Mortgage securities and similar investments and related weighted average coupon rates ("net WAC") and average yields classified by collateral type and interest rate characteristics were as follows (dollars in thousands):


	*Principal* *Balance*		Investment Premiums		*Basis*		*Carrying* *Amount ^(a)*		*Net* *WAC ^(b)*	*Average* *Yield ^(b)*


*June 30, 2011*
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate	$	4,386		$ 13	$	4,399	$	4,410	6.77%	6.49%
ARMs		9,705,239		251,605		9,956,844		10,154,164	3.03	2.36
Ginnie Mae ARMs		1,206,258		32,949		1,239,207		1,252,697	3.20	2.54

		10,915,883		284,567		11,200,450		11,411,271	3.05	2.38

Residential mortgage loans:
Fixed-rate		3,351		6		3,357		3,357	6.97	6.50
ARMs		6,118		23		6,141		6,141	3.49	3.98

		9,469		29		9,498		9,498	4.72	4.84
Collateral for structured financings		3,337		55		3,392		3,392	8.04	7.88

	$	10,928,689		$284,651	$	11,213,340	$	11,424,161	3.05	2.38

*December 31, 2010*
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate	$	4,927		$ 14	$	4,941	$	4,955	6.78%	6.60%
ARMs		7,660,269		158,260		7,818,529		7,991,122	3.09	2.49
Ginnie Mae ARMs		489,579		8,030		497,609		505,376	3.12	2.57

		8,154,775		166,304		8,321,079		8,501,453	3.09	2.50

Residential mortgage loans:
Fixed-rate		3,455		6		3,461		3,461	6.98	7.03
ARMs		7,235		24		7,259		7,259	3.45	3.79

		10,690		30		10,720		10,720	4.59	4.83
Collateral for structured financings		3,461		57		3,518		3,518	7.97	8.07
Senior notes		–		–		–		–	–	8.75

	$	8,168,926		$166,391	$	8,335,317	$	8,515,691	3.10	2.51

(a)

Includes unrealized gains and losses for securities classified as available-for-sale, if applicable, (see NOTE 9).

(b)

Net WAC is presented net of servicing and other fees and represents the cash yield inherent in the portfolio as of the indicated balance sheet date, before amortization of investment premiums. Average yield is presented for the quarter then ended, calculated including the amortization of investment premiums and excluding unrealized gains and losses.

Agency Securities carry an implied AAA rating and therefore limited credit risk, particularly in light of the conservatorship of the GSEs by the federal government in 2008. Residential mortgage loans held by the Company were originated prior to 1995 when Capstead operated a mortgage conduit and the related credit risk is borne by the Company. Collateral for structured financings consists of private residential mortgage securities obtained through the above-mentioned mortgage conduit that are pledged to secure repayment of the structured financings. The credit risk for these securities is borne by the related bondholders. The maturity of mortgage securities is directly affected by prepayments of principal on the underlying mortgage loans. Consequently, the actual maturity of the Company's mortgage securities will be significantly shorter than the portfolio's weighted average contractual maturity of 287 months.

Fixed-rate investments are generally Agency Securities backed by mortgage loans with fixed rates of interest. Adjustable-rate investments generally are ARM Agency Securities backed by residential mortgage loans that have coupon interest rates that adjust at least annually to more current interest rates or begin doing so after an initial fixed-rate period. After the initial fixed-rate period, if applicable, mortgage loans underlying ARM securities either (i) adjust annually based on specified margins over the one-year Constant Maturity U.S. Treasury Note Rate ("CMT") or the one-year London interbank offered rate ("LIBOR"), (ii) adjust semiannually based on specified margins over six-month LIBOR, or (iii) adjust monthly based on specified margins over indices such as one-month LIBOR, the Eleventh District Federal Reserve Bank Cost of Funds Index, or over a rolling twelve month average of the one-year CMT index, usually subject to periodic and lifetime limits, or caps, on the amount of such adjustments during any single interest rate adjustment period and over the contractual term of the underlying loans.

Capstead classifies its ARM securities based on each security's average number of months until coupon reset ("months to roll"). Months to roll is an indicator of asset duration which is a measure of market price sensitivity to interest rate movements. Current-reset ARM securities have a months to roll of less than 18 months while longer-to-reset ARM securities have a months to roll of 18 months or greater. As of June 30, 2011, the average months to roll for the Company's $8.74 billion (basis) in current-reset ARM securities was 5.8 months while the average months-to-roll for the Company's $2.46 billion (basis) in longer-to-reset ARM securities was 44.1 months.

Under variable interest entity accounting rules, the Company has consolidated two Dallas, Texas townhome developments that are collateral for subordinated loans made by the Company. The underlying collateral consisted of 15 unsold completed units with a basis of $3.6 million at June 30, 2011 and is included in Receivables and other assets on the balance sheet. Included in Miscellaneous other revenue (expense) is a $470,000 impairment charge recorded in June 2011 reflecting slow sales of these units and poor housing market conditions. The Company remains a subordinated participant in the lending group to the Four Seasons resort in Nevis, West Indies which was foreclosed on in May 2010. The resort had been closed since October 2008 after sustaining hurricane damage and reopened in December 2010. The Company wrote off its $39.2 million investment in December 2009; a recovery on this investment, if any, would come from the eventual disposition of the resort by the lending group which is not expected to occur for several years.