voting power of outstanding shares of stock of the corporation before June 1, 2000.

     Maryland statutory law provides that an act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. Hence, directors of a Maryland corporation are not required to act in takeover situations under the same standards as apply in Delaware and other corporate jurisdictions.

     Possible Anti-takeover Effect of Certain Provisions of Maryland Law and of our Charter and Bylaws. The business combination provisions, if the applicable provision in our bylaws is rescinded, the control share acquisition provisions of the Maryland General Corporations Law, and the provisions of our charter on ownership and transfer of stock could delay, defer or prevent a change in control or other transaction that might involve a premium price for holders of our common stock or otherwise be in their best interest.

PLAN OF DISTRIBUTION

     We may sell common stock and Series B Preferred Stock through arrangements with broker dealers, directly to one or more purchasers, or through agents such as Brinson Patrick.

     In connection with the sale of the common stock and the Series B Preferred Stock on our behalf under the Brinson Patrick sales agreement, Brinson Patrick will be deemed to be an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and the compensation payable to Brinson Patrick under the Brinson Patrick sales agreement will be deemed to be an underwriting commission or discount. We have separately agreed to provide indemnification and contribution to Brinson Patrick against certain civil liabilities, including liabilities under the Securities Act. Brinson Patrick may engage in transactions with, or perform services for, us in the ordinary course of business.

     We will open and maintain a trading account at the clearing agent designated by Brinson Patrick to facilitate the transactions contemplated by the Brinson Patrick sales agreement. The net proceeds from the sale of the common stock and Series B Preferred Stock under the Brinson

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Patrick sales agreement shall be available in the trading account on the third business day (or such other day as is industry practice for regular-way trading) following each sale of the common stock and Series B Preferred Stock (each, a “Settlement Date”). We will effect the delivery of the applicable number of shares of common stock and/or Series B Preferred Stock (as the case may be) to an account designated by Brinson Patrick at The Depository Trust Company on or before the settlement date of each sale hereunder. Brinson Patrick’s compensation shall be withheld from the sales proceeds on each settlement date and shall be paid to Brinson Patrick.

     The offering of common stock and Series B Preferred Stock pursuant to the Brinson Patrick sales agreement will terminate upon the earlier of (i) the sale of all shares of common stock and Series B Preferred Stock subject thereto or (ii) termination of the Brinson Patrick sales agreement. The Brinson Patrick sales agreement may be terminated by us or by Brinson Patrick upon written notice and in certain other circumstances specified therein.

Commissions

     The following table shows the public offering price, underwriting commissions and proceeds, before expenses, to us, assuming all 1,600,000 shares of common stock are sold at $[   ] per share, the last reported sales price of our common stock on the New York Stock Exchange on [   ].

	Per Share*		Total*
Public offering price	$	[___]	$	[___________]
Underwriting commissions (3.0%)	$	[___]	$	[___________]
Proceeds, before expenses, to us	$	[___]	$	[___________]

     The following table shows the public offering price, underwriting commissions and proceeds, before expenses, to us, assuming all 100,000 shares of preferred stock, Series B, are sold at $[   ] per share, the last reported sales price of our preferred stock, Series B, on the New York Stock Exchange on [   ].

	Per Share*		Total*
Public offering price	$	[___]	$	[___________]
Underwriting commissions (3.0%)	$	[___]	$	[___________]
Proceeds, before expenses, to us	$	[___]	$	[___________]

     *This is an offering that will be made, if at all, from time to time at the then-prevailing market prices. Therefore, there can be no assurances that the public offering price, underwriting commissions, and proceeds, before expenses, will be as set forth above. The commissions are computed based upon the highest applicable rate under the sales agreement.

     The expenses of the offering, not including underwriting commissions, are estimated at $48,068 and are payable by us.

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TAXATION

     The applicable provisions of the Code are highly technical and complex. This summary is not intended as a detailed discussion of all applicable provisions of the Code, the rules and regulations promulgated thereunder, or the administrative and judicial interpretations thereof. For the particular provisions that govern the federal income tax treatment of the company and its stockholders, reference is made generally to Sections 856 and 860 of the Code and the Treasury Regulations promulgated thereunder. We have not obtained rulings from the Internal Revenue Service with respect to any tax considerations relevant to our organization or operations or to an investment in our common stock or Series B Preferred Stock. This summary is not intended to substitute for prudent tax planning and stockholders are urged to consult their own tax advisors with respect to these and other federal, state and local tax consequences of the ownership and disposition of any of our common stock or Series B Preferred Stock and any potential changes in applicable law. Nonresident aliens, non-U.S. persons and entities, tax-exempt organizations, life insurance companies, cooperatives and certain other categories of investors may be subject to special tax rules that are not discussed below and that could affect an investment in our common stock or Series B Preferred Stock.

Federal Income Taxation of Capstead Mortgage Corporation

     As used herein, “Capstead REIT” refers to Capstead Mortgage Corporation and its “qualified REIT subsidiaries” which are entities that are effectively consolidated with Capstead Mortgage Corporation for federal income tax purposes. Certain of our subsidiaries that are consolidated with Capstead Mortgage Corporation for financial reporting purposes may elect taxable REIT subsidiary tax status for federal income tax purposes. All taxable income of taxable REIT subsidiaries is subject to federal and state income taxes. We may form additional taxable REIT subsidiaries.

     So long as Capstead REIT qualifies as a REIT, and distributes to stockholders the sum of at least 90% of its REIT taxable income (excluding net capital gain) plus at least 90% of its net after tax income, if any, from foreclosure property, minus the excess of the sum of specified items of non-cash income, if any, over 5% of REIT taxable income, then such income distributed to stockholders will not be subject to federal corporate income taxes, with limited exceptions discussed below. Under certain circumstances, a REIT may be subject to the corporate minimum tax or certain other special taxes. However, Capstead REIT does not anticipate generating material items of income or deductions that would cause it to be subject to the minimum tax or any such special tax.

Qualification and Taxation of Capstead REIT As a REIT

     Capstead REIT has made an election to be taxed as a REIT under Sections 856 through 860 of the Code effective for its taxable years ending on and after December 31, 1985. Capstead REIT’s qualification and taxation as a REIT depends upon Capstead REIT’s ability to meet on a continuing basis, through actual annual operating results, distribution levels and diversity of

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stock ownership, the various qualification tests and organizational requirements imposed under the Code, as discussed below. Capstead REIT believes that it is organized and has operated in such a manner as to qualify under the Code for taxation as a REIT commencing with its 1985 taxable year, and Capstead REIT intends to continue to operate in such a manner. No assurance, however, can be given that Capstead REIT will operate in a manner so as to qualify or remain qualified as a REIT. See “Failure to Qualify” below.

     In the opinion of Andrews Kurth LLP, tax counsel to Capstead REIT, for all of its taxable years beginning September 5, 1985 and ending December 31, 2003, Capstead REIT has met the requirements for qualification as a REIT under the Code and will be able to qualify as a REIT for taxable years beginning on and after January 1, 2004, provided that Capstead REIT continues to be organized and operated after the date of this prospectus so as to satisfy the applicable REIT requirements under the Code. This opinion is based on various assumptions relating to the organization and operation of Capstead REIT, and is conditioned upon the accuracy of certain representations made by Capstead REIT as to certain relevant factual matters relating to the organization and expected manner of operation of Capstead REIT and its subsidiaries. Andrews Kurth LLP is not aware of any facts or circumstances that are inconsistent with these assumptions and representations. Moreover, such qualification and taxation as a REIT will depend upon Capstead REIT’s ability to meet on a continuing basis, through actual annual operating results, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code discussed below. Andrews Kurth LLP will not review compliance with these tests on a continuing basis. No assurance can be given that Capstead REIT will satisfy such tests on a continuing basis. See “Failure to Qualify” below.

     The sections of the Code relating to qualification and operation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the Code sections that govern the federal income tax treatment of a REIT and its stockholders. The discussion is qualified in its entirety by the applicable Code provisions, Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all of which are subject to change prospectively or retroactively.

     So long as Capstead REIT continues to qualify for taxation as a REIT, it generally will not be subject to federal corporate income tax on its net income that is distributed currently to its stockholders. That treatment substantially eliminates the “double taxation” (i.e., taxation at both the corporate and stockholder levels) that generally results from investment in a corporation. However, Capstead REIT will be subject to federal income tax in the following circumstances:

(1) Capstead REIT will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains;

(2) under certain circumstances, Capstead REIT may be subject to the “alternative minimum tax” on items of tax preference, if any;

(3) if Capstead REIT has (1) net income from the sale or other disposition of “foreclosure property” (which is, in general, property acquired by foreclosure or otherwise on default

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of a loan or lease secured by the property) that is held primarily for sale to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, it will be subject to tax at the highest corporate rate on such income;

(4) if Capstead REIT has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business), such income will be subject to a 100% tax;

(5) if Capstead REIT should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), and nonetheless has maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on the net income attributable to the greater of the amounts by which it fails the 75% or 95% gross income test;

(6) if Capstead REIT should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year and (iii) any undistributed taxable income from prior periods, it would be subject to a 4% excise tax on the excess of such required distribution over the sum of the amounts actually distributed and amounts retained for which federal income tax was paid;

(7) Capstead REIT may be subject to a 100% excise tax with respect to certain “redetermined rents,” “redetermined deductions,” and “excess interest” to ensure arm’s length (i) pricing for certain services provided by taxable REIT subsidiaries of Capstead REIT to Capstead REIT’s tenants, if any, and (ii) allocation of shared expenses between Capstead REIT and its taxable REIT subsidiaries; and

(8) if Capstead REIT acquires any asset from a C corporation (i.e., a corporation generally subject to full corporate-level tax) in a transaction in which the basis of the asset in Capstead REIT’s hands is determined by reference to the basis of the asset or any other property in the hands of the corporation, and Capstead REIT recognizes gain on the disposition of such asset during the ten-year period beginning on the date on which such asset was acquired by Capstead REIT, then, to the extent of such property’s “built-in” gain (the excess of the fair market value of such property at the time of acquisition by Capstead REIT over the adjusted basis of such property at such time), that gain will be subject to the highest corporate rate applicable.

Requirements For Qualification

     The Code defines a REIT as a corporation, trust or association:

     (1) that is managed by one or more trustees or directors;

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(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

(3) that would be taxable as a domestic corporation, but for the REIT provisions of the Code;

(4) that is neither a financial institution nor an insurance company subject to certain provisions of the Code;

(5) the beneficial ownership of which is held by 100 or more persons;

(6) not more than 50% in value of the outstanding shares of which is owned, directly or indirectly, by five or fewer individuals, as defined in the Code to include certain entities (the “5/50 Rule”);

(7) that makes an election to be a REIT, or has made such election for a previous taxable year which has not been revoked or terminated, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met in order to elect and maintain REIT status;

(8) that uses a calendar year for federal income tax purposes; and

(9) that meets certain other tests, described below, regarding the nature of its income and assets.

     The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year, that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months, and that condition (6) must be met during the last half of the taxable year. For purposes of determining stock ownership under the 5/50 Rule, a supplemental unemployment compensation benefits plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes generally is considered an individual. A qualified employee benefit trust, however, generally is not considered an individual, and beneficiaries of such trust are treated as holding shares of a REIT in proportion to their actuarial interests in such trust. Finally, Capstead REIT will be treated as having met condition (6) above if it has complied with certain Treasury Regulations for ascertaining the ownership of its stock for such year and if it did not know, or after the exercise of reasonable diligence would not have known, that its stock was sufficiently closely held during such year to cause it to fail condition (6).

     A corporation that is a qualified REIT subsidiary is not treated as a separate corporation for federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT. A qualified REIT subsidiary is a corporation, all of the capital stock of which is owned directly by the REIT. Certain subsidiaries of Capstead REIT constitute qualified REIT subsidiaries. Accordingly, in applying the income and asset tests described below,

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those subsidiaries will be ignored for federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of those subsidiaries will be treated as assets, liabilities and items of income, deduction, and credit of Capstead REIT. Those subsidiaries therefore will not be subject to federal corporate income taxation, although they may be subject to state and local taxation.

     In the case of a REIT that is a partner in an entity that is classified for federal income tax purposes as a partnership, Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership, based on the REIT’s capital interest in the partnership, and will be deemed to be entitled to the gross income of the partnership attributable to such share. In addition, the assets and gross income of the partnership will retain the same character in the hands of the REIT for purposes of the REIT provisions of the Code, including satisfying the gross income and asset tests described below.

     Income Tests. In order for Capstead REIT to maintain its qualification as a REIT, two requirements relating to gross income must be satisfied annually. First, at least 75% of its gross income, excluding gross income from prohibited transactions, for each taxable year must consist of defined types of income derived directly or indirectly from investments relating to real property or mortgages on real property (including “rents from real property” and, in certain circumstances, interest) or temporary investment income. Second, at least 95% of its gross income, excluding gross income from prohibited transactions, for each taxable year must be derived from real property or temporary investments, and from dividends, other types of interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing.

     Capstead REIT presently earns limited amounts of rental income. The rent received by Capstead REIT from its tenants will qualify as “rents from real property” in satisfying the gross income requirements for a REIT described above only if the following conditions are met:

(1) the amount of rent must not be based, in whole or in part, on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term rents from real property solely by reason of being based on a fixed percentage or percentages of receipts or sales;

(2) rents received from a tenant of Capstead REIT will not qualify as rents from real property in satisfying the gross income tests if Capstead REIT, or a direct or indirect owner of 10% or more of Capstead REIT, directly or constructively owns 10% or more of such tenant (a “Related Party Tenant”) unless such tenant is a taxable REIT subsidiary of the REIT and certain other conditions are satisfied;

(3) if rent attributable to personal property that is leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as rents from real property; and

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(4) for the rent to qualify as rents from real property, Capstead REIT generally must not operate or manage its properties or furnish or render services to the tenants of such properties, other than through an independent contractor who is adequately compensated and from whom Capstead REIT derives or receives no income. The “independent contractor” requirement, however, does not apply to the extent the services provided by Capstead REIT are usually or customarily rendered in connection with the rental of space for occupancy only and are not otherwise considered “rendered to the occupant.” In addition, the “independent contractor” requirement will not apply to noncustomary services provided by Capstead REIT, the annual value of which does not exceed 1% of the gross income derived from the property with respect to which the services are provided (the “1% de minimis exception”). For this purpose, such services may not be valued at less than 150% of Capstead REIT’s direct cost of providing the services, and any gross income deemed to have been derived by Capstead REIT from the performance of noncustomary services pursuant to the 1% de minimis exception will constitute nonqualifying gross income under the 75% and 95% gross income tests. In addition, a taxable REIT subsidiary of a REIT may provide noncustomary services to the tenants of the REIT without causing the rents paid by such tenants to be disqualified as “rents from real property.”

     If Capstead REIT fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it nevertheless may qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. Those relief provisions generally will be available if the failure to meet such tests is due to reasonable cause and not due to willful neglect, Capstead REIT attaches a schedule of the sources of its income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances Capstead REIT would be entitled to the benefit of those relief provisions. As discussed above in “Qualification and Taxation of Capstead REIT as a REIT,” even if those relief provisions apply, a 100% tax would be imposed on the net income attributable to the greater of the amount by which Capstead REIT fails the 75% and 95% gross income tests.

     Asset Tests. At the close of each quarter of its taxable year, Capstead REIT also must satisfy several tests relating to the nature of its assets. First, at least 75% of the value of Capstead REIT’s total assets must be represented by real estate assets, cash, cash items and government securities. Second, of the investments not included in the 75% asset class, the value of any one issuer’s debt and equity securities owned by Capstead REIT may not exceed 5% of the value of Capstead REIT’s total assets. Third, Capstead REIT may not own more than 10% of any one issuer’s outstanding voting securities, nor, more than 10% of the total value of any one issuer’s outstanding debt and equity securities.

     The 5% and 10% asset tests described above do not apply to the securities of a taxable REIT subsidiary of Capstead REIT, although the value of the debt and equity securities of all taxable REIT subsidiaries owned by Capstead REIT cannot represent more than 20% of the value of the REIT’s total assets. Any corporation in which a REIT directly or indirectly owns stock (other than another REIT, a corporation which directly or indirectly operates or manages a

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lodging facility or a health care facility, and, with certain exceptions, a corporation which directly or indirectly provides to any other person (under a franchise, license, or otherwise) rights to any brand name under which any lodging facility or health care facility is operated) may be treated as a taxable REIT subsidiary if the REIT and the corporation file a joint election with the Internal Revenue Service for the corporation to be treated as a taxable REIT subsidiary of the REIT.

     A number of constraints are imposed on REITs and their taxable REIT subsidiaries to ensure that REITs cannot, through taxable REIT subsidiaries, engage in substantial non-real estate activities and also to ensure that taxable REIT subsidiaries pay an appropriate corporate-level tax on their income. For example, a taxable REIT subsidiary will be subject to the “earnings stripping” rules of the Code with respect to interest paid to the REIT, which could disallow a portion of the taxable REIT subsidiary’s interest deductions under certain circumstances. In addition, a 100% excise tax may be imposed on the REIT with respect to certain “redetermined rents”, “redetermined deductions”, and “excess interest” to ensure arm’s length (1) pricing for services provided by the taxable REIT subsidiary to REIT tenants and (2) allocation of shared expenses between the REIT and the taxable REIT subsidiary.

     Distribution Requirements. In order to qualify as a REIT, Capstead REIT is required to distribute each year, dividends other than net capital gain dividends, to its stockholders in an aggregate amount at least equal to the sum of 90% of its REIT Taxable Income, computed without regard to the dividends paid deduction and any net capital gain, and 90% of the net after tax income, if any, from foreclosure property, minus the excess of the sum of specified items of non-cash income, if any, over 5% of REIT taxable income. The specified items of non-cash income include income attributable to certain accrued rents, certain original issue discount income, income from like kind exchanges that are later determined to be taxable, and income from cancellation of indebtedness. Such distributions to stockholders must be paid in the taxable year to which they relate, or in the following year if declared before Capstead REIT timely files its federal income tax return for such year and if paid on or before the first regular dividend payment date after such declaration. To the extent that Capstead REIT does not distribute all of its net capital gain or distributes at least 90%, but less than 100%, of its REIT Taxable Income and its net after tax income from foreclosure property, as adjusted, it will be subject to tax thereon at corporate ordinary tax rates or corporate capital gains tax rates, as appropriate.

     Capstead REIT has made and intends to continue to make timely distributions sufficient to satisfy the minimum annual distribution requirements. It is possible, however, that Capstead REIT, from time to time, may not have sufficient cash or other liquid assets to meet the distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses and the inclusion of such income and deduction of such expenses in arriving at Capstead REIT’s taxable income, or if the amount of nondeductible expenses (such as principal amortization or capital expenses) exceeds the amount of noncash deductions. In the event that such timing differences occur, in order to meet the distribution requirements, Capstead REIT may arrange for borrowings to permit the payment of required dividends.

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     If Capstead REIT should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income for such year and (iii) any undistributed taxable income from prior periods, it would be subject to a 4% nondeductible excise tax on the excess of such required distribution over the sum of the amounts actually distributed and amounts retained for which federal income tax was paid.

     Under certain circumstances, Capstead REIT may be able to rectify a failure to meet the distribution requirements for a year by paying deficiency dividends to its stockholders in a later year, which may be included in its deduction for dividends paid for the earlier year. Although Capstead REIT may be able to avoid being taxed on amounts distributed as deficiency dividends, it will be required to pay to the IRS interest based upon the amount of any deduction taken for deficiency dividends.

     Recordkeeping Requirements. Pursuant to applicable Treasury Regulations, Capstead REIT must maintain certain records and request on an annual basis certain information from its stockholders designed to disclose the actual ownership of its outstanding shares. Capstead REIT intends to comply with these requirements.

Failure To Qualify

     If Capstead REIT fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, it will be subject to tax, including any applicable alternative minimum tax on its taxable income at regular corporate rates. Distributions to stockholders in any year in which Capstead REIT fails to qualify will not be deductible nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to stockholders will be taxable as ordinary income and, subject to certain limitations of the Code, corporate distributees may be eligible for the dividends received deduction. Unless entitled to relief under specific statutory provisions, Capstead REIT also will be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT. It is not possible to predict whether in all circumstances Capstead REIT would be entitled to such statutory relief.

Taxation of Stockholders

     As long as Capstead REIT qualifies as a REIT, distributions made to taxable U.S. Stockholders out of current or accumulated earnings and profits, and not designated as capital gain dividends will be taken into account by such U.S. Stockholders as ordinary income and will not be eligible for the dividends received deduction generally available to corporations. Generally, ordinary income dividends from Capstead REIT will not qualify for the dividend tax reduction to 15% enacted as part of the Jobs and Growth Tax Relief Act of 2003. The term “U.S. Stockholder” means a holder of Capstead REIT’s shares that for United States federal income tax purposes is:

(1) a citizen or resident of the United States,

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(2) a corporation, partnership or other entity created or organized in or under the laws of the United States, any State or the District of Columbia,

(3) an estate the income of which is subject to United States federal income taxation regardless of its source, or

(4) a trust if (A) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust, or (B) it has a valid election in effect to be treated as a U.S. Stockholder.

     If a partnership is a beneficial owner of Capstead REIT shares, the treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A beneficial owner that is a partnership and partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of Capstead REIT shares.

     Distributions that are designated as capital gain dividends will be taxed as gain from the sale or exchange of a capital asset held for more than one year (to the extent they do not exceed Capstead REIT’s actual net capital gain for the taxable year) without regard to the period for which the U.S. Stockholder has held his or her shares. We will generally designate our capital gain dividends as either 15% or 25% rate distributions. However, corporate U.S. Stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Distributions in excess of current and accumulated earnings and profits will not be taxable to a U.S. Stockholder to the extent that they do not exceed the adjusted basis of the U.S. Stockholder’s shares, but will reduce the adjusted basis of such shares. To the extent that such distributions in excess of current and accumulated earnings and profits exceed the adjusted basis of a U.S. Stockholder’s shares, such distributions will be included in income as capital gain, if such shares are capital assets in the hands of the U.S. Stockholder. In addition, any distribution declared by Capstead REIT in October, November or December of any year and payable to a U.S. Stockholder of record on a specified date in any such month will be treated as both paid by Capstead REIT and received by the U.S. Stockholder on December 31 of such year, provided that the distribution is actually paid by Capstead REIT during January of the following calendar year.

     Capstead REIT may make an election to treat all or part of its undistributed net capital gain as if it had been distributed to its stockholders. As described above, these undistributed amounts would be subject to corporate level tax payable by Capstead REIT. If Capstead REIT should make such an election, its stockholders would be required to include in their income as long-term capital gain their proportionate share of Capstead REIT’s undistributed net capital gain as designated by Capstead REIT. Each such stockholder would be deemed to have paid his proportionate share of the income tax imposed on Capstead REIT with respect to such undistributed net capital gain, and this amount would be credited or refunded to the stockholder. In addition, the tax basis of the stockholder’s stock would be increased by his proportionate share of undistributed net capital gains included in his income less his proportionate share of the income tax imposed on Capstead REIT with respect to such gains.

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     U.S. Stockholders may not include in their individual income tax returns any net operating losses or capital losses of Capstead REIT. Instead, such losses would be carried over by Capstead REIT for potential offset against its future income (subject to certain limitations). Taxable distributions from Capstead REIT and gain from the disposition of its shares will not be treated as passive activity income and, therefore, U.S. Stockholders generally will not be able to apply any “passive activity losses” (such as losses from certain types of limited partnerships in which a stockholder is a limited partner) against such income. In addition, taxable distributions from Capstead REIT generally will be treated as investment income for purposes of the investment interest limitations. Capital gains from the disposition of Capstead REIT’s shares (or distributions treated as such), however, will be treated as investment income only if the U.S. Stockholder so elects, in which case such capital gains will be taxed at ordinary income rates. Capstead REIT will notify stockholders after the close of Capstead REIT’s taxable year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital and capital gain.

     In general, any gain or loss realized upon a taxable disposition of Capstead REIT’s shares by a U.S. Stockholder who is not a dealer in securities will be treated as a capital gain or loss. However, any loss upon a sale or exchange by a U.S. Stockholder who has held such shares for six months or less, after applying certain holding period rules, will be treated as a long-term capital loss to the extent of distributions from Capstead REIT required to be treated by such U.S. Stockholder as long- term capital gain. All or a portion of any loss realized upon a taxable disposition of Capstead REIT’s shares may be disallowed if other Capstead REIT shares are purchased within 30 days before or after the disposition.

     Under the Code and related regulations, a change in the conversion ratio for convertible preferred stock may be treated as a taxable distribution of stock with respect to any shareholder whose proportionate interest in the earnings and profits or assets of the corporation is increased by such change. A change in a conversion ratio or conversion price of convertible preferred stock pursuant to a bonafide, reasonable adjustment formula which has the effect of preventing dilution of the interest of the holders of such stock will not be considered to result in a deemed distribution of stock. However, generally an adjustment in the conversion ratio to compensate for a taxable cash distribution to other shareholders will not be considered as made pursuant to a bonafide adjustment formula. For example, in the case of the Series B Preferred Stock, the conversion rate may be adjusted if we distribute to holders of our common stock cash or other assets (other than regular quarterly cash dividends payable out of consolidated earnings or earned surplus or dividends payable in shares of common stock). Under the above described federal income tax provisions, such an adjustment may result in a taxable distribution to the Series B Preferred Stockholders.

Information Reporting Requirements and Backup Withholding

     Capstead REIT will report to its U.S. Stockholders and to the IRS the amount of distributions paid during each calendar year and the amount of tax withheld, if any. Under the backup withholding rules, a U.S. Stockholder may be subject to backup withholding at the rate of

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28% with respect to distributions paid unless such holder (1) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (2) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. A U.S. Stockholder who does not provide Capstead REIT with his correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the U.S. Stockholder’s income tax liability. In addition, Capstead REIT may be required to withhold a portion of capital gain distributions to any U.S. Stockholders who fail to certify their non-U.S. Stockholder status to Capstead REIT.

Taxation of Tax-Exempt Stockholders

     Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts (“Exempt Organizations”), generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”). The IRS has ruled that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used in an unrelated trade or business of the exempt employee pension trust. Social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal service plans that are exempt from taxation under paragraphs (7), (9), (17) and (20), respectively, of Code section 501(c) are subject to different UBTI rules, which generally will require them to characterize distributions from Capstead REIT as UBTI. In addition, in certain circumstances, a pension trust that owns more than 10% (by value) of the shares of a REIT would be required to treat a percentage of the dividends on its shares as UBTI (the “UBTI Percentage”). The UBTI Percentage is the gross income, less related direct expenses, derived by Capstead REIT from an unrelated trade or business (determined as if Capstead REIT were a pension trust) divided by the gross income, less related direct expenses, of Capstead REIT for the year in which the dividends are paid. The UBTI rule applies to a pension trust holding more than 10% of the common stock only if (1) the UBTI Percentage is at least 5%, (2) Capstead REIT qualifies as a REIT by reason of the modification of the 5/50 Rule that allows the beneficiaries of the pension trust to be treated as holding shares of Capstead REIT, in proportion to their actuarial interests in the pension trust and (3) either (A) one pension trust owns more than 25% of the value of such shares or (B) a group of pension trusts individually holding more than 10% of the value of shares collectively owns more than 50% of the value of the shares.

Non-U.S. Stockholders

     Specific tax rules of a complex nature not summarized herein apply to non-U.S. investors in REITs. Accordingly, non-U.S. Stockholders should consult their own tax advisers concerning the federal income and withholding tax consequences and the state, local and foreign tax consequences of an investment in Capstead REIT.

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State and Local Taxes

     State or local income tax treatment of Capstead REIT or holders of any of its securities may differ from the federal income tax treatment described above. As a result, prospective stockholders should consult their own tax advisers for an explanation of how state and local tax laws may affect their investment in Capstead REIT.

LEGAL MATTERS

     Certain legal matters with respect to the securities offered hereby will be passed on for the company by Andrews Kurth LLP, Dallas, Texas, and for the underwriters or agents by counsel to be identified in the related prospectus supplement. Andrews Kurth LLP will rely as to all matters of Maryland law on Hogan & Hartson L.L.P., Baltimore, Maryland.

EXPERTS

     Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

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PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

SEC Registration Fee	$	3,068
Legal Fees and Expenses		30,000
Accounting Fees and Expenses		7,500
Printing Expenses		5,000
Miscellaneous		2,500
Total	$	48,068

Item 15. Indemnification of Directors and Officers

     The Registrant’s charter provides for indemnification of directors to the full extent permitted by Maryland law, indemnification of officers who are also directors to the extent the Registrant shall indemnify its directors and indemnification of officers who are not directors to such further extent as shall be authorized by the Board of Directors and be consistent with law.

     Section 2-418 of the Maryland General Corporation Law generally permits a Maryland corporation to indemnify any director made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administration, or investigative, by reason of service in his capacity as a director, unless it is established that (i) the act or omission of the director was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty; or, (ii) the director actually received an improper personal benefit in money, property, or services or, (iii) in the case of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful. Indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding. If the proceeding was one by or in the right of the corporation, indemnification may not be made in respect of any proceeding in which the director shall have been adjudged to be liable to the corporation. In addition, a director may not be indemnified in respect of any proceeding charging improper personal benefit to the director, whether or not involving action in the director’s official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the director did not meet the requisite standard of conduct.

     Section 2-418 also provides that a court of appropriate jurisdiction may, upon application of a director and such notice as the court shall require, order indemnification if it determines that a director is entitled to reimbursement because the director has been successful on the merits or otherwise, in any such proceeding, in which case the director shall be entitled to recover the expenses of securing such reimbursement, or if the court determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director has met the applicable standards of conduct or has been adjudged liable in the proceeding charging improper personal benefit to the director. Indemnification with respect to any proceeding by or in the right of the corporation or in which liability shall have been adjudged on the basis that personal benefit was improperly received shall be limited to expenses. The indemnification and advancement of expenses provided or authorized by Section 2-418 may not be deemed exclusive of any other rights, by indemnification or otherwise, to which a director may be entitled under the charter, the bylaws, a resolution of stockholders or directors, an agreement or otherwise,

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both as to action in an official capacity and as to action in another capacity while holding such office. A corporation may indemnify and advance expenses to an officer, employee, or agent in the corporation to the same extent that it may indemnify directors under Section 2-418 and, in addition, may indemnify and advance expenses to an officer, employee, or agent who is not a director to such further extent, consistent with law, as may be provided by its charter, bylaws, general or specific action of its board of directors or contract. Section 2-418 also provides that a corporation may purchase and maintain insurance against liabilities for which indemnification is not expressly provided by the statute.

     Capstead Mortgage Corporation provides insurance from commercial carriers against certain liabilities incurred by its directors and officers.

Item 16. Exhibits

1.1	—Form of Brinson Patrick Sales Agreement +
3.1	—Charter, including Articles of Incorporation, Articles Supplementary for each outstanding Series of Preferred Stock and all other amendments to such Articles of Incorporation*
3.2	—Amended and Restated Bylaws*
4.1	—Specimen of Common Stock Certificate*
4.2	—Specimen of $1.26 Cumulative Convertible Preferred Stock, Series B**
5.1	—Opinion of Andrews Kurth LLP, as to the legality of the Securities being offered +
5.2	—Opinion of Hogan & Hartson L.L.P., as to the legality of the Securities being offered +
8.1	—Opinion of Andrews Kurth LLP, as to certain tax matters +
23.1	—Consent of Ernst & Young LLP. +
23.2	—Consent of Andrews Kurth LLP (included in its opinion filed as Exhibit 5.1 hereto)
23.3	—Consent of Hogan & Hartson L.L.P. (included in its opinion filed as Exhibit 5.2 hereto)
23.4	—Consent of Andrews Kurth LLP (included in its opinion filed as Exhibit 8.1 hereto)
24.1	—Power of Attorney + (included on signature page)

*Previously filed with the Commission on June 19, 2001 as an Exhibit to the Registrant’s Registration Statement on Form S-3 (No. 333-63358).

** Previously filed with the Commission on August 27, 2001 as an Exhibit to the Registrant’s Registration Statement on Form S-3 (No. 333-68424).

*** Previously filed with the Commission on December 17, 2003 as an Exhibit to Post Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-3 (No. 333-68424)

**** Previously filed with the Commission on February 17, 2004 as an Exhibit to the Registrant’s Registration Statement on Form S-3 (No. 333-112900)

+ Filed herewith.

The Company will file as an Exhibit to a Current Report on Form 8-K any related forms utilized in the future and not previously so filed by means of an amendment.

Item 17. Undertakings

     (a) The undersigned registrant hereby undertakes:

          (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

             (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

             (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the

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change in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

             (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration. Statement or any material change to such information in the Registration Statement;

provided, however, that the undertakings set forth in paragraphs (a)( I )(i) and (a)( I )(ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference in the Registration Statement.

     (2) That, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

     (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities shall be deemed to be the initial bona fide offering thereof.

     (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit of proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the securities being registered hereby, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

     (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as a part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(l) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

     (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on the 18th day of June, 2004.

CAPSTEAD MORTGAGE CORPORATION
By:	/s/ Phillip A. Reinsch
	Phillip A. Reinsch
	Senior Vice President and Chief
	Financial Officer

POWER OF ATTORNEY

     Each person whose signature appears below hereby constitutes and appoints Andrew F. Jacobs and Phillip A. Reinsch and each of them (with full power to each of them to act alone) as his true and lawful attorney-in-fact and agent, with full powers of substitution, for him and in his name, place and stead, in any and all capacities, to sign and to file any and all amendments, including post-effective amendments, to this registration statement with the Securities and Exchange Commission, granting to said attorneys-in-fact power and authority to perform any other act on behalf of the undersigned required to be done in connection therewith.

     Pursuant to the requirements of the Securities Act of 1933, the following persons in the capacities and on the dates indicated have signed this Registration Statement.

Signature	Title	Date
/s/ Andrew F. Jacobs Andrew F. Jacobs	Chief Executive Officer, President and Director (Principal Executive Officer)	June 18, 2004
/s/ Phillip A. Reinsch Phillip A. Reinsch	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	June 18, 2004
/s/ Paul M. Low Paul M. Low	Chairman of the Board Directors	June 18, 2004
/s/ Gary Keiser Gary Keiser	Director	June 18, 2004
/s/ Michael G. O’Neil Michael G. O’Neil	Director	June 17, 2004
Howard Rubin	Director	June    , 2004
/s/ Mark S. Whiting Mark S. Whiting	Director	June 17, 2004

EX-1.1

EXHIBIT 1.1

Capstead Mortgage Corporation

DOCS^® Financing Program

1,600,000 Shares of Common Stock,
$0.01 par value

100,000 Shares of Series B $1.26 Cumulative
Convertible Preferred Stock, $0.10 par value

SALES AGREEMENT

June 22, 2004

     THIS SALES AGREEMENT (the “Agreement”) dated as of June 22, 2004 between Brinson Patrick Securities Corporation, having its principal office at 330 Madison Avenue, 9^th Floor, New York, New York 10017 (the “Sales Manager”) and Capstead Mortgage Corporation, a corporation organized and existing under the laws of the State of Maryland (the “Company”).

     WHEREAS, the Company desires to issue and sell through the Sales Manager up to 1,600,000 shares (the “Maximum Common Stock Amount”) of its common stock, par value $0.01 per share (the “Common Stock”), and up to 100,000 shares (the “Maximum Preferred Stock Amount”) of its $1.26 Cumulative Convertible Preferred Stock, Series B $0.10 par value (the “Preferred Stock”), on the terms set forth in Article II hereof. The Maximum Common and Preferred Stock Amounts shall be appropriately adjusted for stock splits and reverse splits. The Common Stock and Preferred Stock are sometimes referred to collectively as “the Stock.”

     IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Sales Manager agree as follows:

ARTICLE I.

REPRESENTATIONS AND WARRANTIES
OF THE COMPANY

     1.1 For purposes of this Agreement, unless the context requires to the contrary, the term “Company” shall also include all significant subsidiaries (as defined by Section 1-02 of Regulation S-X) of the Company. The Company represents and warrants to, and agrees with, the Sales Manager that:

     (a) The Company meets the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the “Act”), and the rules and regulations thereunder (“Rules and Regulations”). The Company agrees to file a registration statement on Form S-3 (the “Registration Statement”) to register 1,600,000 shares of Common Stock and 100,000 shares of Preferred Stock and to use its best efforts to have such Registration Statement declared effective. The Registration Statement including a form of prospectus, have been prepared by the Company in conformity with the requirements of the Act and the Rules and Regulations. Copies of the Registration Statement and Prospectus, and all documents incorporated by reference in each of the foregoing that were filed with the Commission have been delivered to the Sales Manager. The Registration Statement, as amended from time to time, is referred to herein as the “Registration Statement,” and the final form of prospectus included in the Registration Statement, as amended or supplemented from time to time, is referred to herein as the “Prospectus.” Any reference herein to the Registration Statement, the Prospectus, or any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated (or deemed to be incorporated) by reference therein, and any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement or Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein.

     (b) Each part of the Registration Statement, when such part became or becomes effective, and the Prospectus and any amendment or supplement thereto, on the date of filing

thereof with the Commission and at each Settlement Date (as hereinafter defined), conformed or will conform in all material respects with the requirements of the Act and the Rules and Regulations; each part of the Registration Statement, when such part became or becomes effective, did not or will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission and at each Settlement Date, did not or will not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, not misleading; except that the foregoing shall not apply to statements in or omissions from any such document in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of the Sales Manager, specifically for use in the Registration Statement, the Prospectus or any amendment or supplement thereto.

     (c) The documents incorporated by reference in the Registration Statement or the Prospectus, or any amendment or supplement thereto, when they became or become effective under the Act or were or are filed with the Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as the case may be, conformed or will conform in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder.

     (d) The financial statements of the Company, together with the related schedules and notes thereto, set forth or included or incorporated by reference in the Registration Statement and Prospectus, fairly present the financial condition of the Company as of the dates indicated and the results of operations, changes in financial position, stockholders’ equity, and cash flows for the periods therein specified, in conformity with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise stated therein). The summary and selected financial and statistical data included or incorporated by reference in the Registration Statement and the Prospectus present fairly the information shown therein and, to the extent based upon or derived from the financial statements, have been compiled on a basis consistent with the financial statements presented therein.

     (e) The accountants who certified the financial statements and the supporting schedules included in the Registration Statement are and, during the periods covered by their reports, were independent public accountants as required by the Act and the Rules and Regulations.

     (f) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Maryland. Other than as disclosed in the Registration Statement, the Company has no subsidiaries and does not control, directly or indirectly, any corporation, partnership, limited liability company, joint venture, association or other business organization. The Company is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its assets or properties (owned, leased or licensed) or the nature of its business makes such qualification necessary (including every jurisdiction in which it owns or leases property), except for such jurisdictions where the failure to so qualify would not have a Material Adverse Effect on the Company. For purposes of this Agreement, “Material Adverse Effect” means any adverse effect on the business, operations, properties or financial condition of the Company which is (either alone or together

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with all other adverse effects) material to the Company, and any material adverse effect on the transactions contemplated under this Agreement or any other agreement or document contemplated hereby or thereby. Each of the Company’s subsidiaries is validly existing as a corporation, limited liability company or partnership, as applicable, in its respective jurisdiction of formation. Schedule 1.1(f) hereto identifies each of the Company’s subsidiaries that is a significant subsidiary (as defined in Section 1-02 of Regulation S-X) of the Company. All of the issued and outstanding capital stock, limited liability company interests or partnership interests, as applicable, of each subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and (except as otherwise disclosed or incorporated by reference in the Registration Statement and the Prospectus) is owned by the Company, directly, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. Except as disclosed or incorporated by reference in the Registration Statement and the Prospectus, the Company does not own, lease or license any asset or property or conduct any business outside the United States of America. The Company has all requisite corporate or limited liability company power and authority, as applicable, and all necessary authorizations, approvals, consents, orders, licenses, certificates and permits of and from all governmental orders or regulatory bodies or any other person or entity, to own, lease, license and operate its assets and properties and conduct its business as now being conducted and as described or incorporated by reference in the Registration Statement and the Prospectus; except for such authorizations, approvals, consents, orders, licenses, certificates and permits the absence of which would not have a Material Adverse Effect; and no such authorization, approval, consent, order, license, certificate or permit contains a materially burdensome restriction other than as disclosed or incorporated by reference in the Registration Statement and the Prospectus.

     (g) The Company has good title to each of the items of personal property which are reflected in the financial statements referred to in Section 1.1(d) or are referred to in the Registration Statement and the Prospectus or any document incorporated by reference therein as being owned by the Company and valid and enforceable leasehold interests in each of the items of real and personal property which are referred to in the Registration Statement and the Prospectus or any document incorporated by reference therein as being leased by the Company, in each case free and clear of all liens, encumbrances, claims, security interests and defects, other than those described in the Registration Statement and the Prospectus and those which do not and will not have a Material Adverse Effect.

     (h) The Company has good and marketable title to, or leasehold interests in, all properties and assets (including, without limitation, mortgaged assets) as described in the Registration Statement and the Prospectus or any document incorporated by reference therein, owned by the Company, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Registration Statement and the Prospectus or any document incorporated by reference therein.

     (i) The debt financing employed by the Company to acquire its portfolio of mortgage assets is not convertible into shares of common stock of the Company or other equity interests in the Company.

     (j) There is no litigation or governmental or other proceeding or investigation before any court or before or by any public body or board pending or, to the knowledge of the

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Company, threatened (and the Company does not know of any basis therefor) against, or involving the assets, properties or businesses of the Company which would materially adversely affect the value or the operation of any such assets or otherwise have a Material Adverse Effect on the Company except as described or incorporated by reference in the Registration Statement.

     (k) The Company maintains insurance (issued by insurers of recognized financial responsibility) of the types and in the amounts generally deemed adequate for its businesses and, to the knowledge of the Company, consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect.

     (l) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as described therein, (i) there has not been any material adverse change in the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, whether or not arising from transactions in the ordinary course of business; (ii) the Company has not sustained any material loss or interference with its assets, businesses or properties (whether owned or leased) from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree; (iii) since the date of the latest balance sheet, included or incorporated by reference in the Registration Statement and the Prospectus, except as reflected therein, the Company has not undertaken any liability or obligation, direct or contingent, except such liabilities or obligations undertaken in the ordinary course of business; and (iv) there has not been any transaction that is material to the Company, except transactions in the ordinary course of business or as otherwise disclosed in the Registration Statement and the Prospectus.

     (m) There is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. Each document, instrument, contract and agreement of the Company described in the Registration Statement or the Prospectus or incorporated by reference therein or listed as exhibits to the Registration Statement is in full force and effect and is valid and enforceable by and against the Company in accordance with their terms, assuming the due authorization, execution and delivery thereof by each of the other parties thereto except as otherwise disclosed in the Registration Statement or Prospectus. The Company is not, nor to the knowledge of the Company is any other party, in default in the observance or performance of any term or obligation to be performed by it under any such agreement, and no event has occurred which with notice or lapse of time or both would constitute such a default, which default or event would have a Material Adverse Effect. No default exists, and no event has occurred which with notice or lapse of time or both would constitute a default, in the due performance and observance of any term, covenant or condition, by the Company of any other agreement or instrument to which the Company is a party or by which it or its properties or business may be bound or affected, which default or event would have a Material Adverse Effect.

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     (n) The Company is not in violation of any term or provision of its charter, by-laws or operating agreement, as applicable. The Company is not in violation of any franchise, license, permit, judgment, decree, order, statute, rule or regulation, where the consequences of such violation would have a Material Adverse Effect.

     (o) Neither the execution, delivery and performance of this Agreement by the Company nor the consummation of any of the transactions contemplated hereby (including, without limitation, the issuance and sale by the Company of the Stock) will give rise to a right to terminate or accelerate the due date of any payment due under, or conflict with or result in the breach of any term or provision of, or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or require any consent or waiver under, or result in the execution or imposition of any lien, charge, encumbrance, claim, security interest, restriction or defect upon any properties or assets of the Company pursuant to the terms of, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company is a party or by which either is bound, or any of its properties or businesses are bound, or any franchise, license, permit, judgment, decree, order, statute, rule or regulation applicable to the Company or violate any provision of the charter or by-laws of the Company, except for such consents or waivers which have already been obtained and are in full force and effect.

     (p) All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and none of the shares were issued in violation of any preemptive or other similar right. The Stock, when issued and sold pursuant to this Agreement, will be duly authorized and validly issued, fully paid and nonassessable and will not be issued in violation of any preemptive or other similar right. Except as disclosed in the Registration Statement and the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and there is no commitment, plan or arrangement to issue, any capital stock of the Company or any security convertible into or exercisable or exchangeable for such capital stock, except for standard dividend reinvestment plans. The Common Stock and the Preferred Stock conform in all material respects to all statements relating thereto contained in the Registration Statement and the Prospectus.

     (q) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as (x) described or referred to therein, or (y) are not material (as to clauses (i) and (ii) only), are consistent with past practice (as to clauses (i) and (ii) only), and are publicly disclosed, the Company has not (i) issued any securities or incurred any liability or obligation, direct or contingent, except such liabilities or obligations incurred in the ordinary course of business including, without limitation, debt financing to acquire and develop properties, (ii) entered into any transaction not in the ordinary course of business or (iii) declared or paid any dividend or made any distribution on any shares of its capital stock or redeemed, purchased or otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares of its capital stock.

     (r) Except as disclosed in the Registration Statement and Prospectus, no holder of any security of the Company has the right, which has not been waived, to have any security owned by such holder included in the Registration Statement or any right to demand registration of any security owned by such holder.

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     (s) All necessary corporate or limited liability company action, as applicable, has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Agreement and the issuance and sale of the Stock by the Company. This Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes and will constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated hereby and the issuance and sale of the Stock by the Company has been obtained or made and is in full force and effect. The Stock is listed for trading on the Trading Market. For purposes of this Agreement, the “Trading Market” is (i) the New York Stock Exchange, Inc., and (ii) each other securities exchange on which the common stock of the Company is admitted for trading.

     (t) The Company has not incurred any liability for a fee, commission or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement other than as contemplated hereby or as described in the Registration Statement.

     (u) The Company is conducting its business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, except where the failure to be so in compliance would not have a Material Adverse Effect.

     (v) No transaction has occurred between or among the Company and any of its officers or directors or any affiliate or affiliates of any such officer or director that is required to be described in and is not described in the Registration Statement and the Prospectus.

     (w) The Company has not taken, nor will it take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the common stock or series B preferred stock of the Company to facilitate the sale or resale of any of the Stock.

     (x) The Company has filed all federal, state, local and foreign tax returns which are required to be filed through the date hereof (and will file all such tax returns when and as required to be filed after the date hereof), or has received extensions thereof, and has paid all taxes shown on such returns to be due on or prior to the date hereof (and will pay all taxes shown on such returns to be due after the date hereof) and all assessments received by it to the extent that the same are material and have become due.

     (y) The Company has met the qualification requirements for a “real estate investment trust” during its taxable years ending on or after December 31, 1999 and its proposed method of operations will enable it to continue to meet the requirements for qualification and taxation as a “real estate investment trust” under the Internal Revenue Code of 1986, as amended (the “Code”), assuming no change in the applicable underlying law. The Company does not know of any event which would cause or is likely to cause the Company to fail to qualify as a “real estate investment trust” at any time.

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     (z) The Company is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     (aa) The Company’s systems of internal accounting controls taken as a whole are sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the Company’s financial statements; and, to the best of the Company’s knowledge, neither the Company nor any employee or agent thereof has made any payment of funds of the Company or received or retained any funds, and no funds of the Company have been set aside to be used for any payment, in each case in violation of any law, rule or regulation.

ARTICLE II.

SALE AND DELIVERY OF SECURITIES

     2.1 (a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell through the Sales Manager, as agent, and the Sales Manager agrees to sell, as agent for the Company, on a best efforts basis, up to the Maximum Amount of the Stock during the term of this Agreement on the terms set forth herein. The Stock will be sold from time to time in amounts and at prices as directed by the Company and as agreed to by the Sales Manager.

     (b) The Company or the Sales Manager may, upon notice to the other party hereto by telephone (confirmed promptly by telecopy), at any time and from time to time suspend the offering of Stock; provided, however, that such suspension or termination shall not affect or impair the parties’ respective obligations with respect to the Stock sold hereunder prior to the giving of such notice.

     (c) The compensation to the Sales Manager for sales of Stock shall be at the following commission rates for the shares of Stock sold under this Agreement: 3.0% of the gross sales price per share (“sales proceeds”) for the first $8 million of aggregate sales proceeds raised in each year (commencing with the date hereof); 2.5% of sales proceeds for the next $4 million of aggregate sales proceeds raised in such year and 2.0% of sales proceeds for any additional aggregate sales proceeds raised in such year. For purposes of this section 2.1(c), the first year shall end on December 31, 2004, and each subsequent year shall end on the next succeeding December 31st. The remaining proceeds, after further deduction for any transaction fees imposed by any governmental or self-regulatory organization in respect to such sale shall constitute the net proceeds to the Company for such Stock (the “Net Proceeds”). For purposes of the first sentence of this section 2.1(c), sales proceeds include sales proceeds from sales of Stock by the Sales Manager for the account of the Company, whether under this Agreement, or otherwise.

     (d) The Company shall open and maintain a trading account (the “Trading Account”) at a clearing agent designated by the Sales Manager to facilitate the transactions contemplated by this Agreement. The Net Proceeds from the sale of the Stock shall be available in the Trading Account on the third business day (or such other day as is industry practice for regular-way trading) following each sale of the Stock (each, a “Settlement Date”). The Company shall effect the delivery of the applicable number of shares of Common Stock and/or Preferred Stock (as the

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case may be) to an account designated by the Sales Manager at The Depository Trust Company on or before the Settlement Date of each sale hereunder. The Sales Manager’s compensation shall be withheld from the sales proceeds on each Settlement Date and shall be paid to the Sales Manager.

     (e) At each Settlement Date, the Company shall be deemed to have affirmed each representation, warranty, covenant and other agreement contained in this Agreement. Any obligation of the Sales Manager under this Agreement shall be subject to the continuing accuracy of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the continuing satisfaction of the additional conditions specified in Article IV of this Agreement.

     (f) If the Company shall default on its obligation to deliver Stock on any Settlement Date, the Company shall (i) hold the Sales Manager harmless against any loss, claim or damage arising from or as a result of such default by the Company and (ii) pay the Sales Manager any commission to which it would otherwise be entitled absent such default.

ARTICLE III.

COVENANTS OF THE COMPANY

     3.1 The Company covenants and agrees with the Sales Manager that:

     (a) As promptly as practicable after the date of this Agreement, the Company will (if not previously filed) file the Registration Statement to permit sales of the Stock under the Act. The Company will use its best efforts to cause the Registration Statement to become effective as promptly as possible thereafter.

     (b) During the period in which a prospectus relating to the Stock is required to be delivered under the Act, the Company will notify the Sales Manager promptly of the time when any subsequent amendment to the Registration Statement has become effective or any subsequent supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or the Prospectus or for additional information; the Company will prepare and file with the Commission, promptly upon the Sales Manager’s reasonable request, any amendments or supplements to the Registration Statement or Prospectus that, in the Sales Manager’s reasonable opinion, may be necessary or advisable in connection with the sale of the Stock pursuant to this Agreement; the Company will not file any amendment or supplement to the Registration Statement or Prospectus unless a copy thereof has been submitted to the Sales Manager a reasonable period of time before the filing and the Sales Manager has not reasonably objected thereto; and it will notify the Sales Manager at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated by reference in the Registration Statement or Prospectus, which will then be available on the Company’s website at www.capstead.com (and will furnish to the Sales Manager any such document that is not available on the Company’s website). The Company will cause each amendment or supplement to the Prospectus to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of the Rules and Regulations or, in the case

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of any document to be incorporated therein by reference, to be filed with the Commission as required pursuant to the Exchange Act, within the time period prescribed.

     (c) The Company will advise the Sales Manager, promptly after it shall receive notice or obtain knowledge thereof, of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Common Stock or Preferred Stock for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and it will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued.

     (d) Within the time during which a prospectus relating to the Stock is required to be delivered under the Act, the Company will comply with all requirements imposed upon it by the Act and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Stock as contemplated by the provisions hereof and the Prospectus. If during such period any event occurs as a result of which the Prospectus, as then amended or supplemented, would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend or supplement the Registration Statement or Prospectus to comply with the Act, the Company will promptly notify the Sales Manager to suspend the offering of Stock during such period and the Company will amend or supplement the Registration Statement or Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance and will use its best efforts to have any amendment or supplement to the Registration Statement or Prospectus declared effective as soon as possible, unless the Company has reasonable business reasons to defer public disclosure of the relevant information.

     (e) The Company will use its best efforts to qualify the Stock for sale under the securities laws of such jurisdictions as the Sales Manager designates and to continue such qualifications in effect so long as required for the sale of the Stock, except that the Company shall not be required in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction.

     (f) The Company will furnish to the Sales Manager and its counsel (at the expense of the Company) copies of the Registration Statement, the Prospectus (including all documents incorporated by reference therein) and all amendments and supplements to the Registration Statement or Prospectus that are filed with the Commission during the period in which a prospectus relating to the Stock is required to be delivered under the Act (including all documents filed with the Commission during such period that are deemed to be incorporated by reference therein), in each case as soon as available and in such quantities as the Sales Manager may from time to time reasonably request and, in the case when the Trading Market is a national securities exchange, the Company will also furnish copies of the Prospectus to such exchange in accordance with Rule 153 of the Rules and Regulations.

     (g) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company’s current

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fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period that satisfies the provisions of Section 11(a) of the Act and Rule 158 of the Rules and Regulations.

     (h) The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay all of its expenses incident to the performance of its obligations hereunder (including, but not limited to, any transaction fees imposed by any governmental or self-regulatory organization with respect to transactions contemplated by this Agreement and any blue sky fees) and will pay the expenses of printing all documents relating to the offering. The Company will reimburse the Sales Manager for its reasonable out-of-pocket costs and expenses incurred in connection with entering into this Agreement, including, without limitation, reasonable travel, reproduction, printing and similar expenses, as well as the reasonable fees and disbursements of its legal counsel.

     (i) The Company shall use its best efforts to list, subject to notice of issuance, the Stock on the applicable Trading Market.

     (j) The Company will apply the Net Proceeds from the sale of the Stock as set forth in the Prospectus.

     (k) The Company will not, directly or indirectly, offer or sell any shares of common stock (other than the Common Stock) or securities convertible into or exchangeable for, or any rights to purchase or acquire, common stock or any shares of series B preferred stock (other than the Preferred Stock), during the period from the date of this Agreement through the final Settlement Date for the sale of Stock hereunder without (i) giving the Sales Manager at least one business day prior written notice specifying the nature of the proposed sale and the date of such proposed sale and (ii) suspending activity under this program for such period of time as may reasonably be determined by agreement of the Company and the Sales Manager; provided, however, that no such notice and suspension shall be required in connection with the Company’s issuance or sale of (i) shares of common stock pursuant to any employee or director stock option or benefits plan, stock ownership plan, dividend reinvestment plan, as such plans may be amended from time to time, and (ii) common stock issuable upon conversion of securities or the exercise of warrants, options or other rights in effect or outstanding on the date hereof. Notwithstanding the foregoing, this paragraph (k) shall not apply during periods that the Company is neither selling Stock through the Sales Manager nor has requested the Sales Manager to sell Stock.

     (l) The Company will, at any time during the term of this Agreement, as supplemented from time to time, advise the Sales Manager immediately after it shall have received notice or obtain knowledge thereof, of any information or fact that would alter or affect any opinion, certificate, letter and other document provided to the Sales Manager pursuant to Article IV herein.

     (m) Each time that (i) the Registration Statement or the Prospectus shall be amended or supplemented or (ii) there is filed with the Commission any document incorporated by reference into the Prospectus (other than a Current Report on Form 8-K, unless the Sales Manager shall otherwise request), the Company shall (unless the Company is not then selling Stock through the Sales Manager and has not requested the Sales Manager to sell Stock) furnish

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or cause to be furnished to the Sales Manager forthwith a certificate dated the date of filing with the Commission of such amendment, supplement or other document, the date of effectiveness of amendment, as the case may be, in form satisfactory to the Sales Manager to the effect that the statements contained in the certificates referred to in Section 4.1(f) hereof that were last furnished to the Sales Manager are true and correct at the time of such amendment, supplement, filing, as the case may be, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to such time) or, in lieu of such certificates, certificates of the same tenor as the certificates referred to in said Section 4.1(f), modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such certificate.

     (n) Each time that (i) the Registration Statement or the Prospectus is amended or supplemented (other than a pricing supplement filed pursuant to Rule 424(b)(2) of the Act with respect to the Registration Statement) or (ii) there is filed with the Commission any document incorporated by reference into the Prospectus (other than any quarterly report on Form 10-Q or any Current Report on Form 8-K, unless the Sales Manager shall otherwise reasonably request), the Company shall (unless the Company is not then selling Stock through the Sales Manager and has not requested the Sales Manager to sell Stock) furnish or cause to be furnished forthwith to the Sales Manager and to counsel to the Sales Manager, a written opinion of Andrews Kurth LLP, counsel to the Company (“Company Counsel”), or other counsel satisfactory to the Sales Manager, dated the date of filing with the Commission of such amendment, supplement or other document and the date of effectiveness of such amendment, as the case may be, in form and substance satisfactory to the Sales Manager, of the same tenor as the opinion referred to in Section 4.1(d) hereof, but modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinion.

     (o) Each time that the Registration Statement or the Prospectus shall be amended or supplemented to include additional financial information or there is filed with the Commission any document incorporated by reference into the Prospectus which contains additional financial information, the Company shall (unless the Company is not then selling Stock through the Sales Manager and has not requested the Sales Manager to sell Stock) cause Ernst & Young LLP, or other independent accountants satisfactory to the Sales Manager, forthwith to furnish to the Sales Manager a letter, dated the date of effectiveness of such amendment, or the date of filing of such supplement or other document with the Commission, as the case may be, in form satisfactory to the Sales Manager, of the same tenor as the letter referred to in Section 4.1(e) hereof but modified to relate to the Registration Statement and the Prospectus, as amended and supplemented to the date of such letter.

ARTICLE IV.

CONDITIONS OF THE SALES MANAGER’S OBLIGATIONS

     4.1 The obligations of the Sales Manager to sell the Stock as provided herein shall be subject to the accuracy, as of the date hereof, and as of each Settlement Date contemplated under this Agreement, of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the following additional conditions:

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     (a) The Registration Statement contemplated by Section 3.1(a) shall have been declared effective. No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or the Sales Manager, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the Sales Manager’s reasonable satisfaction.

     (b) The Sales Manager shall not have advised the Company that the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact that in the Sales Manager’s reasonable opinion is material, or omits to state a fact that in the Sales Manager’s reasonable opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading.

     (c) Except as contemplated in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been any material change in the capital stock of the Company, or any material adverse change, or any development that may reasonably be expected to cause a material adverse change, in the condition (financial or other), business, prospects, net worth or results of operations of the Company, or any adverse change in the rating assigned to any securities of the Company.

     (d) (1) The Sales Manager shall have received at the date of the first sale of Stock hereunder (the “Commencement Date”) and at every other date specified in Section 3.1(n) hereof, opinions of Company Counsel, dated as of the Commencement Date and dated as of such other date, in the form of Exhibit A hereto.

         (2) The Sales Manager shall have received a letter from Company Counsel authorizing the Sales Manager to rely on the opinion on tax matters delivered by Company Counsel as Exhibit 8.1 to the Registration Statement (which opinion must be reasonably satisfactory to the Sales Manager).

     (e) At the Commencement Date and at such other dates specified in Section 3.1(o) hereof, the Sales Manager shall have received a “comfort letter” from Ernst & Young LLP, independent public accountants for the Company, or other independent accountants satisfactory to the Sales Manager, dated the date of delivery thereof, in form and substance satisfactory to the Sales Manager.

     (f) The Sales Manager shall have received from the Company a certificate, or certificates, signed by the Chief Financial Officer and Executive Vice President of the Company, dated as of the Commencement Date and (unless the Company is not then selling Stock through the Sales Manager and has not requested the Sales Manager to sell Stock) dated as of the first business day of each calendar month thereafter (each, a “Certificate Date”), to the effect that, to the best of their knowledge based upon reasonable investigation:

     (i) The representations and warranties of the Company in this Agreement are true and correct, as if made at and as of the Commencement Date or the Certificate Date (as the case may be), and the Company has complied with all the agreements and

12

satisfied all the conditions on its part to be performed or satisfied at or prior to the Commencement Date and each such Certificate Date (as the case may be);

     (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceeding for that purpose has been instituted or, to the knowledge of such officer after due inquiry, is threatened, by the Commission;

     (iii) Since the date of this Agreement there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement or Prospectus that has not been so set forth and there has been no document required to be filed under the Exchange Act and the rules and regulations of the Commission thereunder that upon such filing would be deemed to be incorporated by reference in the Prospectus that has not been so filed; and

     (iv) Since the date of this Agreement, there has not been any material adverse change in the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company, which has not been described in an amendment or supplement to the Registration Statement or Prospectus (directly or by incorporation).

     (g) At the Commencement Date and on each Settlement Date, the Company shall have furnished to the Sales Manager such appropriate further information, certificates and documents as the Sales Manager may reasonably request.

     All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to the Sales Manager. The Company will furnish the Sales Manager with such conformed copies of such opinions, certificates, letters and other documents as the Sales Manager shall reasonably request.

ARTICLE V.

INDEMNIFICATION AND CONTRIBUTION

     5.1 (a) The Company agrees to indemnify and hold harmless the Sales Manager and each person, if any, who controls the Sales Manager within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, as follows:

     (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the representations in this Agreement or contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

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     (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and

     (iii) against any and all expense whatsoever, as incurred (including, subject to Section 5(c) hereof, the reasonable fees and disbursements of counsel chosen by the Sales Manager), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Sales Manager expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto).

     (b) The Sales Manager agrees to indemnify and hold harmless the Company and its directors and each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 5.1(a), as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendments thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by the Sales Manager expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). The total liability of the Sales Manager under this Section 5.1(b) shall not exceed the total actual sales price of Stock sold by the Sales Manager that is the subject of the dispute.

     (c) Any indemnified party that proposes to assert the right to be indemnified under this Article V will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Article V, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve the indemnifying party from any liability that it might have to any indemnified party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel

14

reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld).

     (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Article V is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or the Sales Manager, the Company and the Sales Manager will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the Sales Manager, such as persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company and the Sales Manager may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Sales Manager on the other. The relative benefits received by the Company on the one hand and the Sales Manager on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total compensation (before deducting expenses) received by the Sales Manager from the sale of Stock on behalf of the Company. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and the Sales Manager, on the other, with respect to the statements or omission which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such

15

offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Sales Manager, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Sales Manager agree that it would not be just and equitable if contributions pursuant to this Section 5.1(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 5.1(d) shall be deemed to include, for the purpose of this Section 5.1(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the foregoing provisions of this Section 5.1(d), the Sales Manager shall not be required to contribute any amount in excess of the amount by which the total actual sales price at which Stock sold by the Sales Manager exceeds the amount of any damages that the Sales Manager has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 5.1(d), any person who controls a party to this Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer and director of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 5.1(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 5.1(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld).

     (e) The indemnity and contribution provided by this Article V shall not relieve the Company and the Sales Manager from any liability the Company and the Sales Manager may otherwise have (including, without limitation, any liability the Sales Manager may have for a breach of its obligations under Article II hereof).

ARTICLE VI.

REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY

     6.1 All representations, warranties and agreements of the Company herein or in certificates delivered pursuant hereto, and the agreements of the Sales Manager contained in Article V hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Sales Manager or any controlling persons, or the Company (or any of their officers, directors or controlling persons), and shall survive delivery of and payment for the Stock.

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ARTICLE VII.

TERMINATION

     7.1 The Sales Manager shall have the right by giving notice as hereinafter specified at any time at or prior to any Settlement Date, to terminate this Agreement if (i) any material adverse change, or any development that has actually occurred and that is reasonably expected to cause material adverse change, in the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company has occurred which, in the judgment of the Sales Manager, materially impairs the investment quality of the Stock, (ii) the Company shall have failed, refused or been unable, at or prior to any Settlement Date, to perform any agreement on its part to be performed hereunder, (iii) any other condition of the Sales Manager’s obligations hereunder is not fulfilled, (iv) any suspension or limitation of trading in the Stock on the Trading Market, or any setting of minimum prices for trading of the Stock on such Trading Market, shall have occurred, (v) any banking moratorium shall have been declared by Federal or New York authorities or (vi) an outbreak or material escalation of major hostilities in which the United States is involved, a declaration of war by Congress, any other substantial national or international calamity or any other event or occurrence of a similar character shall have occurred since the execution of this Agreement that, in the judgment of the Sales Manager, makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Stock to be sold by the Sales Manager on behalf of the Company. Any such termination shall be without liability of any party to any other party except that the provisions of Section 3.1(h), Article V and Article VI hereof shall remain in full force and effect notwithstanding such termination. If the Sales Manager elects to terminate this Agreement as provided in this Article, the Sales Manager shall provide the required notice as specified herein.

     7.2 The Company shall have the right, by giving notice as hereinafter specified, to terminate this Agreement in its sole discretion at any time. Any such termination shall be without liability of any party to any other party except that the provisions of Section 3.1(h), Article V and Article VI hereof shall remain in full force and effect notwithstanding such termination.

     7.3 The Sales Manager shall have the right, by giving notice as hereinafter specified, to terminate this Agreement in its sole discretion at any time. Any such termination shall be without liability of any party to any other party except that the provisions of Article 3.1(h), Article V and Article VI hereof shall remain in full force and effect notwithstanding such termination.

     7.4 This Agreement shall remain in full force and effect unless terminated pursuant to Section 7.1, 7.2 or 7.3 above or otherwise by mutual agreement of the parties; provided that any such termination by mutual agreement shall in all cases be deemed to provide that Section 3.1(h), Article V and Article VI shall remain in full force and effect.

     7.5 Any termination of this Agreement shall be effective on the date specified in such notice of termination; provided that such termination shall not be effective until the close of business on the date of receipt of such notice by the Sales Manager or the Company, as the case may be. If such termination shall occur during a period when sales of Stock are being made

17

pursuant to this Agreement, any sales of Stock made prior to the termination of this Agreement shall settle in accordance with the provisions of this Agreement.

ARTICLE VIII.

NOTICES

     8.1 All notices or communications hereunder shall be in writing and if sent to the Sales Manager shall be mailed, delivered or telecopied and confirmed to the Sales Manager at Brinson Patrick Securities Corporation, 330 Madison Avenue, 9^th Floor, New York, New York 10017, facsimile number (212) 453-5555, Attention: Corporate Finance, or if sent to the Company, shall be mailed, delivered or telecopied and confirmed to the Company at Capstead Mortgage Corporation, 8401 N. Central Expressway, Suite 800, Dallas, Texas 75225, facsimile number (214) 874-2323, Attention: Mr. Andrew F. Jacobs. Each party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose.

ARTICLE IX.

MISCELLANEOUS

     9.1 This Agreement shall inure to the benefit of and be binding upon the Company and the Sales Manager and their respective successors and the controlling persons, officers and directors referred to in Article V hereof, and no other person will have any right or obligation hereunder.

     9.2 This Agreement constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties hereto with regard to the subject matter hereof.

     9.3 THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.

     9.4 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties agree that this Agreement will be considered signed when the signature of a party is delivered by facsimile transmission. Such facsimile transmission shall be treated in all respects as having the same effect as an original signature.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date hereof.

Capstead Mortgage Corporation
By:
	Name:
	Title:
Brinson Patrick Securities Corporation
By:
	Name:
	Title:

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SCHEDULE 1.1(f)

List of Significant Subsidiaries

None.

EXHIBIT A

Form of Legal Opinion

              , 2004

Brinson Patrick Securities Corporation
330 Madison Avenue
9^th Floor
New York, New York 10017

Ladies and Gentlemen:

     We have acted as counsel to Capstead Mortgage Corporation, a Maryland corporation (the “Company”), in connection with the negotiation of the Sales Agreement dated as of June 22, 2004 between the Company and you (the “Agreement”). This letter is being furnished to you pursuant to Section 4.1(d) of the Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings given them in the Agreement.

     For purposes of rendering the opinions expressed below, we have examined the executed original, or a copy certified or otherwise authenticated to our satisfaction, of the Agreement. We have also examined originals or copies, certified or otherwise authenticated to our satisfaction, of such other documents and certificates of public officials and officers of the Company as we have deemed necessary or appropriate for purposes of this letter.

     In rendering the opinions expressed herein, we have assumed without independent verification the legal capacity of all natural persons, the genuineness of all signatures, the authenticity, completeness and accuracy of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, photostatic or facsimile copies thereof and the authenticity, completeness and accuracy of the originals of such certified, photostatic or facsimile copies. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, and due execution and delivery by such parties of such documents and the validity and binding effect thereof. We have no knowledge of any fraud and have assumed that no fraud exists regarding the documents referenced herein or the transactions evidenced or contemplated thereby or otherwise regarding any matters relevant to the opinions set forth herein. As to questions of fact material to such opinions, we have also, when relevant facts were not independently established, relied upon the documents, corporate records, agreements, instruments and certificates referenced in the second paragraph of this letter.

     With respect to the opinions set forth below, we have further assumed that the Company will continue (as it does on the date hereof) to have a sufficient number of shares of Common Stock and Series B Preferred Stock authorized for issuance under its charter from time to time to accommodate the issuances contemplated by the Agreement and a sufficient number of shares of Common Stock authorized for issuance under its charter from time to time to accommodate any conversions of the Series B Preferred Stock in accordance with the terms of the Articles Supplementary governing the Series B Preferred Stock.

     Based upon the foregoing and subject to the assumptions and qualifications set forth herein, and with due regard to such legal considerations as we deem relevant, we are of the opinion that:

     1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, has full corporate power and authority to conduct its business as described in the Registration Statement and Prospectus and is duly qualified as a foreign corporation to transact business in good standing in each jurisdiction in which such qualification is required whether by reason of the ownership or leasing of property or the conduct of business or otherwise, except where the failure to so qualify and be in good standing would not result in a Material Adverse Effect.

     2. The Board of Directors of the Company has duly and validly authorized the issuance of 1,600,000 shares of Common Stock to be sold pursuant to the Agreement at market price at the time of the transaction and, subject to the following provisos, when issued and delivered to and paid for by the purchasers thereof pursuant to the Agreement, the Common Stock will be fully paid and nonassessable and will conform to the description thereof in the Prospectus; provided, that the price to the public for the Common Stock must be at least 1.50 times the Company’s net asset value per share of its Common Stock, as reported in the then current weekly position report of the Company, after deducting all underwriting discounts and commissions (such discounts and commissions not to exceed 3.0% of the price to the public), unless such sale is otherwise approved by the Executive Committee of the Board of Directors of the Company; provided, further, that (i) any offering of Common Stock, when aggregated with other sales of Common Stock during a calendar week, of 10% or less of the Company’s average weekly trading volume of its Common Stock for the immediately preceding three full calendar months shall require the prior approval of the Chief Executive Officer of the Company, and (ii) any offering of Common Stock representing more than such 10% during a calendar week shall require the prior approval of the Executive Committee of the Board of Directors of the Company; provided, further, that the prior approval of the Board of Directors of the Company is required with respect to the sale of any Preferred Stock subject to the Agreement. As of the date of this opinion, the Company’s Board of Directors has not approved any such sales of Preferred Stock. Subject to the foregoing, all corporate action required to be taken for the authorization, issuance and sale of the Common Stock pursuant to the Agreement has been validly and sufficiently taken. The shareholders of the Company have no preemptive rights with respect to the Stock or the shares of Common Stock issuable upon conversion of the Preferred Stock. The Stock is the subject of an effective registration statement permitting its sale in the manner contemplated by the Agreement.

     3. (A) The Registration Statement has become effective under the Act; (B) to our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or threatened by the Commission; (C) if applicable, the filing of the Prospectus supplements have been made in the manner and within the time period required by the Rules and Regulations; and (D) the Stock has been approved for listing on the New York Stock Exchange.

     4. The Registration Statement, when it became effective, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission and at the

2

date hereof (except for the financial statements and notes and schedules and other financial information included therein), complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; and the documents incorporated by reference in the Registration Statement or Prospectus or any amendment or supplement thereto, when filed with the Commission under the Exchange Act (except for the financial statements and notes and schedules and other financial information included therein), complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder.

     5. The description in the Registration Statement and Prospectus of statutes, legal and governmental proceedings, contracts and other documents are accurate in all material respects and fairly present the information required to be shown; and we do not know of any statutes or legal or governmental proceedings required to be described in the Prospectus that are not described as required, or of any contracts or documents of a character required to be described in the Registration Statement or Prospectus (or required to be filed under the Exchange Act if upon such filing they would be incorporated by reference therein) or to be filed as exhibits to the Registration Statement that are not described and filed as required.

     6. The Agreement has been duly authorized, executed and delivered by the Company.

     7. The execution, delivery and performance of the Agreement by the Company and the consummation of the transactions contemplated therein by the Company do not and will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any agreement or instrument known to us to which the Company is a party or by which the Company is bound or to which any of the respective property of the Company is subject, except for such breaches or defaults that would not in the aggregate have a Material Adverse Effect on the Company, nor will such action result in the violation of the Company’s charter or by-laws, or any statute or any order, rule or regulation known to us of any court or governmental agency or body having jurisdiction over the Company or any of its properties.

     8. Except for permits and similar authorizations required under the securities or “blue sky” laws of certain states (as to which we express no opinion), and except for the prior approval of the Company’s board of directors with respect to any sales of Preferred Stock, no consent, waiver, approval, authorization or other order of any regulatory body, administrative agency or other governmental body is legally required for (i) the issuance or sale of the Stock by the Company, (ii) the sale of the Stock by the Sales Manager, and (iii) the issuance of shares of Common Stock upon conversion of Preferred Stock in accordance with the terms of the Articles Supplementary governing the Preferred Stock, each as contemplated by the Agreement and the Prospectus.

     9. We know of no actions, suits or proceedings pending or threatened against or affecting the Company or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its officers in their capacity as such, before or by any federal or state or foreign court, commission, regulatory body, wherein an unfavorable ruling, decision or finding might have a Material Adverse Effect on the Company.

3

     10. The Company is not, and upon issuance and sale of the Stock and the application of the net proceeds from the sale thereof in the manner described in the Prospectus will not be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     In rendering the foregoing opinions we express no opinion as to the laws of any jurisdiction other than applicable federal law and the laws of the States of Texas and (subject to the qualification expressed in the next sentence) Maryland, and we assume no responsibility as to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction. We have relied on the opinion of Hogan & Hartson L.L.P. of Baltimore, Maryland delivered to you today with respect to all matters of Maryland law (and our opinion with respect to Maryland law is subject to all qualifications, assumptions and exceptions set forth in their opinion).

     This letter and the matters addressed herein are as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any change in any matter set forth herein occurring after the date hereof. This letter is solely for your benefit, and no other persons shall be entitled to rely upon the opinions herein expressed. This letter is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated. Without our prior written consent, this letter may not be quoted in whole or in part or otherwise referred to in any document and may not be furnished to any other person or entity.

     We have participated in conferences with directors, officers and other representatives of the Company, representatives of the Sales Manager and representatives of the Sales Manager’s counsel, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and, although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except to the extent specified in the foregoing opinions), no facts have come to our attention that lead us to believe that the Registration Statement, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or the Prospectus, on the date of filing thereof with the Commission and at the date hereof, included an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; it being understood that we express no opinion as to the financial statements and related notes, the financial statement schedules or other financial and statistical data included in any of the documents mentioned in this paragraph.

Very truly yours,

4

EX-5.1

EXHIBIT 5.1

June 22, 2004

Capstead Mortgage Corporation
8401 N. Central Expressway
Suite 800
Dallas, Texas 75225

Re: Capstead Mortgage Corporation
      Registration Statement on Form S-3

Ladies and Gentlemen:

     We have acted as counsel for Capstead Mortgage Corporation, a Maryland corporation (the “Company”), in connection with a Registration Statement on Form S-3 filed by the Company under the Securities Act of 1933 (the “Registration Statement”) with respect to the sale by the Company from time to time of up to 1,600,000 shares of Common Stock, par value $.01 per share (the “Common Shares”), and up to 100,000 shares of the $1.26 Cumulative Convertible Preferred Stock, Series B, par value $.10 per share (the “Preferred Shares” and together with the Common Shares collectively, the “Shares”), of the Company.

     In this capacity, we have examined the Registration Statement, the Prospectus, the Charter and By-Laws of the Company, the proceedings of the Board of Directors of the Company or a committee thereof relating to the authorization of the issuance of the Shares (the “Resolutions”), an Officer’s Certificate of the Company dated the date hereof, and such other statutes, certificates, instruments, and documents relating to the Company and matters of law as we have deemed necessary to the issuance of this opinion. In such examination, we have assumed, without independent investigation, the genuineness of all signatures, the legal capacity of all individuals who have executed any of the aforesaid documents, the authenticity of all documents submitted to us as originals, the conformity with originals of all documents submitted to us as copies (and the authenticity of the originals of such copies), and that all public records reviewed are accurate and complete. As to factual matters, we have relied on the Officer’s Certificate and have not independently verified the matters stated therein.

     Based upon the foregoing and having regard for such legal considerations as we deem relevant, we are of the opinion that upon the sale and delivery of the Shares in the manner contemplated by the Prospectus (together with any applicable Prospectus Supplement) and in accordance with the Resolutions, the Shares will have been duly and validly authorized and will be validly issued, fully paid, and non-assessable.

     To the extent that the opinion set forth herein is governed by the laws of the State of Maryland, we have relied solely on, and our opinion is subject to the limitations and assumptions

Capstead Mortgage Corporation
June 22, 2004
Page 2

set forth in, the opinion of Hogan & Hartson L.L.P., dated June 22, 2004 and addressed to the Company and upon which we are authorized to rely. We have made no independent examination of the laws of the State of Maryland.

     This opinion is solely for the benefit of the addressee hereof, and, without our prior written consent, may not be quoted in whole or in part or otherwise referred to in any legal opinion, document, or other report, and may not be furnished to any person or entity. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm and to our opinion in the Registration Statement and Prospectus which is a part thereof.

     This opinion is delivered as of the date hereof and we disclaim any responsibility to update this opinion at any time following the date hereof.

Sincerely yours,

Andrews Kurth LLP

DAB;MWH

EX-5.2

EXHIBIT 5.2

June 22, 2004

Board of Directors
Capstead Mortgage Corporation
8401 North Central Expressway
Suite 800
Dallas, TX 75225-4410

Ladies and Gentlemen:

       We are acting as special counsel to Capstead Mortgage Corporation, a Maryland corporation (the “Company”), in connection with its registration statement on Form S-3 (the “Registration Statement”), filed with the Securities and Exchange Commission relating to the proposed public offering of up to 1,600,000 shares of the Company’s common stock, par value $.01 per share (the “Common Shares”), and 100,000 shares of the $1.26 Cumulative Convertible Preferred Stock, Series B, par value $.10 per share (the “Preferred Shares”, and together with the Common Shares and the 57,300 shares of common stock initially issuable upon conversion of the Preferred Shares, collectively, the “Shares”), all of which Shares are to be offered and sold by the Company from time to time as set forth in the prospectus which forms a part of the Registration Statement (the “Prospectus”), and as to be set forth in one or more supplements to the Prospectus (each, a “Prospectus Supplement”). This opinion letter is furnished to you at your request to enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. § 229.601(b)(5), in connection with the Registration Statement.

       For purposes of this opinion letter, we have examined copies of the following documents:

1.	An executed copy of the Registration Statement.
2.	The Charter of the Company, as certified by the Maryland State Department of Assessments and Taxation on February 13, 2004 and by the Secretary of the Company on the date hereof as being complete, accurate, and in effect.
3.	The Bylaws of the Company, as certified by the Secretary of the Company on the date hereof as being complete, accurate, and in effect.

Board of Directors
Capstead Mortgage Corporation
June 22, 2004
Page 2

4.	Resolutions of the Board of Directors of the Company adopted at a meeting held on June 10, 2004 (the “Board Resolutions”), as certified by the Secretary of the Company on the date hereof as being complete, accurate, and in effect, relating to the issuance and sale of the Shares and arrangements in connection therewith.
5.	The proposed form of Sales Agreement among the Company and Brinson Patrick Securities Corporation, filed as Exhibit 1.1 to the Registration Statement (the “Sales Agreement”).

       In our examination of the aforesaid documents, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the accuracy and completeness of all documents submitted to us, the authenticity of all original documents, and the conformity to authentic original documents of all documents submitted to us as copies (including telecopies). This opinion letter is given, and all statements herein are made, in the context of the foregoing.

       For purposes of this opinion letter, we have assumed that the actions taken by the Company and its officers implementing the Board’s authorization of the issuance and sale of the Shares to be offered from time to time, including the number of shares offered and the price and underwriting discount at which they will be offered, will be in accordance with the Board Resolutions, consistent with the procedures and terms described in the Registration Statement and in accordance with the Charter, Bylaws and applicable Maryland law.

       This opinion letter is based as to matters of law solely on the Maryland General Corporation Law, as amended. We express no opinion herein as to any other laws, statutes, ordinances, rules, or regulations. As used herein, the term “Maryland General Corporation Law, as amended” includes the statutory provisions contained therein, all applicable provisions of the Maryland Constitution and reported judicial decisions interpreting these laws.

       Based upon, subject to and limited by the foregoing, we are of the opinion that following (i) effectiveness of the Registration Statement, (ii) execution and delivery by the Company of the Sales Agreement, and (iii) issuance and delivery of certificates for the Shares against payment therefor in accordance with the terms of the Board Resolutions and the Sales Agreement, and as contemplated

Board of Directors
Capstead Mortgage Corporation
June 22, 2004
Page 3

by the Registration Statement and/or the applicable Prospectus Supplement, the Shares will be validly issued, fully paid, and nonassessable.

       This opinion letter has been prepared for your use in connection with the Registration Statement and speaks as of the date hereof. In this regard, Andrews Kurth LLP is authorized to rely on the opinions contained herein for purposes of rendering its opinion to be included in the Registration Statement. We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter.

       We hereby consent to the filing of this opinion letter as Exhibit 5.2 to the Registration Statement and to the reference to this firm under the caption “Legal Matters” in the prospectus constituting a part of the Registration Statement. In giving this consent, we do not thereby admit that we are an “expert” within the meaning of the Securities Act of 1933, as amended.

Very truly yours,

HOGAN & HARTSON L.L.P.

EX-8.1

EXHIBIT 8.1

June 22, 2004

Capstead Mortgage Corporation
8401 N. Central Expressway
Suite 800
Dallas, Texas 75225

Re:	Capstead Mortgage Corporation
	Form S-3

Ladies and Gentlemen:

     We have acted as counsel to Capstead Mortgage Corporation, a Maryland corporation (“Capstead”), in connection with the preparation of a Form S-3 registration statement (the “Registration Statement”) filed with the Securities and Exchange Commission on or about the date hereof with respect to the offer and sale of up to 1,600,000 shares of Capstead’s common stock, par value $.01 per share, and up to 100,000 shares of $1.26 cumulative convertible preferred stock, Series B, par value $.10 per share. This opinion is to be included as an exhibit to the Registration Statement. You have requested our opinion regarding Capstead’s qualification as a real estate investment trust (“REIT”) pursuant to sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), as set forth below. Capstead has and has had a number of wholly-owned subsidiaries, the income, liabilities, and assets of which are not and were not accounted for separately from Capstead for federal income tax purposes pursuant to applicable provisions of the Code. This letter refers to Capstead, as aggregated with such subsidiaries as were in existence during the period for which reference is made, as “Capstead REIT.” In addition, Capstead owned all of the outstanding common stock of Capstead Securities Corporation I (“OLD CSC I”) from March 13, 1986, until December 30, 1993, the date of its merger with and into CMC Liquidation Corporation (which corporation changed its name to Capstead Securities Corporation I (“New CSC I”)).

     For the purpose of rendering our opinion, we have examined and are relying upon the truth and accuracy, at all relevant times, of the statements, covenants, representations and warranties contained in the following documents:

1. The Articles of Incorporation of Capstead and the Certificate of Incorporation of (i) OLD CSC I, (ii) CMF Mortgage Funding Corporation, (iii) Capstead Holdings, Inc., (iv) Capstead Inc. and (v) each wholly owned subsidiary of Capstead, each as amended and supplemented to the date hereof.

2. The By-Laws of Capstead and the Bylaws of OLD CSC I.

Capstead Mortgage Corporation
June 22, 2004
Page 2

3. Capstead REIT’s federal income tax returns for taxable years 1985 - 2002.

4. OLD CSC I’s federal income tax returns for taxable years 1986 - 1993.

5. The registration statement with which this letter is being filed.

6. Representations made to us by an officer of Capstead in a certificate as of the date hereof and representations made to us by an officer of New CSC I in a certificate as of the date hereof.

     In connection with rendering this opinion, we have assumed and are relying upon, without any independent investigation or review thereof, the following:

1. The authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, and authenticity of the originals of such documents.

2. The genuineness of all signatures, the due authorization, execution and delivery of all documents by all parties thereto and the due authority of all persons executing such documents.

3. None of Capstead, its wholly owned subsidiaries, or Capstead Holdings, Inc. will make any amendments to its organizational documents after the date of this opinion that would adversely affect Capstead REIT’s qualification as a REIT for any taxable year.

4. No actions will be taken by Capstead REIT after the date hereof that would have the effect of altering the facts upon which the opinion set forth below is based.

     Based on the foregoing and subject to the assumptions, exceptions, limitations and qualifications set forth herein, we are of the opinion that:

(i) For all of its taxable years beginning September 5, 1985, and ending December 31, 2003, Capstead REIT has met the requirements for qualification as a REIT under the Code and will be able to qualify as a REIT for taxable years beginning on and after January 1, 2004, provided that Capstead REIT continues to be organized and operated after the date of this letter so as to satisfy the applicable REIT requirements under the Code, and

(ii) The statements in the prospectus included in the Registration Statement set forth under the caption “Taxation” accurately describe the material federal income tax consequences to the holders of Capstead’s common stock under existing law and subject to the qualifications and assumptions stated therein.

Capstead Mortgage Corporation
June 22, 2004
Page 3

     In addition to the assumptions set forth above, this opinion is subject to the following exceptions, limitations and qualifications:

1. Our opinion expressed herein is based upon our interpretation of the current provisions of the Code and existing judicial decisions, administrative regulations and published rulings and procedures. Our opinion is not binding upon the Internal Revenue Service or courts and there is no assurance that the Internal Revenue Service will not successfully challenge the conclusion set forth herein. The Internal Revenue Service has not yet issued regulations or administrative interpretations with respect to various provisions of the Code relating to REIT qualification. No assurance can be given that future legislative, judicial or administrative changes, on either a prospective or retroactive basis, would not adversely affect the accuracy of the conclusions stated herein.

2. Our opinion is limited to the federal income tax matters addressed herein, and no other opinions are rendered with respect to any other matter not specifically set forth in the foregoing opinion.

3. Our opinion is limited in all respects to the federal law of the United States, and we assume no responsibility as to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction.

4. Except as described in this letter, we have made no efforts to verify the accuracy and genuineness of the documents, assumptions and representations set forth above.

     In the event any one of the statements, representations, warranties or assumptions we have relied upon to issue this opinion is incorrect in a material respect, our opinion might be adversely affected and may not be relied upon. This opinion is delivered as of the date hereof and we disclaim any responsibility to update this opinion at any time following the date hereof.

     The ability of Capstead REIT to qualify as a REIT for its 2004 taxable year and subsequent taxable years will depend on future events, some of which are not within the control of Capstead REIT. Additionally, it is not possible to predict whether the statements, representations, warranties or assumptions on which we have relied on to issue this opinion will continue to be accurate in the future. Thus, the treatment of the Capstead REIT for federal income tax purposes may be altered for the taxable years affected thereby.

Capstead Mortgage Corporation
June 22, 2004
Page 4

     We hereby consent to the reference to us under the caption “TAXATION” in the Registration Statement, and to the filing of this opinion as an Exhibit to the Registration Statement, without implying or admitting that we are experts within the meaning of the Securities Act of 1933, as amended, with respect to any part of the Registration Statement.

Very truly yours,

ANDREWS KURTH LLP

TWF; TRP

EX-23.1

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” in the Registration Statement on Form S-3 and related Prospectus of Capstead Mortgage Corporation for the registration of 1,600,000 shares of its common stock and 100,000 shares of its $1.26 Cumulative Convertible Preferred Stock, Series B and to the incorporation by reference therein of our report dated January 28, 2004, with respect to the consolidated financial statements of Capstead Mortgage Corporation incorporated by reference in its Annual Report (Form 10-K) for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

Ernst & Young LLP

Dallas, Texas
June 16, 2004