EXHIBIT 10.3 





                                      

                     THORNBURG MORTGAGE ASSET CORPORATION
                     1992 STOCK OPTION AND INCENTIVE PLAN,
                   AMENDED AND RESTATED AS OF MARCH 14, 1997






                     THORNBURG MORTGAGE ASSET CORPORATION

                     1992 STOCK OPTION AND INCENTIVE PLAN
                  AMENDED AND RESTATED AS OF MARCH 14, 1997

1.    PURPOSE.  The Plan is intended to provide  incentive  to key  employees,
officers,  directors and others  expected to provide  significant  services to
the Company,  including the employees,  officers and directors of the Manager,
to  encourage  proprietary  interest in the  Company,  to  encourage  such key
employees to remain in the employ of the Company and the  Manager,  to attract
new  employees  with  outstanding  qualifications,  and to  afford  additional
incentive  to  others to  increase  their  efforts  in  providing  significant
services to the Company.

2.    DEFINITIONS.

      a.    "Act"  shall  mean the  Securities  Act of 1933,  as  amended,  15
U.S.C. Section77a et seq.

      b.    "Agreement"  shall mean the  agreement  entered  into  between the
Company and the recipient of a Grant pursuant to section 7(b)(i) hereof.

      c.    "Board" shall mean the Board of Directors of the Company.

      d.    "Class I  Participant"  shall mean any director of the Company who
is also  appointed  to  serve  on the  Committee  and  who at the  time of his
appointment  qualifies as a "Non-Employee  Director" under Rule 16b-3(b)(3)(i)
promulgated under the Exchange Act and as an "Outside  Director" under Section
1.162-27(e)(3)(i)  of the  Treasury  Regulations.  This  Plan is  intended  to
provide  Grants to Class I  Participants  pursuant to the formula set forth in
Section  7(a)  and  thereby  to  permit  Class  I   Participants   to  act  as
disinterested persons with respect to grants to Class II Participants.

      e.    "Class II  Participant"  shall mean all Eligible  Persons,  except
the Class I Participants.

      f.    "Code" shall mean the Internal Revenue Code of 1986, as amended.

      g.    "Committee"  shall mean the committee,  consisting solely of Class
I  Participants,  appointed by the Board in  accordance  with Section 4 of the
Plan.

      h.    "Common  Stock" shall mean the Common  Stock,  par value $0.01 per
share, of the Company.

      i.    "Company"  shall mean  Thornburg  Mortgage  Asset  Corporation,  a
Maryland corporation.

      j.    "Convertible  Preferred  Stock"  shall mean any class or series of
the  preferred  stock of the  Company,  as shall be issued  from time to time,
that is convertible into Common Stock of the Company.

      k.    "DER" shall mean a dividend  equivalent  right  consisting  of the
right to receive,  as specified  by the  Committee or the Board at the time of
Grant,  either  (i) cash or (ii)  PSRs,  in an  amount  equal to the  dividend
distributions paid on a share of Common Stock.


      l.    "Disability"  shall mean the condition of an Employee or member of
the Board who is unable to  engage  in any  substantial  gainful  activity  by
reason of any medically  determinable  physical or mental impairment which can
be  expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than twelve (12) months.

      m.    "Grant"  shall mean the  issuance of an  Incentive  Stock  Option,
Non-statutory  Stock Option,  DER, SAR, PSR or any  combination  thereof to an
Eligible Person.

      n.    "Eligible  Persons" shall mean  officers,  directors and employees
of  the  Company  or  the  Manager  and  other  persons  expected  to  provide
significant  services to the  Company.  For  purposes of this Plan, a director
(other than a member of the Committee) or a consultant,  vendor,  customer, or
other  provider of  significant  services to the Company shall be deemed to be
an  Eligible  Person,  and will be  eligible  to receive  Non-statutory  Stock
Options,  SARs,  DERs or PSRs only  after  finding  the value of the  services
rendered  or to be  rendered  to the Company is at least equal to the value of
the Grants being awarded.

      o.    "Employee"  shall mean an individual,  including an officer of the
Company,  who is employed  (within the  meaning of Code  Section  3401 and the
regulations thereunder) by the Company.

      p.    "Exchange Act" shall mean the Securities  Exchange Act of 1934, as
amended, 15 U.S.C. Section78a et seq.

      q.    "Exercise  Price" shall mean the price per Share of Common  Stock,
determined by the Board or the Committee, at which an Option may be exercised.

      r.    "Fair  Market  Value"  shall  mean the  value of one (1)  Share of
Common Stock, determined as follows:

            i.    If the Shares are traded on an exchange,  the price at which
      Shares traded at the close of business on the date of valuation;

            ii.   If the  Shares  are  traded  over-the-counter  on the NASDAQ
      System,  the closing price if one is available,  or the mean between the
      bid and asked  prices on said  System  at the close of  business  on the
      date of valuation; and

            iii.  If neither (i) nor (ii)  applies,  the fair market  value as
      determined  by  the  Board  or  the   Committee  in  good  faith.   Such
      determination shall be conclusive and binding on all persons.

      s.    "Incentive  Stock  Option"  shall  mean  an  Option  of  the  type
described in Section 422(b) of the Code issued to an Employee.

      t.    "Manager" shall mean Thornburg  Mortgage Advisory  Corporation,  a
Delaware corporation.

      u.    "Non-statutory  Stock  Option"  shall mean an Option not described
in Section 422(b) of the Code.


      v.    "Option" shall mean any option,  whether an Incentive Stock Option
or a Non-statutory  Stock Option,  to purchase a share of Common Stock granted
pursuant to the Plan.

      w.    "Optionee"  shall mean any  Eligible  Person who has  received  an
Option.

      x.    "Plan" shall mean the Thornburg  Mortgage Asset  Corporation  1992
Stock Option and Incentive Plan, as it may be amended from time to time.

      y.    "PSR"  shall  mean  a  phantom  stock  right,  consisting  of  the
unfunded deferred  obligation of the Company (i) to pay the recipient of a PSR
upon  exercise an amount of cash equal to the Fair Market Value at the time of
exercise of the number of Shares to which the PSR Grant  relates,  and (ii) if
so provided in the  applicable  Agreement,  to grant credits based on the cash
dividend  that  would be paid on the  number  of Shares to which the PSR Grant
relates.

      z.    "Purchase  Price" shall mean the  Exercise  Price times the number
of Shares with respect to which an Option is exercised.

      aa.   "SAR" shall mean a stock  appreciation  right,  consisting  of the
unfunded  deferred  obligation  of the Company to pay the recipient of the SAR
upon  exercise an amount of cash equal to the excess,  if any, of (i) the Fair
Market  Value of the  number of Shares to which the SAR Grant  relates  at the
time that the  recipient  exercises the SAR over (ii) the Fair Market Value at
the time that the SAR was issued.

      bb.   "Share"  shall  mean one (1) share of Common  Stock,  adjusted  in
accordance with Section 10 of the Plan (if applicable).

      cc.   "Subsidiary"  shall mean any  corporation,  partnership,  or other
entity at least fifty percent (50%) of the economic  interest in the equity of
which is owned by the Company or by another Subsidiary.

      dd.   "Termination   of  Employment"   shall  mean  the  time  when  the
employee-employer  relationship or  directorship  between the Optionee and the
Company is terminated  for any reason,  with or without  cause,  including but
not  limited  to  any   termination  by  resignation,   discharge,   death  or
retirement;  provided, however,  Termination of Employment shall not include a
termination where there is a simultaneous  reemployment of the Optionee by the
Company.  The  Committee,  in its absolute  discretion,  shall  determine  the
effect of all matters and questions  relating to  Termination  of  Employment,
including  but not  limited to the  question  of whether  any  Termination  of
Employment  was for cause and all  questions of whether  particular  leaves of
absence  constitute  Terminations  of  Employment.  With  respect to Incentive
Stock  Options,   a  leave  of  absence  for  disability  shall  constitute  a
Termination  of Employment  if, and to the extent that,  such leave of absence
interrupts employment for the purposes of Section 422(c)(6) of the Code.

3.    EFFECTIVE  DATE. The Plan  originally  became  effective as of September
29, 1992.  This  amendment and  restatement  became  effective as of March 14,
1997,  the date that it was  adopted by the Board,  subject to approval by the
Company's  shareholders.  The Plan will have been  submitted  to  shareholders
for their approval within twelve months after receipt of Board  approval.  Any
Grants  awarded before  approval of the amendment and  restatement of the Plan
by the  Company's  shareholders  shall  be  accrued  for  the  benefit  of the
participant until the Plan has been approved by the shareholders.

4.    ADMINISTRATION.

      a.    Membership on  Committee.  The Plan shall be  administered  by the
Committee  which shall  consist of two or more  members of the Board,  each of
whom  shall   qualify  as  a   Non-Employee   Director   as  defined  in  Rule
16b-3(b)(3)(i)  promulgated  under the Exchange  Act. The Board shall  appoint
one of the members of the Committee as Chairman of the Committee.

      b.    Committee  Meetings.  The  Committee  shall hold  meetings at such
times and places as it may  determine.  Acts of a majority  of the  Committee,
or acts  approved in writing by a majority  of the  members of the  Committee,
shall be the valid acts of the Committee.

      c.    Grant  Awards.  The  Committee  shall  from  time  to  time at its
discretion  select  the Class II  Participants  who are to be  issued  Grants,
determine  the number of Shares  (i) to be  optioned  or (ii) with  respect to
which the Grant is to be issued,  to each Class II  Participant  and designate
any  Options  granted  as  Incentive  Stock  Options  or  Non-statutory  Stock
Options,  except that no Incentive  Stock Option may be granted to an Eligible
Person who is not an Employee of the Company.  The Committee  shall  determine
the terms and conditions,  not inconsistent with the terms of the Plan, of any
Grants awarded hereunder (including,  but not limited to the performance goals
and  periods  applicable  to the  award of  Grants).  The  interpretation  and
construction  by the  Committee of any  provision of the Plan or of any Option
granted  thereunder  shall be  final.  No  member  of the  Committee  shall be
liable for any action or determination  made in good faith with respect to the
Plan or any Grant hereunder.

5.    PARTICIPATION.

      a.    Eligibility.  Only  Eligible  Persons shall be eligible to receive
grants of Options under the Plan.

      b.    Limitation  of  Ownership.  No Options  shall be granted under the
Plan to any person who after such Grant would  beneficially own more than 9.8%
of the  outstanding  shares of Common Stock of the Company,  unless  expressly
and specifically waived by action of the independent Directors of the Board.

      c.    Stock Ownership.  For purposes of (b) above, in determining  stock
ownership an Optionee shall be considered as owning the stock owned,  directly
or indirectly, by or for his brothers,  sisters, spouses, ancestors and lineal
descendants.  Stock owned,  directly or  indirectly,  by or for a corporation,
partnership,   estate   or  trust   shall  be   considered   as  being   owned
proportionately by or for its shareholders,  partners or beneficiaries.  Stock
with  respect to which any person holds an Option  shall be  considered  to be
owned by such person.

      d.    Outstanding  Stock.  For  purposes  of  (b)  above,   "outstanding
shares" shall include all stock actually  issued and  outstanding  immediately
after  the grant of the  Option to the  Optionee.  With  respect  to the stock
ownership  of  any  Optionee,   "outstanding   shares"  shall  include  shares
authorized for issue under outstanding Options held by such Optionee,  but not
options held by any other person.

6.    STOCK.  The stock  subject  to Options  granted  under the Plan shall be
Shares of the Company's  authorized  but unissued or reacquired  Common Stock.
The  aggregate  number of Shares which may be issued upon  exercise of Options
under  the Plan  shall  not  exceed  2,000,000  Shares.  The  number of Shares
subject  to  Options  outstanding  at any time  shall not exceed the number of
Shares  remaining  available for issuance  under the Plan and shall not at any
time  exceed  5% of the  total  outstanding  shares  of the  Company's  Common
Stock. In the event that any  outstanding  Option for any reason expires or is
terminated,  the Shares  allocable to the  unexercised  portion of such Option
may again be made subject to any Option.  The limitations  established by this
Section 6 shall be subject to adjustment in the manner  provided in Section 10
hereof upon the occurrence of an event specified therein.

7.    TERMS AND CONDITIONS OF OPTIONS.

      a.    Class I Participants.

            i.    Initial  Awards.  Awards  under this  Section  7(a) shall be
made  to  Class  I  Participants   only.   Each  Class  I  Participant   shall
automatically  be granted a  Non-statutory  Stock  Option to  purchase  13,333
shares of Common  Stock upon the date such person is  initially  appointed  to
the Committee.

            ii.   Periodic  Awards.  Subject to the  limitations  set forth in
Sections 5 and 6, without any further  action by the Board of Directors or the
Committee,  each  Class I  Participant  shall be granted  Non-statutory  Stock
Options to purchase:

                  (1)   Fixed  offering.  As of the  pricing  date of any firm
commitment  public offering or direct  placement of the Common Stock, a number
of shares of Common  Stock equal to the total number of shares of Common Stock
sold  under the  offering  (including  shares  sold  under  the  underwriter's
overallotment) multiplied by .002; and

                  (2)   Continuous  Offering.  As of the last  business day on
which the New York Stock  Exchange  is open for  trading  during  each  fiscal
quarter of the Company,  a number of shares of Common Stock equal to the total
number of shares  of Common  Stock  sold by the  Company  during  such  fiscal
quarter  multiplied  by .002,  excluding (A) Options  granted  pursuant to the
sale of Common Stock during the calendar  quarter under  subsection (1) above,
(B)  any  shares  of  Common  Stock  issued  under  the   Company's   Dividend
Reinvestment  and Stock Purchase Plan or (C) shares  acquired  pursuant to the
exercise of Options granted under the Plan.

                  (3)   Issuance of  Convertible  Preferred  Stock.  As of the
pricing date of any firm  commitment  public  offering or direct  placement of
Convertible  Preferred  Stock, a number of shares of Common Stock equal to the
total  number of shares of Common Stock into which the  Convertible  Preferred
Stock may be  converted  at the price of the  Common  Stock on the date of the
issuance  of  the   Convertible   Preferred  Stock  sold  under  the  offering
(including  shares sold under the underwriter's  overallotment)  multiplied by
 .002; and

                  (4)   Exercise   of  Options   issued   with   respect  to  
Convertible  Preferred  Stock.  Options  issued to Class I  Participants  with
respect to  Convertible  Preferred  Stock shall not be  exercisable  until the
Convertible   Preferred  Stock  with  respect  such  Options  were  issued  is
converted into Common Stock.

            iii.  Exercise Price.  Each Option granted to Class I Participants
shall be  exercisable at the Fair Market Value of the Common Stock on the date
of grant.



            iv.   Option  Period and  Adjustments.  Each  Option  granted to a
Class I Participant shall become  exercisable  commencing six (6) months after
the  date of  grant  and  shall  expire  ten (10)  years  thereafter.  Options
granted to Class I Participants  shall be subject to adjustment as provided in
Section 10 provided  that such  adjustment  and any action by the Board or the
Committee   with  respect  to  the  Plan  and  such  Options   satisfies   the
requirements  of Rule 16b-3 and does not cause any member of the  Committee to
be disqualified as a Non-Employee Director.

            v.    Phase-in  of DERs  for  Class I  Participants.  The  Company
will issue DERs at the same time as the Options,  exercisable  separately,  in
the amount  of: 25% of the  Options  granted  to each Class I  Participant  in
1997,  35% of the Options  granted to each Class I Participant in 1998, 45% of
the Options  granted to each Class I Participant  in 1999,  55% of the Options
granted to each Class I  Participant  in 2000,  65% of the Options  granted to
each  Class I  Participant  in 2001,  and 75% of the  Options  granted to each
Class I Participant in following years.

                  (1)   Such  DERs will be  payable  in cash or in PSRs at the
election of the recipient Class I Participant at the time of issuance.

                  (2)   DERs   granted   with   respect  to  the  issuance  of
Convertible  Preferred  Stock under  (a)(ii)(3) of this Section 7 will vest in
the  recipient  Class I  Participant  only  on and  after  conversion  of such
Convertible Preferred Stock to Common Stock.

      b.    Class II Participants.

            i.    Agreements.   Grants  to  Class  II  Participants  shall  be
evidenced by written  Agreements in such form as the Committee shall from time
to time  determine.  Such  Agreements  shall comply with and be subject to the
terms and conditions set forth below.

            ii.   Number of Shares.  Each Option or other  Grant  granted to a
Class II  Participant  shall  state the number of Shares to which it  pertains
and  shall  provide  for  the  adjustment   thereof  in  accordance  with  the
provisions of Section 10 hereof.

      c.    Grants.  Subject  to the  terms  and  conditions  of the  Plan and
consistent  with the  Company's  intention  for the  Committee to exercise the
greatest  permissible  flexibility  under Rule 16b-3 in awarding  Grants,  the
Committee shall have the power:

                  (1)   To  determine  from  time to  time  the  Grants  to be
granted to  Eligible  Persons  under the Plan and to  prescribe  the terms and
provisions  (which need not be identical) of Grants  granted under the Plan to
such persons;

                  (2)   To  construe  and   interpret   the  Plan  and  Grants
thereunder  and to  establish,  amend,  and revoke rules and  regulations  for
administration of the Plan. In this connection,  the Committee may correct any
defect or supply any omission,  or reconcile any inconsistency in the Plan, in
any Agreement,  or in any related agreements,  in the manner and to the extent
it shall deem  necessary or expedient  to make the Plan fully  effective.  All
decisions  and  determinations  by the Committee in the exercise of this power
shall be final and binding upon the Company and the Optionees and Grantees;

                  (3)   To amend any outstanding Grant,  subject to Section 12
hereof,  and to  accelerate  or extend the  vesting or  exercisability  of any
Grant and to waive conditions or restrictions on any Grants,  to the extent it
shall deem appropriate; and

                  (4)   Generally,  to  exercise  such  powers  and to perform
such acts as are deemed  necessary or expedient to promote the best  interests
of the Company  with  respect to the Plan.  Each Option  granted to a Class II
Participant  shall  state  the  Exercise  Price.  The  Exercise  Price for any
Option shall not be less than the Fair Market Value on the date of Grant.

      d.    Medium and Time of  Payment.  The  Purchase  Price for each Option
granted to a Class II  Participant  shall be payable in full in United  States
dollars upon the exercise of the Option.  In the event the Company  determines
that it is  required  to  withhold  taxes as a result  of the  exercise  of an
Option,  as a condition to the exercise  thereof,  an Employee may be required
to make arrangements  satisfactory to the Company to enable it to satisfy such
withholding  requirements  in  accordance  with  Section  15  hereof.  If  the
applicable  Agreement so provides,  the Purchase Price may be paid in one or a
combination of the following:

            i.    By the surrender of Shares in good form for transfer,  owned
by the person  exercising  the Option  and having a Fair  Market  Value on the
date of exercise equal to the Purchase  Price,  or in any  combination of cash
and Shares,  as long as the sum of the cash so paid and the Fair Market  Value
of the Shares so surrendered equal the Purchase Price;

            ii.   By cancellation  of indebtedness  owed by the Company to the
Optionee;

            iii.  By a loan or extension of credit from the Company  evidenced
by a full recourse  promissory  note  executed by the  Optionee.  The interest
rate and other terms and  conditions  of such note shall be  determined by the
Committee.  The  Committee  may require  that the  Optionee  pledge his or her
Shares to the Company  for the  purpose of securing  the payment of such note.
In no event  shall  the  stock  certificate(s)  representing  such  Shares  be
released to the Optionee until such note shall have been paid in full.

      e.    Term and Nontransferability of Grants and Options.

            i.    Each Grant  shall  state the time or times which all or part
thereof becomes exercisable, subject to the following restrictions.

            ii.   No Grant shall be exercisable except by the recipient.

            iii.  No  Option  shall  be  assignable  or  transferable,  except
pursuant to a qualified  domestic  relations  order as defined in Code Section
414(p)  or,  in the  event  of the  Optionee's  death,  by will or the laws of
descent and distribution.

            iv.   No Option  shall be  exercisable  (i) until at least six (6)
months  after the date of grant  and (ii)  after  the  expiration  of ten (10)
years from the date it was granted.

            v.    Unless  otherwise  provided in the Agreement,  no DERs, SARs
and PSRs  shall be  exercisable  (i) until at least six (6)  months  after the
date of grant and (ii) after three (3) months after the recipient's  departure
from  employment  for the  Company,  the  Manager  or  Subsidiary,  subject to
subsections (f), (g), (h), (i), (j), (k) and (l) below.

      f.    Termination  of Employment,  Except by Death or  Disability.  Upon
any  Termination  of Employment  for any reason other than his or her death or
Disability,  a  recipient  of a Grant  shall  have the  right,  subject to the
restrictions  of (c) above,  to  exercise  his or her Grant at any time within
three (3)  months  after  Termination  of  Employment,  but only to the extent
that, at the date of  Termination  of  Employment,  the  recipient's  right to
exercise  such  Grant had  accrued  pursuant  to the  terms of the  applicable
Agreement and had not previously been exercised;  provided,  however,  that if
the  recipient  was  terminated  as an  Employee or removed as a member of the
Board for cause (as defined in the  applicable  Agreement or as  determined by
the  Committee)  any Grant not  exercised  in full  prior to such  termination
shall be canceled.  For this purpose,  the  employment  relationship  shall be
treated as continuing  intact while the recipient is on military  leave,  sick
leave or other  bona  fide  leave of  absence  (to be  determined  in the sole
discretion of the Committee).  The foregoing  notwithstanding,  in the case of
an Incentive Stock Option,  employment  shall not be deemed to continue beyond
the  ninetieth  (90th)  day  after  the  Optionee's  reemployment  rights  are
guaranteed by statute or by contract.

      g.    Death of  Recipient.  If the  recipient  of a Grant  dies while an
Eligible   Person  or  within  three  (3)  months  after  any  Termination  of
Employment other than for cause,  and has not fully exercised the Grant,  then
the Grant may be exercised in full,  subject to the restrictions of (c) above,
at any time within  twelve (12) months  after the  recipient's  death,  by the
executors or  administrators  of his or her estate or by any person or persons
who have  acquired  the  Grant  directly  from the  recipient  by  bequest  or
inheritance,  but  only  to  the  extent  that,  at the  date  of  death,  the
recipient's  right  to  exercise  such  Grant  had  accrued  and had not  been
forfeited  pursuant  to the  terms  of the  applicable  Agreement  and had not
previously been exercised.

      h.    Disability  of Grant  Recipient.  Upon  Termination  of Employment
for reason of Disability,  such Grant recipient shall have the right,  subject
to the  restrictions  of (c) above,  to exercise  the Grant at any time within
twelve (12) months after  Termination  of  Employment,  but only to the extent
that, at the date of Termination of Employment,  the Grant  recipient's  right
to  exercise  such Grant had accrued  pursuant to the terms of the  applicable
Agreement and had not previously been exercised.

      i.    Rights  as  a  Shareholder.   An  Optionee,  a  transferee  of  an
Optionee,  or the  holder  of a DER,  PSR or SAR  shall  have no  rights  as a
shareholder  with respect to any Shares covered by his or her Grant until,  in
the case of an Optionee,  the date of the issuance of a stock  certificate for
such  Shares.  No  adjustment  shall  be  made  for  dividends   (ordinary  or
extraordinary,  whether in cash, securities or other property),  distributions
or other  rights  for which the  record  date is prior to the date such  stock
certificate is issued, except as provided in Section 10 hereof.

      j.    Modification,   Extension  and  Renewal  of  Option.   Within  the
limitations of the Plan, and only with respect to Options  granted to Class II
Participants,  the Committee may modify,  extend or renew outstanding  Options
or  accept  the  cancellation  of  outstanding  Options  (to  the  extent  not
previously  exercised)  for  the  granting  of  new  Options  in  substitution
therefor.  The  Committee may not modify,  extend or renew any Option  granted
to any Class I  Participant  unless such  modification,  extension  or renewal
shall satisfy the requirements of Rule 16b-3.  The foregoing  notwithstanding,
no  modification  of an Option  shall,  without the  consent of the  Optionee,
alter or impair any rights or obligations under any Option previously granted.

      k.    Other  Provisions.  The Agreements  authorized  under the Plan may
contain  such other  provisions  not  inconsistent  with the terms of the Plan
(including, without limitation,  restrictions upon the exercise of the Option)
as the Committee shall deem advisable.

8.    LIMITATION  ON VALUE OF  EXERCISABLE  SHARES.  In the case of  Incentive
Stock Options granted  hereunder,  the aggregate Fair Market Value (determined
as of the date of the grant  thereof)  of the  Shares  with  respect  to which
Incentive Stock Options become  exercisable by any employee of the Company for
the first time during any  calendar  year (under this Plan and all other plans
maintained by the Company,  its parent or its  Subsidiaries)  shall not exceed
$100,000.

9.    TERM OF PLAN.  Options  may be  granted  pursuant  to the Plan until the
expiration of ten (10) years from the effective date of the Plan.

10.   RECAPITALIZATIONS AND CHANGES IN CONTROL.

      a.    Subject to any required action by shareholders,  and provided that
all requirements of Rule 16b-3 are satisfied,  the number of Shares covered by
the Plan as  provided  in Section 6 hereof,  the  number of Shares  covered by
each  outstanding  Option and the Exercise  Price thereof and the rights under
the  Grant of a DER,  PSR or SAR  shall be  proportionately  adjusted  for any
increase  or  decrease  in  the  number  of  issued  Shares  resulting  from a
subdivision  or  consolidation  of Shares or the  payment of a stock  dividend
(but only of Common Stock) or any other  increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company.

      b.    Subject to any required action by shareholders,  if the Company is
the surviving  corporation in any merger or  consolidation,  each  outstanding
Option and the rights under the Grant of a DER,  PSR or SAR shall  pertain and
apply to the  securities to which a holder of the number of Shares  subject to
the  Option  would  have  been   entitled.   In  the  event  of  a  merger  or
consolidation in which the Company is not the surviving corporation,  the date
of  exercisability  of each  outstanding  Grant shall be accelerated to a date
prior to such  merger or  consolidation,  unless  the  agreement  of merger or
consolidation  provides for the  assumption  of the Grant by the  successor to
the Company.

      c.    To the extent that the foregoing  adjustments relate to securities
of the  Company,  such  adjustments  shall  be  made by the  Committee,  whose
determination shall be conclusive and binding on all persons.

      d.    Except as expressly  provided in this Section 10, the recipient of
the Grant shall have no rights by reason of  subdivision or  consolidation  of
shares of stock of any class,  the payment of any stock  dividend or any other
increase  or  decrease  in the  number  of  shares of stock of any class or by
reason of any  dissolution,  liquidation,  merger or consolidation or spin-off
of assets or stock of  another  corporation,  and any issue by the  Company of
shares of stock of any class, or securities  convertible  into shares of stock
of any class,  shall not affect,  and no adjustment by reason thereof shall be
made with  respect  to, the number or Exercise  Price of Shares  subject to an
Option.

      e.    Grants  made  pursuant to the Plan shall not affect in any way the
right  or  power  to  the  Company  to  make  adjustments,  reclassifications,
reorganizations or changes of its capital or business  structure,  to merge or
consolidate  or to  dissolve,  liquidate,  sell or transfer all or any part of
its business assets.

      f.    Upon the  occurrence  of a Change of  Control  as  defined in this
Section 10:

            i.    Each outstanding  Option and Stock  Appreciation Right shall
automatically become fully exercisable.

            ii.   All  restrictions  and  conditions on each PSR and DER shall
automatically  lapse  and all  Grants  under the Plan  shall be  deemed  fully
vested.

      g.    "Change of Control"  shall mean the  occurrence  of any one of the
following events:

            i.    any  "person,"  as such term is used in  Sections  13(d) and
14(d)  of the Act  (other  than  the  Company,  any of its  Affiliates  or any
trustee,  fiduciary or other  person or entity  holding  securities  under any
employee  benefit  plan or  trust  of the  Company  or any of its  Affiliates)
together with all  "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such person,  shall become the "beneficial owner"
(as  such  term  is  defined  in  Rule  13d-3  under  the  Act),  directly  or
indirectly,  of securities of the Company  representing  20% or more of either
(A) the combined  voting power of the Company's  then  outstanding  securities
having the right to vote in an  election  of the Board of  Directors  ("voting
securities")  or (B) the then  outstanding  Shares (in either  such case other
than as a result of an acquisition  of securities  directly from the Company);
or

            ii.   persons who, as of the  effective  date of the amendment and
restatement  of the Plan,  constitute  the Company's  Board of Directors  (the
"Incumbent  Directors") cease for any reason,  including,  without limitation,
as a result of a tender offer, proxy contest,  merger or similar  transaction,
to  constitute  at least a  majority  of the Board,  provided  that any person
becoming a Director  of the Company  subsequent  to the  Effective  Date whose
election  or  nomination  for  election  was  approved by a vote of at least a
majority of the  Incumbent  Directors  shall,  for  purposes of this Plan,  be
considered an Incumbent Director; or

            iii.  the  shareholders  of the  Company  shall  approve  (A)  any
consolidation   or  merger  of  the  Company  or  any  Subsidiary   where  the
shareholders  of  the  Company,  immediately  prior  to the  consolidation  or
merger,   would  not,   immediately   after  the   consolidation   or  merger,
beneficially  own (as such  term is  defined  in Rule  13d-3  under  the Act),
directly or indirectly,  shares  representing  in the aggregate 80% or more of
the voting  securities  of the  corporation  issuing cash or securities in the
consolidation or merger (or of its ultimate parent  corporation,  if any), (B)
any sale,  lease,  exchange or other transfer (in one  transaction or a series
of  transactions  contemplated  or arranged by any party as a single  plan) of
all or  substantially  all of the  assets  of the  Company  or (C) any plan or
proposal for the liquidation or dissolution of the Company.

            iv.   Notwithstanding  the foregoing,  a "Change of Control" shall
not be deemed to have  occurred  for  purposes  of the  foregoing  clause  (i)
solely as the result of an acquisition of securities by the Company which,  by
reducing  the  number  of  Shares  or  other  voting  securities  outstanding,
increases (x) the  proportionate  number of Shares  beneficially  owned by any
person to 20% or more of the Shares then outstanding or (y) the  proportionate
voting power  represented by the voting securities  beneficially  owned by any
person to 20% or more of the  combined  voting  power of all then  outstanding
voting  securities;  provided,  however,  that if any  person  referred  to in
clause (x) or (y) of this  sentence  shall  thereafter  become the  beneficial
owner  of any  additional  Shares  or  other  voting  securities  (other  than
pursuant to a stock split,  stock dividend,  or similar  transaction),  then a
"Change of  Control"  shall be deemed to have  occurred  for  purposes of this
subsection (g).

11.   SECURITIES LAW REQUIREMENTS.

      a.    Legality  of  Issuance.  The  issuance  of  any  Shares  upon  the
exercise of any Option and the grant of any Option  shall be  contingent  upon
the following:

            i.    the  Company and the  Optionee  shall have taken all actions
required to register  the Shares  under the Act, and to qualify the Option and
the Shares under any and all  applicable  state  securities or "blue sky" laws
or  regulations,  or to perfect an exemption from the respective  registration
and qualification requirements thereof;

            ii.   any applicable listing  requirement of any stock exchange on
which the Common Stock is listed shall have been satisfied; and

            iii.  any  other  applicable  provision  of state or  federal  law
shall have been satisfied.

      b.    Restrictions  on Transfer.  Regardless of whether the offering and
sale of Shares  under the plan has been  registered  under the Act or has been
registered or qualified  under the securities  laws of any state,  the Company
may impose  restrictions on the sale,  pledge or other transfer of such Shares
(including the placement of appropriate  legends on stock certificates) if, in
the judgment of the Company and its counsel,  such  restrictions are necessary
or desirable in order to achieve  compliance  with the  provisions of the Act,
the securities  laws of any state or any other law. In the event that the sale
of Shares under the Plan is not  registered  under the Act but an exemption is
available   which   required   an   investment    representation    or   other
representation,  each Optionee shall be required to represent that such Shares
are  being  acquired  for  investment,  and  not  with a view  to the  sale or
distribution  thereof,  and to make such other  representations  as are deemed
necessary or  appropriate  by the Company and its counsel.  Any  determination
by the  Company  and its  counsel in  connection  with any of the  matters set
forth in this  Section 11 shall be  conclusive  and  binding  on all  persons.
Stock  certificates  evidencing  Shares acquired under the Plan pursuant to an
unregistered  transaction shall bear the following restrictive legend and such
other  restrictive  legends  as are  required  or deemed  advisable  under the
provisions of any applicable law.

      "THE SALE OF THE SECURITIES  REPRESENTED  HEREBY HAS NOT BEEN REGISTERED
UNDER  THE  SECURITIES  ACT  OF  1933  (THE  "ACT").   ANY  TRANSFER  OF  SUCH
SECURITIES  WILL BE INVALID UNLESS A REGISTRATION  STATEMENT  UNDER THE ACT IS
IN EFFECT AS TO SUCH  TRANSFER  OR IN THE  OPINION OF  COUNSEL  FOR THE ISSUER
SUCH  REGISTRATION  IS  UNNECESSARY  IN ORDER FOR SUCH TRANSFER TO COMPLY WITH
THE ACT."

      c.    Registration  or  Qualification  of  Securities.  The Company may,
but shall not be  obligated  to,  register or qualify the  issuance of Options
and/or  the sale of  Shares  under the Act or any other  applicable  law.  The
Company  shall not be  obligated  to take any  affirmative  action in order to
cause the  issuance of Options or the sale of Shares  under the plan to comply
with any law.

      d.    Exchange  of  Certificates.  If, in the opinion of the Company and
its counsel,  any legend  placed on a stock  certificate  representing  shares
sold  under the Plan is no longer  required,  the  holder of such  certificate
shall be entitled to exchange such certificate for a certificate  representing
the same number of Shares but lacking such legend.

12.   AMENDMENT  OF THE  PLAN.  The  Board or the  Committee  may from time to
time,  with respect to any Shares at the time not subject to Options,  suspend
or discontinue the Plan or revise or amend it in any respect whatsoever.


13.   EFFECT OF CERTAIN  TRANSACTIONS.  In the case of (i) the  dissolution or
liquidation of the Company,  (ii) a reorganization,  merger,  consolidation or
other business  combination in which the Company is acquired by another entity
or in which the Company is not the surviving  entity, or (iii) the sale of all
or substantially all of the assets of the Company to another entity,  the Plan
and the Grants issued hereunder shall terminate upon the  effectiveness of any
such  transaction or event,  unless  provision is made in connection with such
transaction  for  the  assumption  of  Grants  theretofore   granted,  or  the
substitution for such Grants of new Grants,  by the successor entity or parent
thereof,  with appropriate  adjustment as to the number and kind of shares and
the per share  exercise  prices,  as  provided  in Section 10. In the event of
such termination,  all outstanding  Options and Grants shall be exercisable in
full for at least fifteen days prior to the date of such  termination  whether
or not otherwise exercisable during such period.

14.   APPLICATION  OF FUNDS.  The  proceeds  received by the Company  from the
sale of Common  Stock  pursuant to the  exercise of an Option will be used for
general corporate purposes.

15.   TAX WITHHOLDING.

      a.    Each  recipient  of a Grant  shall,  no later  than the date as of
which the value of any Grant first  become  includable  in the gross income of
the recipient for federal  income tax  purposes,  pay to the Company,  or make
arrangements  satisfactory  to the Company  regarding  payment of any federal,
state or local taxes of any kind that are required by law to be withheld  with
respect to such income.

      b.    A recipient may elect to have such tax withholding  satisfied,  in
whole or in part,  by (1)  authorizing  the  Company  to  withhold a number of
Shares to be issued  pursuant to a Grant equal to the Fair Market  Value as of
the date  withholding  is effected that would satisfy the  withholding  amount
due, (2)  transferring  to the Company  Shares owned by the  recipient  with a
Fair Market Value equal to the amount of the required  withholding tax, or (3)
in the case of a recipient  who is an employee of the Company at the time such
withholding  is  effected,   by   withholding   from  the   recipient's   cash
compensation.

      c.    A  recipient  who  is  an  employee  of  the  Manager  or  another
affiliate of the Company shall also  reimburse  his employer,  if an affiliate
of the Company,  for the tax on any additional  amount of compensation  income
deemed  recognized by such recipient's  employer from the Company,  reduced by
the amount of the compensation  deduction permitted such recipient's  employer
as a result of such employee's receipt or exercise of the Grant.

16.   EXECUTION.  The Company has caused this  amendment  and  restatement  of
the Plan to be  executed  in the  name  and on  behalf  of the  Company  by an
officer of the Company thereunto duly authorized.

                        THORNBURG MORTGAGE ASSET CORPORATION
                        a Maryland corporation



                        By:/s/H.Garrett Thornburg, Jr.   
                           H. Garrett Thornburg, Jr.,
                           Chairman