UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Capstead Mortgage Corporation

(Name of Registrant as Specified In Its Charter)

 

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held May 1, 2008

To the stockholders of
CAPSTEAD MORTGAGE CORPORATION:

     The annual meeting of stockholders of Capstead Mortgage Corporation, a Maryland corporation, will be held at The Crescent Club, 200 Crescent Court, 17^th floor, Dallas, Texas on Thursday, May 1, 2008 beginning at 9:00 a.m., Central time, for the following purposes:

	(i)		To elect seven directors to hold office until the next annual meeting of stockholders and until their successors are elected and qualified;
	(ii)		To authorize an amendment to our Articles of Incorporation to increase our authorized shares of common stock from 100 million shares to 250 million shares;
	(iii)		To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008; and
	(iv)		To transact any other business that may properly come before the annual meeting of stockholders or any adjournment of the annual meeting.

PLEASE DO NOT MAIL YOUR PROXY CARD IF YOU VOTE BY INTERNET OR TELEPHONE.

By order of the board of directors,

/s/ Phillip A. Reinsch
Phillip A. Reinsch
Secretary

8401 North Central Expressway, Suite 800
Dallas, Texas 75225-4410
March 21, 2008

CAPSTEAD MORTGAGE CORPORATION
8401 North Central Expressway, Suite 800
Dallas, Texas 75225-4410

PROXY STATEMENT

     This proxy statement, together with the proxy, is solicited by and on behalf of the board of directors of Capstead Mortgage Corporation, a Maryland corporation, for use at the annual meeting of stockholders to be held on May 1, 2008 at The Crescent Club, 200 Crescent Court, 17^th floor, Dallas, Texas beginning at 9:00 a.m., Central time. The board is requesting you to allow your shares to be represented and voted at the annual meeting by the proxies named on the proxy card. “We,” “our,” “us,” and “Capstead” each refers to Capstead Mortgage Corporation. A notice regarding the internet availability of this proxy statement and 2007 annual report will first be mailed to stockholders, and this proxy statement will be available on the internet, on or about March 21, 2008. See the “Notice of Electronic Availability of Proxy Materials” section of this proxy statement for more information.

     At the annual meeting of stockholders, action will be taken to (i) elect seven directors to hold office until the next annual meeting of stockholders and until their successors are elected and qualified; (ii) authorize an amendment to our Articles of Incorporation to increase our authorized shares of common stock from 100 million shares to 250 million shares; (iii) ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008; and (iv) transact any other business that may properly come before the annual meeting of stockholders or any adjournment of the annual meeting.

FORWARD-LOOKING STATEMENTS

     This document 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 other factors. As discussed in our filings with the Securities and Exchange Commission (the “SEC”), these factors may include, but are not limited to, changes in general economic conditions, the availability of suitable qualifying investments from both an investment return and regulatory perspective, the availability of new investment capital, 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. In addition to the above considerations, actual results and liquidity related to investments in loans secured by commercial real estate are affected by borrower performance under operating and/or development plans, 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, among other factors.

GENERAL INFORMATION ABOUT VOTING

Solicitation of Proxies

     The enclosed proxy is solicited by and on behalf of our board. We will bear the expense of soliciting proxies for the annual meeting of stockholders, including the mailing cost. In addition to solicitation by mail, our officers or a company of our designation may solicit proxies from stockholders by telephone, e-mail, facsimile or personal interview. Our officers receive no additional compensation for such services.

We intend to request persons holding common shares in their name or custody, or in the name of a nominee, to send a notice of internet availability of proxy materials to their principals and request authority for the execution of the proxies, and we will reimburse such persons for their expense in doing so. We will also use the proxy solicitation services of Georgeson Inc. For such services, we will pay a fee that is not expected to exceed $6,000 plus out-of-pocket expenses.

Voting Securities

     Our only voting equity securities are our common shares. Each common share entitles the holder to one vote. As of February 20, 2008, there were 49,531,507 common shares outstanding and entitled to vote. Only stockholders of record at the close of business on February 20, 2008 are entitled to vote at the annual meeting of stockholders or any adjournment of the meeting.

Voting

     If you hold our common shares in your own name as a holder of record, you may instruct the proxies to vote your shares through any of the following methods:

	•		using the internet, log on to www.eproxy.com/cmo to gain access to the voting site to authorize the proxies to vote your shares;
	•		calling our transfer agent Wells Fargo at 1-800-560-1965 and following the prompts; or
	•		signing, dating and mailing the proxy card in the postage-paid envelope provided.

     Our counsel has advised us that these three voting methods are permitted under the corporate law of Maryland, the state in which we are incorporated.

     The deadline for internet and telephone voting is 12:00 p.m. (noon), Central time, on April 30, 2008. If you prefer, you may bring your proxy to the annual meeting of stockholders to vote your shares in person.

     If a broker, bank or other nominee holds our common shares on your behalf, they will instruct you in casting your vote.

Counting of Votes

     A quorum will be present if the holders of a majority of the outstanding shares entitled to vote are present, in person or by proxy, at the annual meeting of stockholders. If you have returned valid proxy instructions or if you hold your shares in your own name as a holder of record and attend the annual meeting of stockholders in person with your proxy, your shares will be counted for the purpose of determining whether there is a quorum. If a quorum is not present, the annual meeting of stockholders may be adjourned by the vote of a majority of the shares represented at the meeting until a quorum has been obtained.

     The affirmative vote of a plurality of the common shares cast at the annual meeting of stockholders is required to elect each nominee to our board. The affirmative vote of a majority of all the votes cast is required to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2008, and a majority of all common shares entitled to vote is required to authorize an amendment to our Articles of Incorporation to increase our authorized shares of common stock from 100 million shares to 250 million shares. For any other matter, unless otherwise required by Maryland or other applicable law, the affirmative vote of a majority of all the votes cast at the annual meeting of stockholders is required to approve the matter.

     Abstentions, broker non-votes and withheld votes will have no effect on the outcome in electing each nominee to our board and ratifying the appointment of our independent registered public accounting firm and will have the effect of votes against the proposal to authorize an amendment to our Articles of Incorporation.

     Broker non-votes occur when a broker, bank or other nominee holding common shares on your behalf votes the shares on some matters but not others. We will treat broker non-votes as (i) common shares present and voting for quorum purposes, (ii) votes not cast in electing nominees to our board and ratifying the appointment of our independent registered public accounting firm, and (iii) votes against authorizing an amendment to our Articles of Incorporation.

     If you sign and return your proxy card without giving specific voting instructions, your shares will be voted FOR the nominees to our board, an amendment to our Articles of Incorporation and the appointment of our independent registered public accounting firm.

Right To Revoke Proxy

     You must meet the same deadline when revoking your proxy as when voting your proxy. See the “Voting” section of this proxy statement for more information. If you hold our common shares in your own name as a holder of record, you may revoke your proxy instructions through any of the following methods:

	•		notifying our secretary in writing before your shares have been voted that you are revoking your proxy;
	•		signing, dating and mailing a new proxy card to Wells Fargo;
	•		calling Wells Fargo at 1-800-560-1965 and following the prompts;
	•		using the internet, logging on to www.eproxy.com/cmo/ and following the prompts; or
	•		attending the annual meeting of stockholders with your proxy and voting your shares in person.

     If our common shares are held on your behalf by a broker, bank or other nominee, you must contact them to receive information on revoking your proxy.

Notice of Electronic Availability of Proxy Materials

     As permitted by rules recently adopted by the SEC, we are making this proxy statement and our 2007 annual report available to stockholders on the internet. On or about March 21, 2008, we mailed our stockholders a notice containing instructions on accessing this proxy statement and our 2007 annual report and voting online. If you received a notice by mail, you will not receive a printed copy of the proxy materials unless you request them. If you would like to receive a printed copy of our proxy materials, follow the instructions included in the notice.

Multiple Stockholders Sharing the Same Address

     The SEC rules allow for householding, which is the delivery of a single copy of an annual report and proxy statement, or notice of electronic availability, to any household at which two or more stockholders reside if it is believed the stockholders are members of the same family. Duplicate mailings will be eliminated by allowing stockholders to consent to such elimination or through implied consent if a stockholder does not request continuation of duplicate mailings. Depending upon the practices of your broker, bank or other nominee, you may be required to contact them directly to discontinue duplicate mailings to your household. If you wish to revoke your consent to householding, you must contact your broker, bank or other nominee. If you hold our common shares in your own name as a holder of record, householding will not apply to you.

     Extra copies of any annual report, proxy statement or information statement may be obtained free of charge by sending a request to Capstead Mortgage Corporation, Attention: Stockholder Relations, 8401 North Central Expressway, Suite 800, Dallas, Texas, 75225-4410. You can also obtain copies from our website at www.capstead.com or by calling us toll-free at (800) 358-2323, extension 2354.

Voting Results

     Voting results will be announced at the annual meeting of stockholders, and a detail of the voting results will be published in our Form 10-Q for the quarter ending March 31, 2008.

PROPOSAL ONE – ELECTION OF DIRECTORS

     One of the purposes of the annual meeting of stockholders is to elect seven directors to hold office until the next annual meeting of stockholders and until their successors have been elected and qualified. Set forth below are the names, principal occupations, committee memberships, ages, directorships held with other companies, and other biographical data for the nominees for director, as well as the month and year each nominee was first elected to our board. Also set forth below is the beneficial ownership of our common shares as of February 20, 2008 for each nominee. For discussion of beneficial ownership, see the “Security Ownership of Management and Certain Beneficial Owners” section of this proxy statement. If any nominee becomes unable to stand for election as a director, an event we do not presently expect, the proxy will be voted for a replacement nominee if our board designates one.

     The board recommends a vote FOR all nominees.

Nominees for Director

Nominees for Director

Nominees for Director

BOARD OF DIRECTORS AND COMMITTEE INFORMATION

     Our business and affairs are managed under the direction of our board. Members of our board are kept informed of our business through discussions with our chairman of the board, CEO and other officers, by reviewing materials provided to them and by participating in meetings of our board and its committees.

     During the year ended December 31, 2007, our board held four regular meetings and six special meetings. In accordance with our Board Of Directors’ Guidelines, directors are expected to attend all meetings of our board and meetings of committees on which they serve. Each director standing for re-election attended more than 75 percent of all meetings of our board and committees on which he served.

Attendance at Annual Meeting of Stockholders

     In keeping with our Board Of Directors’ Guidelines, directors are expected to attend in person our annual meeting of stockholders. All of our directors were in attendance at the 2007 annual meeting of stockholders on May 3, 2007.

Board Member Independence

     Section 303A.02 “Independence Tests” of the NYSE Listed Company Manual outlines the requirements for a director to be deemed independent by the NYSE, including the mandate that our board affirmatively determine a director has no material relationship with us that would impair independence. To assist in ascertaining the independence of our board members, each board member completed a qualification questionnaire in December 2007. Board members were asked to verify their biographical information, their service on other company boards and committees of other company boards, their attendance at our board and committee meetings and affirm they meet each independence standards set forth in the NYSE Listed Company Manual and our Board of Directors’ Guidelines. Board members were also asked to verify their availability and capability to serve on our board in 2008, as well as confirm they meet additional qualifications required for continued service as outlined in our Board of Directors’ Guidelines. After receipt of all completed qualification questionnaires, our governance & nomination committee members were given a copy of each questionnaire, along with information regarding each board member’s level of ownership in our equity securities. At the conclusion of this process, our board affirmatively determined no director, with the exception of Mr. Jacobs who is our CEO, has a material relationship with us that would impair his independence, and each director meets all of the

independence requirements set forth in the NYSE Listed Company Manual and our Board of Directors’ Guidelines.

     Therefore, our board is comprised of a majority of independent directors, as required in Section 303A.01 “Independent Directors” of the NYSE Listed Company Manual. Our Board of Directors’ Guidelines are found on our website at www.capstead.com by clicking “Investor Relations,” “Accept” and “Corporate Governance.” Any reference to an independent director herein infers compliance with the NYSE independence tests and our Board of Directors’ Guidelines.

Charitable Contributions

     At no time during the preceding three years have we made a contribution to a charitable organization where one of our independent directors serves as an executive officer.

Board Member Compensation

     Compensation of our independent directors for the fiscal year ended December 31, 2007 is outlined in the following table.

Director Compensation*

		Fees Earned				Stock				Option				All Other
		or Paid in Cash				Awards				Awards				Compensation				Total
Name		($)				($)(a)				($)(b)				($)(c)				($)
Jack Biegler			70,500				17,253				4,333				—				92,086
Gary Keiser			83,500				16,315				4,333				—				104,148
Paul M. Low			137,500				16,315				4,333				—				158,148
Christopher W. Mahowald			70,000				17,253				4,333				—				91,586
Michael G. O’Neil			78,500				16,315				4,333				—				99,148
Mark S. Whiting			75,500				16,315				4,333				—				96,148

Narrative Disclosure to Director Compensation Table:

     Independent directors receive base compensation for their representation on our board at an annualized rate of $40,000 and an annual stock award of 1,000 shares of common stock. The stock award granted on May 7, 2007 will vest in full on April 15, 2008. The chair of each of our compensation, executive, governance & nomination and real estate investment committees receives an additional $10,000 annually, and the chair of our audit committee receives an additional $15,000 annually. Mr. Low receives a monthly director fee of $7,500 for serving as our non-executive chairman of the board in lieu of base compensation and meeting fees. Independent directors other than Mr. Low receive fees of $2,500 per board meeting attended in person, $1,500 per board meeting attended by telephone and $1,000 per committee meeting. Additionally, each director was granted 5,000 option awards on May 7, 2007 at an

exercise price of $10.58, which will vest in full on April 15, 2008. All directors receive reimbursement for travel costs and expenses. Employee directors do not receive compensation for serving on our board.

     The board believes a portion of the director’s total compensation should be paid in the form of equity awards. This element of total compensation is intended to align the director’s long-term interests to those of our stockholders through the granting of (i) stock awards, (ii) option awards, and (iii) other incentive-based awards as defined in the Amended and Restated 2004 Flexible Long-Term Incentive Plan. The provisions of equity awards generally include:

Stock awards provide for vesting in equal annual installments over a period of years, as determined by our board. The director will be considered the owner of the shares and entitled to vote and receive all dividends and any other distributions declared on the shares prior to vesting, which dividends or distributions shall not exceed those available to our common stockholders. Nonvested shares cannot be sold, transferred or otherwise disposed of for any purpose whatsoever other than to us. Nonvested shares will revert to us in the event the director leaves us for any reason, including termination of directorship by reason of voluntary or involuntary discharge, disability or retirement, except in the event of a change in control, dissolution or liquidation of our company, or death, in which case all outstanding nonvested             shares will automatically vest in full. Stock awards granted to directors in 2005 vest in equal annual installments over four years, and the stock award granted to directors in 2007 vests in full on April 15, 2008.

Option awards may be fully vested upon issuance or provide for vesting in equal annual installments over a period of years, as determined by our board, and expire at the earliest of (i) ten years after date of grant, (ii) six months, or the remaining term of the option if earlier, after the optionee’s termination of directorship by reason of death, resignation, retirement or disability or (iii) on the date of the optionee’s termination of directorship for cause. No option awards will vest after the optionee’s termination of directorship for any reason, including voluntary or involuntary discharge, disability or retirement, except in the event of a change in control, dissolution or liquidation of our company, or death of the grantee, in which case all outstanding nonvested options will automatically vest in full. Outstanding option awards do not receive dividends prior to exercise and are non-voting. Presently, all outstanding director option awards are fully vested with the exception of the option award granted to directors in 2007 that vests in full on April 15, 2008.

Board Committees and Meetings

     The current standing committees of our board are listed in the table below. Each of these committees has a written charter approved by our board. A copy of the charters can be found on our website at www.capstead.com by clicking “Investor Relations,” “Accept” and “Corporate Governance.” The members of the committees and the number of meetings held during 2007 are identified in the table below, and a description of the principal responsibilities of each committee follows.

Governance &

Real Estate

Audit

Compensation

Executive

Nomination

Investment

Jack Biegler

X

X

X

Andrew F. Jacobs

X

Gary Keiser

Chair

X

Paul M. Low

Chair

X

Christopher W. Mahowald

X

Chair

Michael G. O’Neil

X

X

Chair

Mark S. Whiting

Chair

X

2007 Meetings

5

5

3

2

5

     The audit committee is comprised of three independent directors. The committee is responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm; and it provides assistance to our board in fulfilling their oversight responsibilities to our stockholders, potential stockholders and the investment community relating to:

	•		The integrity of our financial statements and the financial reporting process, including the systems of internal accounting and financial control and disclosure controls and procedures;
	•		The independent registered public accounting firm’s qualifications and independence;

	•		Our compliance with legal and regulatory requirements; and
	•		The performance of our internal audit function (outsourced to a third party service provider) and our independent registered public accounting firm.

     Our board has determined that Messrs. Biegler, Keiser and O’Neil are “audit committee financial experts,” as defined in the applicable rules and regulations of the Securities Exchange Act of 1934, as amended. All members of our audit committee meet the NYSE listing standards and our Board of Directors’ Guidelines for independence of audit committee members, have financial management experience and are financially literate as required by the NYSE Corporate Governance Listing Standards. Our audit committee charter limits the number of audit committees on which committee members may serve to no more than two other public companies, unless our board determines such simultaneous service would not impair the ability of such member to effectively serve. No member of our audit committee currently serves on the audit committee of more than one other public company.

     The compensation committee is comprised of three independent directors. All of our compensation programs are administered under the direction of this committee. The committee is responsible for overseeing our compensation programs including:

	•		The review and approval of corporate goals and objectives relevant to the CEO’s compensation;
	•		The evaluation of the CEO’s performance in light of those goals and the approval of compensation consistent with such performance;
	•		The approval of base salaries, annual incentives and other programs and benefits for senior management other than the CEO;
	•		The approval of compensation programs and benefits for other employees and board members;
	•		The review and coordination of succession plans for the CEO and other members of senior management; and
	•		The review and discussion with management of the Compensation Discussion and Analysis (“CD&A”) and recommendation to our board for its inclusion in our proxy statement and annual report on Form 10-K.

     Because the CEO is in the best position to determine the responsibilities of each executive officer and observe how well each performs his responsibilities, the CEO annually reviews the performance of each executive officer and makes recommendations to the committee regarding all elements of compensation for each officer, including himself. In its role as the administrator, the committee may exercise its discretion in modifying any of the recommendations and is responsible for ultimately approving all compensation arrangements for the executive officers.

     Our board has determined that Messrs. Biegler, Keiser and Whiting are independent in accordance with NYSE listing standards and Item 407(a) of the SEC Regulation S-K. No member of the compensation committee had interlocks or other relationships during 2007 between our board or the committee and the board of directors or compensation committee of any other company.

     The executive committee is comprised of three directors. During the intervals between meetings of our board, this committee has all of the powers and authority of our board in managing our business and affairs, except those powers that by law cannot be delegated by our board.

     The governance & nomination committee is comprised of three independent directors. The committee is responsible for:

	•		Recommending nominees to our board for the next annual meeting of stockholders;
	•		Overseeing the evaluation of our board and management;
	•		Identifying qualified individuals to serve on our board consistent with criteria approved by our board; and
	•		Developing, recommending to our board, and maintaining our governance policies and guidelines.

     The real estate investment committee is comprised of three independent directors. The committee is responsible for overseeing our investments in commercial real estate-related assets.

Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended December 31, 2007, Messrs. Biegler, Keiser and Whiting served on our compensation committee. No member of the compensation committee was at any time during the 2007 fiscal year, or at any other time, an officer or employee of Capstead, and no member had any relationship with us requiring disclosure as a related person transaction in the “Related Person Transactions” section of this proxy statement. None of our executive officers has served on the board or compensation committee of any other entity that has or had one or more executive officers who served as a member of our board or compensation committee during the 2007 fiscal year.

Meetings of Non-Management Directors

     Non-management directors regularly meet without management present immediately following our quarterly board meetings. Accordingly, such directors met four times in 2007. At these meetings, the non-management directors reviewed strategic issues for consideration by our board, including future agendas, the flow of information to directors, management progression and succession, and our corporate governance guidelines. The non-management directors have determined the chair of our governance & nomination committee, currently Mr. O’Neil, will preside at such meetings. The presiding director is responsible for advising the CEO of decisions reached and suggestions made at these sessions. The presiding director may have other duties as determined by our board. Stockholders and interested parties may communicate with the presiding director or non-management directors as a group by utilizing the communication process identified in the “Interested Party and Stockholder Communication with our Board” section of this proxy statement. If non-management directors include a director who is not an independent director, at least one of the scheduled executive sessions will include only independent directors. Presently, all of our non-management directors are independent.

OUR CORPORATE GOVERNANCE PRINCIPLES

     Our policies and practices reflect corporate governance initiatives that are compliant with the NYSE listing standards and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. We maintain a corporate governance section on our website which includes key information about our corporate governance initiatives including our Board of Directors’ Guidelines, charters for the committees of our board, our Code of Business Conduct and Ethics (applicable to all of our employees, officers and directors) and our Financial Code of Professional Conduct. The corporate governance section can be found on our website at www.capstead.com by clicking “Investor Relations,” “Accept” and “Corporate Governance.”

     Each director should, to the best of his or her ability, perform in good faith the duties of a director and a committee member in our best interests and those of our stockholders with the care an ordinarily prudent person in a like position would use under similar circumstances. This duty of care includes the obligation to make, or cause to be made, an inquiry when the circumstances would alert a reasonable director to the need thereof. Directors are expected to attend, in person or by telephone, all meetings of our board and meetings of the committees on which they serve, as well as attend in person our annual meeting of stockholders.

Considerations for Nomination

     Our governance & nomination committee considers and makes recommendations to our board concerning candidates for election and the appropriate size of our board. In considering incumbent directors, the committee reviews the directors’ overall service during their terms, including the number of meetings attended, level of participation and quality of performance. Other considerations include the directors’ level of ownership in our equity securities and, when applicable, the nature of and time involved in the directors’ service on other boards. The committee reviews the completed qualification questionnaires submitted by incumbent directors in December (as previously described in the “Board

Member Independence” section of this proxy statement) prior to making its recommendation to the board regarding the slate of directors for election at the following year’s annual meeting of stockholders.

     In considering candidates to fill new positions created by expansion and/or vacancies that occur because of resignation, retirement or any other reason, the committee uses its and management’s network of contacts to compile a list of potential candidates. The committee may also engage, if it deems appropriate, a professional search firm. Candidates are selected on the basis of talent and experience relevant to our business, without regard to race, religion, gender or national origin. Candidates should possess fundamental qualities of intelligence, honesty, perceptiveness, good judgment, maturity, high ethics and standards, integrity, fairness and responsibility. Candidates should also have a genuine interest in our company, recognize that he or she is accountable to our stockholders (not to interest groups) and have a background that demonstrates an understanding of business and financial affairs and the complexities of a large business organization.

     No person shall be eligible to serve as a director who has been convicted of any felony criminal offense or any criminal offense involving moral turpitude, dishonesty or a breach of trust. The committee will consider candidates recommended by stockholders provided stockholders follow the procedures set forth in the “Stockholder Procedures for Director Candidate Recommendations” section of this proxy statement. The committee evaluates a candidate using the criteria set forth above regardless of who nominated the candidate.

Service on Other Boards

     Our Board Of Directors’ Guidelines prohibit directors from serving on more than four boards of other public companies and recommends its audit committee members serve on the audit committee of no more than two other public companies. In addition, the CEO’s service is limited to two other public company boards. Presently, none of our board members serve on more than one other public company’s board, and our CEO does not serve on any other public company’s board.

Mandatory Resignation

     Our Board of Directors’ Guidelines requires a director to promptly submit a letter of resignation to our governance & nomination committee, which will in turn consider the resignation and make its recommendation to our board on whether to accept or reject the resignation, when such director (i) changes substantially his or her principal occupation or business association for any reason other than retirement or retirement planning, (ii) declares or is otherwise involved in a personal bankruptcy or bankruptcy of a business in which he or she is a principal or (iii) is named as a party in a material legal proceeding, becomes the target of a material state or federal investigation, or receives a request of a material nature for the production of records or testimony from any state or federal agency.

     Our board, excluding the resigning director, will make a decision within a reasonable amount of time following receipt of the recommendation by the governance & nomination committee. If a decision is made to accept the resignation, the director’s resignation shall be effective immediately. A director who has been convicted of any felony criminal offense or any criminal offense involving moral turpitude, dishonesty or a breach of trust shall resign effective immediately. An employee director must resign from our board, unless a majority of our board determines otherwise, once he or she ceases to be employed by us whether due to retirement or otherwise.

OTHER GOVERNANCE INFORMATION

Stockholder Procedures for Director Candidate Recommendations

     Our governance & nomination committee will consider written director candidate recommendations made by stockholders to our secretary at 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4410. Electronic or facsimile submissions will not be accepted. For the committee to consider a candidate, submissions must include sufficient information concerning the recommended individual

including biographical data such as age; employment history; a description of all businesses that employ the candidate, including the name and phone number of the businesses; and a list of board memberships the candidate holds, if any. In addition, the candidate should affirm he or she can read and understand basic financial statements and consent to stand for election if nominated by our board and serve if elected by our stockholders.

     Once a reasonably complete recommendation is received by the governance & nomination committee, a questionnaire is delivered to the recommended candidate which requests additional information regarding the recommended candidate’s independence, qualifications and other information to assist the committee in evaluating the recommended candidate, as well as certain information that must be disclosed about the candidate in our proxy statement, if nominated. Further, the questionnaire provides that the individual must grant consent to us to conduct a confidential background search of the individual to the extent allowable under federal, state and local legislation. The recommended candidate must return the questionnaire within the time frame as outlined in the following sentence to be considered for nomination by the committee. Recommendations for which we have received completed questionnaires by November 21, 2008 will be considered for candidacy for the 2009 annual meeting of stockholders. Completed questionnaires received after November 21, 2008 will be considered for candidacy for the 2010 annual meeting of stockholders, if not earlier withdrawn.

Interested Party and Stockholder Communication with our Board

     Interested parties and stockholders who wish to contact any of our directors either individually or as a group may do so by calling toll-free (800) 358-2323, by writing to them c/o Capstead Mortgage Corporation, 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4410 or via e-mail at directors@capstead.com. Interested party and stockholder calls, letters and e-mail are screened by company personnel based on criteria established and maintained by our governance & nomination committee, which includes filtering out improper or irrelevant communications such as solicitations, advertisements, spam, surveys, junk mail, mass mailings, resumes and other forms of job inquiries.

Director Orientation and Continuing Education

     Our board and senior management conduct a comprehensive orientation, through a review of background material and meetings with senior management, to familiarize new directors with our vision, strategic direction, core values, ethics, financial matters, corporate governance practices and other key policies and practices. Our board recognizes the importance of continuing education for directors and is committed to providing such education in order to improve the performance of both our board and its committees. Senior management assists in identifying and advising our directors about opportunities for continuing education, including conferences provided by independent third parties. Mr. O’Neil attended the KPMG Audit Committee Institute’s Audit Committee Roundtable in June and December 2007 and has attended the KPMG Audit Committee Roundtable each year since 2004. Messrs. Biegler and Jacobs attended the Stanford University Directors’ College in June 2007.

Annual Board Evaluation and Individual Director Self-Evaluations

     Section 303A.09 “Corporate Governance Guidelines” of the NYSE Listed Company Manual requires listed company boards to conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively. Therefore, approximately 30 days prior to our annual board meeting (generally held immediately following the annual meeting of stockholders) we provide each director a board self-evaluation questionnaire and a self-evaluation questionnaire corresponding to each committee on which he or she serves. All questionnaires are returned to us prior to our annual board meeting. Completed committee questionnaires are given to the committee chair to review and discuss during the next scheduled committee meeting, and the director who presides at the non-management director meetings receives the board self-evaluation questionnaires to review and discuss with directors at our annual board meeting.

EXECUTIVE OFFICERS

     The following table shows the names and ages of our current executive officers and the positions held by each individual. A description of the business experience of each for at least the past five years follows the table.

		Age				Title
Andrew F. Jacobs			48			President and Chief Executive Officer
Phillip A. Reinsch			47			Executive Vice President, Chief Financial Officer and Secretary
Robert R. Spears, Jr.			46			Executive Vice President — Director of Residential Mortgage Investments
Anthony R. Page			44			Senior Vice President — Director of Commercial Mortgage Investments
Michael W. Brown			41			Senior Vice President — Asset and Liability Management and Treasurer

     For a description of Mr. Jacobs’ business experience, see the “Election of Directors” section of this proxy statement.

     Mr. Reinsch has served as our executive vice president, CFO and secretary since July 2006. He served as our senior vice president, CFO and secretary from July 2003 to July 2006. Mr. Reinsch has served in various other executive positions with us since March 1993. Mr. Reinsch was employed by Ernst & Young LLP from July 1984 to March 1993, last serving as an audit senior manager. Mr. Reinsch is a certified public accountant.

     Mr. Spears has served as our executive vice president — director of residential mortgage investments since July 2006. Prior thereto, Mr. Spears had served as our senior vice president — asset and liability management since February 1999. From April 1994 to February 1999, he served as our vice president — asset and liability management. Mr. Spears was employed by NationsBanc Mortgage Corporation from April 1990 to April 1994, last serving as vice president — secondary marketing manager.

     Mr. Page has served as our senior vice president — director of commercial mortgage investments since June 2006. Since 1985, Mr. Page has worked in various executive capacities with real estate-related investment firms including Victor Capital Group, L.P. (currently known as Capital Trust, Inc.), Winthrop Financial Associates, L.P., Apollo Real Estate Advisors, L.P. and most recently as a managing director for Perimeter Investments from 2001 to 2006.

     Mr. Brown has served as our senior vice president — asset and liability management and treasurer since July 2006. Prior thereto, Mr. Brown had served as our vice president — asset and liability management and treasurer since June 1999. Mr. Brown has been associated with us since July 1994.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

     The compensation committee of our board has responsibility for establishing, implementing and continually monitoring adherence with our compensation philosophy and objectives and ensuring that the total compensation paid to the executive officers is fair, reasonable and competitive.

Compensation Philosophy and Objectives

     Our compensation philosophy is to provide a competitive, performance-based compensation program to attract, motivate and retain the key individuals integral to our long-term financial success and creation of stockholder value. The committee understands the complexities of managing a large portfolio of residential mortgage securities and other real estate-related assets and has sought to design a compensation program that takes into account annual operating performance, portfolio positioning and the overall creation and retention of stockholder value. The committee recognizes that compensation decisions are complex and should only be made after careful consideration of our performance toward our stated business objectives, an executive’s individual performance and contribution toward those business objectives, the amounts and form of prior compensation to an executive, and, to a lesser extent, the performance and compensation practices of our peers.

     Further, it is the intent of the committee for this philosophy to be applied throughout the organization and that the types of compensation and benefits described herein provided to the executive officers be the same types as provided to all other employees.

Role of Chief Executive Officer in Compensation Decisions

     Mr. Jacobs, our CEO, annually reviews the performance of each executive officer, researches and analyzes compensation paid by our peers relative to the compensation levels and types that we provide and makes recommendations to the committee regarding all elements of compensation for each officer, including himself. Mr. Jacobs typically calls and attends each of the compensation committee meetings; however, the compensation committee will generally request Mr. Jacobs to leave the meeting so that the committee can discuss Mr. Jacobs’ proposal before making any final compensation decisions. The committee, in its role as the administrator, may exercise its discretion in modifying any of the recommendations and is responsible for ultimately approving all compensation arrangements for the executive officers.

     During the fourth quarter of 2006, the committee directed Mr. Jacobs to report on the company’s overall compensation programs and practices. Mr. Jacobs reviewed our compensation programs and practices over the previous five years, reviewed a 2000 compensation study prepared by FPL Associates, and analyzed compensation information publicly available on certain other companies operating in businesses comparable to ours. Based on this 2006 compensation study, Mr. Jacobs prepared a detailed compensation proposal and presented that proposal to the compensation committee in December 2006.

     Additionally, Mr. Jacobs prepared compensation tally sheets setting forth three years of historical compensation paid to each of our named executive officers so that in making its 2007 compensation decisions the committee could review and analyze all of the elements of actual and potential future compensation for each of our named executive officers.

Analysis of Compensation Decisions

     Consistent with prior years, the primary components of our executives’ compensation in 2007 consisted of: (i) base salaries, (ii) annual incentives, (iii) long-term incentives, and (iv) other benefits or agreements. Each element is described in more detail below.

     Base Salaries. The salaries of each executive officer (including the CEO) are recommended by the CEO and approved by the committee annually. The committee believes the CEO is in the best position to determine the responsibilities of each executive officer and observe how well each executive performs his responsibilities. Salaries are recommended and ultimately approved based on the considerations discussed in the “Compensation Philosophy and Objectives” section of this discussion and analysis.

     Based on performance reviews conducted in December 2006 and the results of the compensation study performed in late 2006 as described below in the “Competitive Considerations” section of this discussion and analysis, Mr. Jacobs recommended to the committee an aggregate salary increase for the executive officers for 2007. The committee agreed with Mr. Jacobs that the company had performed well in a difficult environment in 2006, but also noted that the stockholders had suffered both stock price depreciation and reduced dividends. As a result, the committee determined that it was most appropriate to defer any decisions with respect to base salary until later in 2007, at a time when stockholders had seen a positive change.

     When the committee again reviewed the issue of salaries in June 2007, Mr. Jacobs presented detailed compensation information for each of our peers, taking into account their capital under management and their respective performance, further adjusted for the cost of living in their particular region compared to ours. The peer companies included in this study were Annaly Capital Management Inc., Anworth Mortgage Asset Corporation, MFA Mortgage Investments, Inc., Opteum Inc., and Luminent Mortgage Capital, Inc., all of which are considered to be primarily passive mortgage real estate investment trusts (“REITs”) that invest primarily in agency—guaranteed residential mortgage securities similar to us. After a review of the information presented by Mr. Jacobs, the compensation committee determined that because of Annaly’s size and unique compensation structure, it should not be included in a peer analysis. After reviewing the revised peer information presented by Mr. Jacobs, also noting that our company’s operating results and dividends were improving, the committee determined that increases in base salaries for our executive officers were appropriate to adequately compensate top management talent for their performance and to remain competitive with our peers. Although the committee believed that significant increases were appropriate, they did not agree with the full amount of increases recommended by Mr. Jacobs at the time. As a result, the committee approved base salary increases for each of our named executive officers, averaging 18%, to be effective July 1, 2007. After considering the adjustment, the annual base salary for each of our named executive officers was as follows:

Name		Annual Salary
Andrew F. Jacobs		$	490,000
Phillip A. Reinsch			275,000
Robert R. Spears, Jr.			320,000
Anthony R. Page			240,000
Michael W. Brown			180,000

     After considering individual performance, the committee considers the above peer analysis most relevant for targeting an individual’s base salary. The committee does not apply any formula, ratio or any other methodology to determine the salary of any employee.

     Annual Incentives. As a result of the compensation study completed in late 2006 as described in the “Compensation Considerations” section of this discussion and analysis, the committee adopted a new formula for incentive compensation for 2007. The committee revised the previous formula in an effort to make the incentive pool more representative of our operating performance and more comparable to the incentive compensation plans of our peers. The new formula provides for the creation of an incentive pool equal to a 10 percent participation in our earnings in excess of benchmark earnings. For purposes of the calculation, earnings are defined as net income, before incentive fees, depreciation on real estate and gains (losses) from portfolio repositioning, if any. Benchmark earnings are defined as the average daily closing 10-year U.S. Treasury rate as reported by Bloomberg News Service plus 200 basis points, multiplied by average common stockholders’ equity. Average common stockholders’ equity is defined as the simple average of quarter-end balances of total stockholders’ equity excluding the recorded balances of preferred equity, accumulated other comprehensive income, accumulated depreciation on real estate (if any) and incentive fee accruals.

     While the committee determined the specific 2007 performance target for the incentive pool and communicated such target to the executive officers, it retained complete discretion with respect to the distribution of the incentive pool, including its allocation between the executives and other employees. Additionally, the committee has the discretion to provide any other incentive compensation it deems appropriate in order to recognize and reward performance. The application of the basic formula for the creation of an incentive pool resulted in no incentive compensation to the executive officers in 2007, and the committee did not exercise any discretion in this area.

     By making the adjustments to the incentive pool formula in 2007 but leaving the distribution and allocation between executives and other employees completely discretionary, the committee retained the power to act in the best interests of our stockholders in compensating the executive officers while still providing a mechanism to more closely align incentive compensation with that of our peers in an effort to retain our top executive officers and ultimately enhance long-term stockholder value. The committee believes the achievement of performance targets necessary to increase the incentive pool will be indicative of increased stockholder value, the primary objective of this element of compensation.

     Long-Term Incentives. The committee believes all of our employees should have an ongoing stake in the long-term success of our business and that executive officers should have a meaningful portion of their total compensation paid in the form of equity awards. This element of the compensation program is intended to align the executive’s long-term interests with those of our stockholders, while providing incentives to an executive to remain with the company, through the granting of (i) stock awards, (ii) option awards, and (iii) other incentive-based equity awards as defined in the Amended and Restated 2004 Flexible Long-Term Incentive Plan, each of which recognize the creation of value for the stockholders and promote our long-term growth and success.

     Each of our executive officers is eligible to receive equity awards under our Amended and Restated 2004 Flexible Long-Term Incentive Plan. This plan was approved by our stockholders in April 2004 and is administered by the committee. The plan was designed to promote the interests of our stockholders by enabling us to attract, motivate, reward and retain executive officers, employees and directors and to encourage the holding of proprietary interests in the company by persons who occupy key positions in the company.

     The CEO periodically recommends equity awards for the executive officers and other employees to the committee using the same considerations discussed in the “Compensation Philosophy and Objectives” section of this discussion and analysis. Historically, we have granted both stock and option awards, which typically vest over a period of years. Because we are a REIT and required to distribute substantially all of our earnings as dividends, our stock price is generally more reflective of anticipated dividends and less on ongoing increases in book value accomplished through retaining earnings. As a result, our option awards will typically have a lower option value than an option award for a company able to retain most or all of its earnings. For this reason, long-term incentives awarded in recent years have emphasized stock awards that provide for the payment of dividends prior to vesting, which we believe more closely aligns our executives’ interests with those of our stockholders, while providing a powerful incentive to key executive officers to remain with the company for a period of years.

     During 2005, Mr. Jacobs recommended to the committee a four-year grant program for issuing equity awards to the executive officers, other employees and board members. Such recommendation coincided with the final vesting of a series of stock and option awards issued in 2000 that vested over a period of three to five years. Under the proposed program, we would make both stock and option awards in 2005 and would anticipate making additional option awards over the next three years, but in amounts below the initial option awards made in 2005. While agreeing with this program in concept, the committee reserved the ability to re-evaluate conditions annually before making any future awards. Consistent with this program, the committee approved option awards in 2006 and 2007 in amounts equal to one-half of those

granted in 2005 for all executives employed with us at that time, and a comparable amount for Mr. Page, who joined the company in 2006. Option awards to our executive officers in 2007, which vest over four years, were granted in the following amounts:

						Grant Date Fair
		Option Award				Value of Option Award
Andrew F. Jacobs			50,000			$	45,000
Phillip A. Reinsch			25,000				22,500
Robert R. Spears, Jr.			25,000				22,500
Anthony R. Page			25,000				22,500
Michael W. Brown			15,000				13,500

     The option awards are exercisable at the closing market price of our common stock on the date of grant, which is typically several business days later than the approval date of the option award because the approval date generally coincides with our quarterly release of earnings. It is our policy that internally-established trading blackout dates be observed before setting option exercise prices to allow for the dissemination of non-public information, which could increase or decrease the actual exercise price of the option.

     As was done in 2006, the committee decided to make stock awards to executive officers and other employees in December 2007 after a review of all elements of compensation and taking into consideration that there was no incentive pool. The committee believed that even without an incentive pool the executive officers deserved recognition of their successful efforts in executing our business plan through the industry-wide liquidity crisis during the third quarter of 2007, as well as two successful equity offerings during the fourth quarter of 2007.

     Accordingly the compensation committee approved granting the following stock awards to our executive officers on December 27, 2007:

						Grant Date Fair
		Stock Award				Value of Stock Award
Andrew F. Jacobs			35,000			$	456,750
Phillip A. Reinsch			23,000				300,150
Robert R. Spears, Jr.			35,000				456,750
Anthony R. Page			6,000				78,300
Michael W. Brown			17,000				221,850

     The stock awards were valued at $13.05, the closing market price of the common stock on the date of grant, and will vest straight-line over six years beginning in January 2009.

     The committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events affecting us, our financial statements, any affiliate, or changes in applicable laws, regulations or accounting principles, whenever the committee determines that such adjustments are appropriate in order to prevent reduction or enlargement of the benefits or potential benefits intended to be made available under the plan.

     Other Benefits or Agreements. The executive officers are provided other benefits or agreements, including basic life and accidental death and dismemberment insurance and a tax-qualified contribution retirement plan, or 401(k) plan, each on the same terms offered to other employees. Additionally, we offer the following benefits to our executive officers:

•

A non-qualified deferred compensation plan for our executive officers and any other employees whose eligible compensation exceeds $225,000 (the maximum amount of compensation able to be considered to determine contributions for our tax-qualified plan for 2007 pursuant to Internal Revenue Code Section 401(a)(17)). The purpose of the plan is to allow employees, regardless of their respective levels of compensation, to retire with the same retirement income as a percentage of final pay as is available to all employees having the same tenure with us. Accordingly, the deferred compensation plan extends the general matching provisions of the

			401(k) plan on compensation amounts that exceed the maximum amount. The aggregate cost to the company of this benefit to the executive officers was $19,665 in 2007.
	•		Defined severance payments determined pursuant to severance agreements, as amended, with our executive officers as well as all employees who were employed with us in December 1999. The severance agreements were entered into in connection with a shift in our operational control and the planned replacement of the majority of our directors in April 2000 and were designed to recognize meritorious and faithful service and to ease the transition that would follow a termination of employment, which the board at the time believed was necessary for retention purposes. Pursuant to these agreements, in the event a covered employee is terminated for any reason, including death or disability, other than those reasons described in the “Potential Payments Upon Termination or Change-in-Control” table of this proxy statement, that employee will receive a severance payment. Payments under these agreements will be equal to three-times base salary for Mr. Jacobs, two-times base salary for Messrs. Reinsch and Spears and one and one-half times base salary for Mr. Brown. Because Mr. Page was not employed with us in December 1999, he does not have a severance agreement.

     Tax Considerations. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally precludes a publicly-held corporation from a federal income tax deduction for a taxable year for compensation in excess of $1 million paid individually to the CEO or any of the four other most highly compensated executive officers. Exceptions are made for, among other things, qualified performance-based compensation. Qualified performance-based compensation means compensation paid solely on account of attainment of objective performance goals, provided that (i) performance goals are established by a compensation committee consisting solely of two or more outside directors, (ii) the material terms of the performance-based compensation are disclosed to and approved by a separate stockholder vote prior to payment, and (iii) prior to payment, the compensation committee certifies that the performance goals were attained and other material terms were satisfied. Our compensation committee’s policy on deductibility is generally to develop compensation plans that provide for the payment of compensation that is tax deductible to us, while recognizing our legitimate interests and those of our stockholders may at times be better served by compensation arrangements that are not tax deductible. In 2007, all of the compensation paid to our executives was deductible.

Competitive Considerations

     During the second quarter of 2006, one of our former executive officers left the company. Mr. Jacobs and the committee believed it would be appropriate to assess the impact that compensation may have had on the former executive’s decision to leave and assess the adequacy of our current compensation practices. To address these concerns, the committee asked Mr. Jacobs to (i) review a compensation analysis commissioned by us in 2000; (ii) determine what had changed since the last analysis; (iii) identify the current companies most appropriate for peer comparisons; and (iv) analyze the compensation practices at such peers.

     In this 2006 compensation study, Mr. Jacobs reviewed our compensation programs and practices over the previous five years, the 2000 compensation study performed by FPL Associates, and compensation information publicly available on certain other companies operating in businesses comparable to ours. The conclusion reached by Mr. Jacobs from his study was that without changes to our executive compensation programs and practices, we would risk losing additional management talent. After completion of this compensation study in late 2006, Mr. Jacobs discussed with the committee a series of changes to aspects of the current compensation program, which the committee then recommended to the board for consideration. The board recognized that certain changes were appropriate to adequately compensate executive officers and remain competitive, but at the same time noted that the then-current environment in which our stockholders experienced both lower stock prices and reduced dividends made addressing all of the recommendations difficult at that time. As a result, the compensation committee granted restricted stock and revised the incentive pool calculation for 2007 and deferred a decision with respect to adjustments to salaries until later in 2007, each as discussed above.

     At the recommendation of Mr. Jacobs, in December 2007 the committee discussed hiring a compensation consultant to review our current compensation practices. The committee decided that because it had been several years since a compensation consultant had made a study on the company’s compensation practices, hiring a compensation consultant was appropriate. The committee stressed that the compensation consultant should concentrate on the structure and format of compensation, not just the amount of compensation.

     The compensation committee has reviewed and discussed the above disclosure with Capstead’s management, and based on this review and discussion recommended to Capstead’s board that the above compensation discussion and analysis be included in this proxy statement.

		COMPENSATION COMMITTEE
		Mark S. Whiting, Chairman
		Jack Biegler
		Gary Keiser

     Compensation for our executive officers is administered under the direction of our compensation committee and is implemented by our CEO. The Summary Compensation Table below shows certain compensation information for our CEO, CFO and three other most highly compensated executive officers for services rendered in all capacities during the years ended December 31, 2007, 2006 and 2005.

														Stock				Option				All Other
						Salary				Bonus				Awards				Awards				Compensation				Total
Name and Principal Position		Year				($)				($)				($)(a)				($)(b)				($)(c)(d)				($)
Andrew F. Jacobs			2007				455,000				—				170,338				41,547				35,325				702,210
President and Chief			2006				420,000				—				78,200				36,129				48,194				582,523
Executive Officer			2005				420,000				340,000				61,373				—				38,274				859,647
Phillip A. Reinsch			2007				250,000				—				100,525				20,774				20,868				392,167
Executive Vice President			2006				225,000				—				39,100				18,064				26,608				308,772
and Chief Financial Officer			2005				225,000				180,000				31,272				—				23,161				459,433
Robert R. Spears, Jr.			2007				280,000				—				131,238				20,774				22,256				454,268
Executive Vice President-Director of			2006				240,000				—				39,100				18,064				32,591				329,755
Residential Mortgage Investments			2005				240,000				270,000				31,853				—				27,111				568,964
Anthony R. Page			2007				232,500				—				64,813				22,396				18,654				338,363
Senior Vice President-Director of			2006				125,336				—				48,308				7,595				8,192				189,431
Commercial Mortgage Investments
Michael W. Brown			2007				172,500				—				54,173				12,465				15,037				254,175
Senior Vice President-Asset			2006				150,000				—				23,460				10,840				16,969				201,269
and Liability Management			2005				135,000				110,000				18,866				—				13,905				277,771

		Jacobs				Reinsch				Spears				Page				Brown
Qualified Defined Contribution Retirement Plan		$	13,500			$	13,500			$	13,500			$	13,500			$	10,530
Nonqualified Deferred Compensation Plan			13,980				1,680				3,465				540				—
Employee Appreciation Holiday Gift			3,000				3,000				3,000				3,000				3,000
Insurance Premiums			4,845				2,688				2,291				1,614				1,507
		$	35,325			$	20,868			$	22,256			$	18,654			$	15,037

														All Other
														Option
										All Other				Awards:
						Approval				Stock Awards:				Number of				Exercise or				Grant Date
						Date, if				Number of				Securities				Base Price				Fair Value of
						Different				Shares of				Underlying				of Option				Stock and
		Grant				from Grant				Stock or Units				Options				Awards				Option Awards
Name		Date				Date				(#)				(#)				($/Sh)				($)
Andrew F. Jacobs			05-07-07				05-03-07	(a)			—				50,000				10.58				45,000	(b)
			12-27-07				—				35,000				—				13.05				456,750	(c)
Phillip A. Reinsch			05-07-07				05-03-07	(a)			—				25,000				10.58				22,500	(b)
			12-27-07				—				23,000				—				13.05				300,150	(c)
Robert R. Spears, Jr.			05-07-07				05-03-07	(a)			—				25,000				10.58				22,500	(b)
			12-27-07				—				35,000				—				13.05				456,750	(c)
Anthony R. Page			05-07-07				05-03-07	(a)			—				25,000				10.58				22,500	(b)
			12-27-07				—				6,000				—				13.05				78,300	(c)
Michael W. Brown			05-07-07				05-03-07	(a)			—				15,000				10.58				13,500	(b)
			12-27-07				—				17,000				—				13.05				221,850	(c)

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table:

     The amount of salary and bonus compensation represents a significant portion of each executive officer’s total compensation. The compensation committee seeks to provide a competitive base salary to each executive and the opportunity to participate in a formula-based incentive pool based on our performance, but may include additional amounts at the discretion of the committee. No incentive pool was accrued in 2007 based on the incentive formula and no bonus compensation was awarded.

     The committee believes that the executive officers should have an ongoing stake in the long-term success of our business and should have a meaningful portion of their total compensation paid in the form of equity awards. This element of total compensation is intended to align the executive officers’ long-term interests with those of our stockholders through the granting of (i) stock awards, (ii) option awards and (iii) other incentive-based awards as defined in the Amended and Restated 2004 Flexible Long-Term Incentive Plan. We issued both stock and option awards during 2007, 2006 and 2005. The provisions of equity award grants generally include the following:

Stock awards generally provide for vesting in equal annual installments over a period of years as determined by the committee. The executive officer will be considered the owner of the shares and entitled to vote and receive all dividends and any other distributions declared on the shares prior to vesting, which dividends or distributions shall not exceed those available to our common stockholders. Nonvested shares cannot be sold, transferred or otherwise disposed of for any purpose whatsoever other than to us. Nonvested shares will revert to us in the event the executive officer leaves our company for any reason, including termination by reason of voluntary or involuntary discharge, disability or retirement or the executive officer reduces his scheduled work

hours per week (subject to management’s discretion), except in the event of a change in control, dissolution or liquidation of the company, or death of the executive officer, in which case all outstanding nonvested shares will automatically vest in full.

Option awards provide for vesting in equal annual installments over a period of years, as determined by the committee, and expire at the earliest of (i) ten years after date of grant, (ii) six months, or the remaining term of the option if earlier, after the optionee’s termination of employment by reason of death, resignation, retirement or disability or (iii) on the date of the optionee’s termination of employment for cause. No option awards will vest after the executive officer leaves for any reason, including termination by reason of voluntary or involuntary discharge, disability or retirement, or the executive officer reduces his scheduled work hours per week (subject to management’s discretion), except in the event of a change in control, dissolution or liquidation of the company, or death of the executive officer, in which case all outstanding nonvested option awards will automatically vest in full. Outstanding option awards do not receive dividends prior to exercise and are non-voting.

Outstanding Equity Awards at Fiscal Year-End*

		Option Awards																Stock Awards
																						Market
																						Value of
		Number of				Number of												Number of				Shares or
		Securities				Securities												Shares or				Units of
		Underlying				Underlying				Option								Units of Stock				Stock That
		Unexercised				Unexercised				Exercise				Option				That Have				Have Not
		Options				Options				Price				Expiration				Not Vested				Vested
Name		(# Exercisable)				(# Unexercisable)				($)				Date				(#)				($)
Andrew F. Jacobs			—				50,000	(a)			10.58				05-07-17				35,000	(e)			461,650
			12,500				37,500	(b)			7.58				04-24-16				45,000	(f)			593,550
			50,000				50,000	(c)			7.82				05-13-15				20,000	(g)			263,800
			89,707				—				30.098				01-02-08				—				—
Phillip A. Reinsch			—				25,000	(a)			10.58				05-07-17				23,000	(e)			303,370
			6,250				18,750	(b)			7.58				04-24-16				30,000	(f)			395,700
			25,000				25,000	(c)			7.82				05-13-15				10,000	(g)			131,900
			14,617				—				30.098				01-02-08				—				—
Robert R. Spears, Jr.			—				25,000	(a)			10.58				05-07-17				35,000	(e)			461,650
			6,250				18,750	(b)			7.58				04-24-16				45,000	(f)			593,550
			25,000				25,000	(c)			7.82				05-13-15				10,000	(g)			131,900
			15,947				—				30.098				01-02-08				—				—
Anthony R. Page			—				25,000	(a)			10.58				05-07-17				6,000	(e)			79,140
			12,500				37,500	(d)			6.82				07-24-16				15,000	(f)			197,850
							—				—				—				10,000	(h)			131,900
Michael W. Brown			—				15,000	(a)			10.58				05-07-17				17,000	(e)			224,230
			3,750				11,250	(b)			7.58				04-24-16				15,000	(f)			197,850
			15,000				15,000	(c)			7.82				05-13-15				6,000	(g)			79,140

Option Exercises and Stock Vested

		Option Awards								Stock Awards
		Number of								Number of
		Shares								Shares
		Acquired				Value Realized				Acquired on				Value Realized
		on Exercise				on Exercise				Vesting				on Vesting
Name		(#)				($)				(#)				($)(a)
Andrew F. Jacobs			—				—				10,000				105,500
Phillip A. Reinsch			—				—				5,000				52,750
Robert R. Spears, Jr.			—				—				5,000				52,750
Anthony R. Page			—				—				5,000				46,000
Michael W. Brown			—				—				3,000				31,650

Nonqualified Deferred Compensation

		Executive				Registrant				Aggregate				Aggregate				Aggregate
		Contributions				Contributions				Earnings				Withdrawals/				Balance
		in Last FY				in Last FY				in Last FY				Distributions				at Last FYE
Name		($)				($)(a)				($)				($)				($)(b)
Andrew F. Jacobs			13,980				13,980				36,659				—				473,289
Phillip A. Reinsch			8,460				1,680				11,263				—				222,156
Robert R. Spears, Jr.			16,950				3,465				22,266				—				449,586
Anthony R. Page			450				540				(6	)			—				984
Michael W. Brown			10,950				—				455				—				19,224

		2007				2006				2005
Andrew F. Jacobs		$	13,980			$	30,338			$	21,128
Phillip A. Reinsch			1,680				11,100				8,363
Robert R. Spears, Jr.			3,465				17,100				12,330
Anthony R. Page			540				—				—
Michael W. Brown			—				2,400				—

Narrative Disclosure to Nonqualified Deferred Compensation Table:

     The Deferred Compensation Plan is designed to allow employees, regardless of pay, to achieve the same retirement income as a percentage of final pay as is available to all employees having the same tenure. Because Internal Revenue Code Section 401(a)(17) limits the amount of compensation able to be considered to determine contributions for our tax-qualified 401(k) plan, we have established a non-qualified Deferred Compensation Plan to allow executive officers to contribute beyond this limitation for qualified plans in order to afford these employees the comparable benefit provided to other employees. In 2007, this maximum amount of income able to be considered for tax-qualified plans was $225,000. The compensation committee of our board administers the plan.

     Participants in the plan may elect to defer up to 60% of base salary and 100% of bonus into a deferral account. We will contribute into each participant’s deferral account a matching amount equal to 50% of 6% of the participant’s deferrals, but only on the deferral of compensation that exceeds the maximum compensation able to be considered for tax-qualified plans, as discussed above. We may also, but are not required to, credit to deferral accounts a supplemental matching contribution of 3% of the participant’s compensation, but only on compensation that exceeds the maximum compensation able to be considered for tax-qualified plans, as discussed above. Vesting in the amounts contributed by us into the deferral account is determined on the same service-based vesting schedule used in our 401(k) plan, which provides for annual vesting ratably over a participant’s initial five years of service. Participant

deferral accounts are considered a part of our general assets and participants are considered unsecured creditors.

     Participants may designate the manner in which deferral accounts are invested solely among options designated by us for this purpose, currently in publicly-traded mutual funds. Participants may change their investment designations among the offered mutual funds at any time upon proper notice to the plan administrator. We may change the deemed investment options at any time, but in no event will the deemed investment options made available to participants consist of our stock or securities of an affiliate. Absent a previously established distribution schedule or unforeseeable emergency, no distributions will be made to a participant until retirement or an earlier termination of service. Distributions at retirement or termination of service are made in the form of a single lump sum payment except for any compensation for which a special distribution schedule has been established, which may provide for installments over a period of time not greater than five years.

				Voluntary or
				For-Cause								Termination from
				Involuntary				Involuntary				Dissolution,
				Termination or				Not-for-Cause				Liquidation or
		Executive Benefits and		Retirement				Termination				Change-in-Control				Death
Name		Payments upon Termination		$				$				$				$
Andrew F. Jacobs		Severance Payment Agreement(a)			—				1,470,000				1,470,000				1,470,000
		Vested Account Balance of Nonqualified Deferred Compensation(b)			473,289				473,289				473,289				473,289
		Previously Vested Option Awards(c)			338,625				338,625				338,625				338,625
		Acceleration of Nonvested Option Awards(d)			—				—				609,375				609,375
		Acceleration of Nonvested Stock Awards(e)			—				—				1,319,000				1,319,000
					811,914				2,281,914				4,210,289				4,210,289
Phillip A. Reinsch		Severance Payment Agreement(a)			—				550,000				550,000				550,000
		Vested Account Balance of Nonqualified Deferred Compensation(b)			222,156				222,156				222,156				222,156
		Previously Vested Option Awards(c)			169,313				169,313				169,313				169,313
		Acceleration of Nonvested Option Awards(d)			—				—				304,688				304,688
		Acceleration of Nonvested Stock Awards(e)			—				—				830,970				830,970
					391,469				941,469				2,077,127				2,077,127
Robert R. Spears, Jr.		Severance Payment Agreement(a)			—				640,000				640,000				640,000
		Vested Account Balance of Nonqualified Deferred Compensation(b)			449,586				449,586				449,586				449,586
		Previously Vested Option Awards(c)			169,313				169,313				169,313				169,313
		Acceleration of Nonvested Option Awards(d)			—				—				304,688				304,688
		Acceleration of Nonvested Stock Awards(e)			—				—				1,187,100				1,187,100
					618,899				1,258,899				2,750,687				2,750,687
Anthony R. Page		Vested Account Balance of Nonqualified Deferred Compensation(b)			555				555				555				555
		Previously Vested Option Awards(c)			79,625				79,625				79,625				79,625
		Acceleration of Nonvested Option Awards(d)			—				—				304,125				304,125
		Acceleration of Nonvested Stock Awards(e)			—				—				408,890				408,890
		Acceleration of Vesting on 401(k) Plan			—				—				—				18,388
		Unvested Distribution from Non-Qualified Deferred Compensation Plan			—				—				—				429
					80,180				80,180				793,195				812,012
Michael W. Brown		Severance Payment Agreement(a)			—				270,000				270,000				270,000
		Vested Account Balance of Nonqualified Deferred Compensation(b)			19,224				19,224				19,224				19,224
		Previously Vested Option Awards(c)			101,588				101,588				101,588				101,588
		Acceleration of Nonvested Option Awards(d)			—				—				182,813				182,813
		Acceleration of Nonvested Stock Awards(e)			—				—				501,220				501,220
					120,812				390,812				1,074,845				1,074,845

Title		Severance Pay
President and CEO		Three years base annual salary
Executive Vice President		Two years base annual salary
Senior Vice President and Vice President		One and one-half years base annual salary
Assistant Vice President and all other employees		One year base annual salary

EQUITY COMPENSATION PLANS

     The following table summarizes the total number of outstanding securities in each of our equity compensation plans and the number of securities remaining for future issuance, as well as the weighted-average exercise price of all outstanding equity awards as of December 31, 2007.

										Number of Securities
										Remaining Available for
		Number of Securities to								Future Issuance Under
		be Issued Upon				Weighted-Average				Equity Compensation
		Exercise of Outstanding				Exercise Price of				Plans (Excluding
		Options, Warrants and				Outstanding Options,				Securities Reflected in
Plan Category		Rights				Warrants and Rights				First Column)
Equity compensation plans approved by stockholders:
1990 Directors’ Stock Option Plan(a)			15,755			$	6.12				—
1994 Flexible Long-Term Incentive Plan(a)			99,707				28.52				—
Amended and Restated 2004 Flexible Long-Term Incentive Plan			655,000				8.43				1,757,957
Equity compensation plans not approved by stockholders:
1997 Flexible Long-Term Incentive Plan(b)			178,194				13.57				—
			948,656				11.47				1,757,957

AUDIT COMMITTEE

     Our audit committee is governed by a written charter adopted by our board and is composed of three independent directors, each of whom has been determined by our board to be financially literate and independent in accordance with the NYSE listing standards and our Board of Directors’ Guidelines. The committee’s charter can be found on our website at www.capstead.com by clicking “Investor Relations,” “Accept” and “Corporate Governance.”

     The following is the committee’s report in its role as the overseer of the integrity of our financial statements, our system of internal control over financial reporting, our independent registered public accounting firm’s performance, including their qualification and independence, and our compliance with legal and regulatory requirements. In carrying out its oversight responsibilities, the committee is not providing any expert or special assurance as to our financial statements or any professional certification as to the outside registered public accounting firm’s work. This report and written charter shall not be deemed to be soliciting material or to be filed with the SEC under the Securities Act of 1933 or the Securities Exchange Act of 1934 or incorporated by reference in any document so filed.

AUDIT COMMITTEE REPORT

     The audit committee has reviewed and discussed the consolidated financial statements with management and Ernst & Young LLP, Capstead’s independent registered public accounting firm. Management is responsible for the preparation, presentation and integrity of Capstead’s consolidated financial statements; applying appropriate accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. Ernst & Young LLP is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States, as well as expressing an opinion on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting.

     During the course of the year, management completed the documentation, testing and evaluation of Capstead’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the audit committee received periodic updates provided by management, including the internal auditors, and Ernst & Young LLP at its committee meetings. At the conclusion of the process, management provided the committee with, and the committee reviewed a report on, the effectiveness of Capstead’s internal control over financial reporting. The committee also reviewed the report of management contained in Capstead’s annual report on Form 10-K for the fiscal year ended December 31, 2007 filed with the SEC, as well as Ernst & Young LLP’s Reports of Independent Registered Public Accounting Firm included in Capstead’s annual report on Form 10-K for the fiscal year ended December 31, 2007 related to its audits of (i) the consolidated financial statements, (ii) management’s assessment of the effectiveness of internal control over financial reporting and (iii) the effectiveness of internal control over financial reporting. The committee continues to oversee Capstead’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation in fiscal 2008.

     The committee has discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended or supplemented, and Public Company Accounting Oversight Board Auditing Standard No. 2. In addition, Ernst & Young LLP has provided the committee with the written disclosures and the letter required by the Independence Standards Board Standard No. 1, as amended. The committee has discussed with Ernst & Young LLP their independence and has concluded they are independent from Capstead and its management.

     Based on their review of the consolidated financial statements and discussions with and representations from management, including the internal auditors, and Ernst & Young LLP referred to

above, the committee recommended to the board, and the board agreed, that the audited financial statements be included in Capstead’s annual report on Form 10-K for the year ended December 31, 2007 for filing with the SEC.

		AUDIT COMMITTEE
		Gary Keiser, Chairman
		Jack Biegler
		Michael G. O’Neil

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

     For purposes of this proxy statement a “beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares:

	(i)		Voting power, which includes the power to vote, or to direct the voting of, common shares; and/or
	(ii)		Investment power, which includes the power to dispose, or to direct the disposition, of common shares.

     A person is also deemed the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security at any time within 60 days of the annual meeting record date.

Security Ownership of Management

     Listed in the following table and footnotes is certain information regarding the beneficial ownership of our common shares as of February 20, 2008, by each director, director nominee and executive officer listed in the Summary Compensation Table and by all directors, director nominees and executive officers as a group.

		Number of
		Common Shares
		Beneficially Owned(a)(b)				Percent of Class
Jack Biegler			23,500				*
Andrew F. Jacobs			229,000				*
Gary Keiser			37,089	(c)			*
Paul M. Low			75,778	(c)			*
Christopher W. Mahowald			60,287	(c)			*
Michael G. O’Neil			47,556	(c)			*
Mark S. Whiting			28,800				*
Phillip A. Reinsch			112,699	(c)			*
Robert R. Spears, Jr.			140,897	(c)			*
Anthony R. Page			67,076				*
Michael W. Brown			71,634	(c)			*
All directors, director nominees and executive officers as a group (11 persons)			894,316				1.80

(a)

Amounts include common shares issuable as follows:

		Security
		Ownership				Right to Acquire
						Convertible into				Exercisable
		Series B Shares				Common Shares				Options
Jack Biegler			—				—				5,000
Andrew F. Jacobs			—				—				—
Gary Keiser			—				—				15,000
Paul M. Low			65,380				39,273				5,000
Christopher W. Mahowald			—				—				5,000
Michael G. O’Neil			1,350				810				23,432
Mark S. Whiting			—				—				20,000
Phillip A. Reinsch			5,500				3,303				—
Robert R. Spears, Jr.			—				—				—
Anthony R. Page			2,500				1,501				—
Michael W. Brown			—				—				—
Directors, director nominees and executive officers as a group (11 persons)			74,730				44,887				73,432

Security Ownership of Certain Beneficial Owners

     The following table sets forth the ownership of common shares for the persons known by us to be beneficial owners of more than 5 percent of our common shares outstanding as of the close of business on February 20, 2008.

		Number of
		Common
		Shares				Percent
		Beneficially				of
Name of Beneficial Owner		Owned				Class
DePrince, Race & Zollo, Inc.(a)			4,164,616				8.41	%
250 Park Avenue South, Suite 250 Winter Park, FL 32789
Trafelet & Company, LLC(a)			2,487,600				5.02	%
590 Madison Avenue, 39th Floor New York, NY 10022
Wellington Management Company, LLP(b)			3,855,926				7.78	%
75 State Street Boston, MA 02109

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     To our knowledge based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, during the year ended December 31, 2007, all of our directors, executive officers and beneficial owners of more than ten percent of our common shares were in compliance with the Section 16(a) filing requirements.

PROPOSAL TWO – AUTHORIZATION OF AN AMENDMENT TO OUR ARTICLES OF
INCORPORATION

     Our charter presently authorizes us to issue 200,000,000 shares of stock, consisting of 100,000,000 shares of common stock and 100,000,000 shares of preferred stock. We are proposing to amend our charter to increase the number of authorized shares of our common stock from 100 million to 250 million. The number of authorized shares of our preferred stock would remain the same.

     We propose that Article V, Section 1 of our Articles of Incorporation be amended to read in its entirety as follows:

“The total number of shares of all classes which the Corporation has authority to issue is three hundred fifty million (350,000,000) shares, consisting of (a) two hundred fifty million (250,000,000) shares of Common Stock, $0.01 par value per share, and (b) one hundred million (100,000,000) shares of Preferred Stock, $0.10 par value per share. The aggregate par value of all the shares of all the classes of stock of the Corporation is twelve million, five hundred thousand dollars ($12,500,000.00). The Board of Directors may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock.”

     At February 20, 2008, there were 49,531,507 shares of common stock issued and outstanding and 13,398,403 shares were reserved for issuance pursuant to our stock incentive plans and conversion of our outstanding convertible securities, leaving only 37,070,090 shares of common stock available for issuance. Consequently, our board believes it is in the best interests of our stockholders to increase the number of authorized shares of common stock as it would provide flexibility with respect to future transactions, including raising additional capital, acquisitions, stock splits and other reasonable corporate purposes. The additional shares will enable us to avoid the time-consuming and costly need to hold a special meeting of stockholders, which may adversely delay our ability to enter into a desirable transaction or deny us the flexibility to facilitate the effective use of our securities.

     The additional common stock would be part of our current class of common stock and, if and when issued, would have the same rights and privileges as our common stock presently issued and outstanding. We may use authorized shares of common and preferred stock from time to time as appropriate and opportune situations arise.

     Our stockholders will not have any preemptive rights with respect to the additional shares being authorized. No further approval by stockholders would be necessary prior to the issuance of any additional shares of common stock or preferred stock, except as may be required by law or applicable NYSE rules. In certain circumstances, generally relating to the number of shares to be issued and the identity of the recipient, the rules of the NYSE require stockholder authorization in connection with the issuance of such additional shares. Subject to law and the rules of the NYSE, our board has the sole discretion to issue additional shares of common and preferred stock on such terms and for such consideration as may be determined by our board. Our board does not intend to issue any stock except for reasons and on terms which our board deems to be in the best interests of our stockholders. The issuance of any additional shares of common or preferred stock may have the effect of diluting the percentage of stock ownership of our present stockholders. However, in any such event, stockholders wishing to maintain their interests may be able to do so through normal market purchases.

     The affirmative vote of holders of a majority of all common shares entitled to vote at our annual meeting of stockholders is required for the proposed amendment to our Articles of Incorporation to be adopted. Consequently, abstentions and broker non-votes will have the same effect as votes against the proposal. Our board believes it is in our best interests and those of our stockholders to amend Article V, Section 1 of our Articles of Incorporation to give effect to this proposal.

     If our stockholders approve the proposal, our Articles of Amendment will be filed with the State Department of Assessments and Taxation of Maryland and the amendment described above will be effective upon the acceptance for record of the Articles of Amendment by the State Department of Assessments and Taxation.

The board recommends a vote FOR the authorization of an amendment to our Articles of Incorporation.

PROPOSAL THREE – RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG
LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We are asking our stockholders to ratify our audit committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008. Ernst & Young LLP has audited our financial statements since we commenced operations in 1985. Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not required by our by-laws or otherwise. However, our board is submitting the selection of Ernst & Young LLP to our stockholders for ratification as a matter of good corporate practice. If our stockholders fail to ratify the selection, the committee will reconsider whether or not to retain them. Even if the selection is ratified, our audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines such a change would be in the best interests of our stockholders.

     Our audit committee is responsible for appointing, setting compensation, retaining and overseeing the work of our independent registered public accounting firm. The committee pre-approves all audit and non-audit services provided to us by our independent registered public accounting firm. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. The committee has delegated pre-approval authority to its chair when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the services performed to date. The committee approved all fees paid to Ernst & Young LLP during the past two years with no reliance on the de minimis exception established by the SEC for approving such services.

     Services provided by Ernst & Young LLP during 2007 included the audits of (i) our annual financial statements, (ii) management’s assessment of the effectiveness of internal control over financial reporting and (iii) the effectiveness of internal control over financial reporting. Services also included the limited review of unaudited quarterly financial information, review and consultation regarding filings with the SEC and the Internal Revenue Service, procedures performed on behalf of our underwriters in connection with public offerings of our common stock, assistance with management’s evaluation of internal accounting controls, and consultation on financial and tax accounting and reporting matters. The committee has considered all fees provided by Ernst & Young LLP to us and concluded their involvement is compatible with maintaining their independence. Fees for fiscal years ended December 31, 2007 and 2006 were as follows:

		Fiscal Year 2007				Fiscal Year 2006
Audit fees		$	330,000			$	312,500
Audit-related fees			153,800				10,500
Tax fees(a)			15,000				17,631
All other fees			—				—
Total		$	498,800			$	340,631

     Representatives of Ernst & Young LLP will be present at the annual meeting of stockholders, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.

     The board recommends a vote FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2008.

RELATED PERSON TRANSACTIONS

     We recognize that transactions involving significant relationships between us and our directors, executives or employees can present conflicts of interest and create the appearance that our decisions are based on considerations outside of our best interests and those of our stockholders. Therefore, it is our preference to avoid transactions involving such relationships. Nevertheless, we recognize there are situations where such transactions may not be inconsistent with our best interests and those of our stockholders. Therefore, we have implemented certain policies and procedures intended to allow us to assess the propriety of such transactions.

     Pursuant to our Board of Directors’ Guidelines, each director must discuss with our governance & nomination committee any significant transaction that may affect his independence so that the committee can report such transaction to our board, which has the authority to reject or ratify the transaction based upon our best interests and those of our stockholders. Also pursuant to our Board of Directors’ Guidelines, if a proposed transaction involves a director potentially diverting a corporate opportunity from us, the director pursuing such transaction must first present the transaction to our CEO who has the authority to determine our best interests and those of our stockholders with respect to such opportunity. In addition, our Code of Business Conduct and Ethics provides that a related person transaction involving an executive officer must be promptly reported to our board, and such transactions involving an employee or non-executive officer must similarly be reported to our CEO. Our Code of Business Conduct and Ethics also provides that our officers and employees must get our CEO’s authorization before they can divert a business opportunity away from us. In each of these situations our board and our CEO have the authority to determine our best interests and those of our stockholders in relation to such transaction.

     For the year ended December 31, 2007 there were no related person transactions required to be reported pursuant to Item 404(a) of Regulation S-K.

STOCKHOLDER PROPOSALS

     Any stockholder proposal to be presented at the 2009 annual meeting of stockholders must be received by our stockholder relations department at 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4410 no later than November 21, 2008 in order to be included in the proxy statement and form of proxy for such meeting. The proposal must comply with SEC regulations under Rule 14a-8 of the Securities Exchange Act of 1934, as amended, regarding the inclusion of stockholder proposals in company-sponsored proxy materials. As to any proposal a stockholder intends to present to stockholders other than by inclusion in our proxy statement for the 2009 annual meeting, the proxies named in management’s proxy for that meeting will be entitled to exercise their discretionary authority on that proposal unless we receive notice of the matter to be proposed not later than February 4, 2009. Even if proper notice is received on or prior to February 4, 2009, the proxies named in management’s proxy for that meeting may nevertheless exercise their discretionary authority with respect to such matter by advising stockholders of such proposal and how they intend to exercise their discretion to vote on such matter, unless the stockholder(s) making the proposal solicits proxies with respect to the proposal to the extent required by Rule 14a-4(c)(2) under the Securities Exchange Act of 1934, as amended.

OTHER MATTERS

     Our board does not intend to bring any other business before the annual meeting of stockholders, and our board is not aware of any matters to be brought before the meeting other than those described in this proxy statement. As to any other business that may properly come before the annual meeting of stockholders, our proxies intend to exercise their discretionary authority to vote on those matters.

ADDITIONAL INFORMATION

     We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public on the website maintained by the SEC at www.sec.gov. We make available on our website at www.capstead.com, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, investor presentations and press releases, including amendments to such documents as soon as reasonably practicable after such materials are electronically filed or furnished to the SEC or otherwise publicly released. We also make available on our website free of charge charters for the committees of our board, our Board of Directors’ Guidelines, our Code of Business Conduct and Ethics, our Financial Code of Professional Conduct and other company information, including amendments to such documents and waivers, if any, to the codes. Hard copies are furnished upon written request to Capstead Mortgage Corporation, Attention: Stockholder Relations, 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4410.

     You should rely only on the information contained in this proxy statement to vote on the election of directors, authorization of an amendment to our Articles of Incorporation to increase our authorized shares of common stock from 100 million shares to 250 million shares, and ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2008. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated March 21, 2008. You should not assume the information contained in this proxy statement is accurate as of any date other than such date, and neither the mailing of this proxy statement to stockholders nor the election of directors, authorization of an amendment to our Articles of Incorporation or ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm will create any implication to the contrary.

By order of the board of directors,

/s/ Phillip A. Reinsch
Phillip A. Reinsch
Secretary

March 21, 2008

				Capstead Mortgage Corporation 8401 N. Central Expressway, Suite 800 Dallas, Texas 75225-4410		Proxy

		COMPANY #

YOUR VOTE IS VERY IMPORTANT. PLEASE VOTE NOW.

If you vote by telephone or internet, please do not mail your proxy card.

Please detach here

1.

The election of

01

Jack Biegler

05

Christopher W. Mahowald

o

FOR

o

WITHHOLD AUTHORITY

02

Andrew F. Jacobs

06

Michael G. O’Neil

all nominees listed

for all nominees listed

03

Gary Keiser

07

Mark S. Whiting

(except as marked)

04

Paul M. Low

to the board of directors, to serve until the next annual meeting of stockholders and until their respective successors are elected and qualified.

To withhold authority to vote for any individual nominee or nominees, write the appropriate number or numbers in the box provided to the right.

2.

To approve an amendment to the Capstead Articles of Incorporation to increase the authorized shares of common stock from 100 million shares to 250 million shares.

o

For

o

Against

o

Abstain

3.

To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.

o

For

o

Against

o

Abstain

In the discretion of such proxies, upon such other business as may properly come before the annual meeting or any adjournment of the meeting, including any matter of which we did not receive timely notice as provided by Rule 14a-4(c) promulgated under the Securities Exchange Act of 1934, as amended.

WE BELIEVE VOTING “FOR” EACH OF THE ABOVE PROPOSALS IS IN THE BEST INTEREST OF OUR STOCKHOLDERS AND RECOMMEND YOU VOTE “FOR” EACH OF THE ABOVE PROPOSALS.

Address Change? Mark Box

o

o

I plan to attend the meeting.

Indicate changes below:

Dated

, 2008

		(Signature of Stockholder(s))
		(NOTE: If voting by mail, please sign exactly as your name(s) appear on the label. If more than one name appears, all persons so designated should sign. When signing in a representative capacity, please give your full title.)