October 1, 1998
COUNTRYWIDE INVESTMENT TRUST
ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND
SUPPLEMENT TO PROSPECTUS DATED JANUARY 1, 1998
THE FIFTH PARAGRAPH OF THE SECTION "INVESTMENT OBJECTIVE AND POLICIES" ON PAGE 4
OF THE PROSPECTUS HAS BEEN REVISED AS FOLLOWS:
In addition to mortgage-related securities, the Fund may invest in all
types of U.S. Government obligations (described below). For defensive purposes,
the Fund may temporarily hold all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits) or repurchase agreements collateralized by U.S.
Government obligations.
THE FOLLOWING SECTIONS ARE TO BE INSERTED IMMEDIATELY PRIOR TO THE SUB-SECTION
"U.S. GOVERNMENT OBLIGATIONS" ON PAGE 6 OF THE PROSPECTUS:
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS ("REMICS"). The Fund may invest in CMOs and REMICs issued or
guaranteed by U.S. Government agencies or instrumentalities. CMOs and REMICs are
debt instruments issued by special purpose entities that are secured by pools of
mortgage loans or other mortgage-backed securities. Payments of principal and
interest on the underlying collateral provides the funds to pay the debt service
on CMOs or REMICs.
CMOs are issued in multiple classes. Each class, often referred to as a
"tranche," is issued at a specified coupon rate or adjustable rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying CMOs may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. Interest is paid or accrues
on classes of a CMO on a monthly, quarterly or semiannual basis. The principal
and interest on the mortgages underlying CMOs may be allocated among the several
classes in many ways.
One or more tranches of a CMO may have coupon rates that reset
periodically at a specified increment over an index, such as the London
Interbank Offered Rate ("LIBOR"). These adjustable rate tranches, known as
"floating-rate CMOs," will be treated as ARMS by the Fund. Floating-rate CMOs
may be backed by fixed- or adjustable-rate mortgages. Floating-rate CMOs are
typically issued with lifetime "caps" on the coupon rate. These caps, similar to
the caps on ARMS, represent a ceiling beyond which the coupon rate may not be
increased, regardless of increases in the underlying interest rate index.
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REMICs, which are authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities. As with CMOs the underlying mortgages
include those backed by GNMA Certificates or other mortgage pass-throughs issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund currently intends to limit its investments in CMOs and REMICs
to either floating rate tranches or fixed-rate tranches having an average life
(giving effect to projected prepayments) of 5 years or less at the time of
purchase.
ASSET-BACKED SECURITIES. The Fund may invest in various types of
adjustable rate securities in the form of asset-backed securities issued or
guaranteed by U.S. Government agencies or instrumentalities. The securitization
techniques used in the context of asset-backed securities are similar to those
used for mortgage-related securities. Thus, through the use of trusts and
special purpose corporations, various types of receivables are securitized in
pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure. In
general, collateral supporting asset-backed securities has shorter maturities
than mortgage loans and has been less likely to experience substantial
prepayment.
The Fund's investments in asset-backed securities may include
pass-through securities collateralized by Student Loan Marketing Association
("SLMA") guaranteed loans whose interest rates adjust in much the same fashion
as described above with respect to ARMS. The underlying loans are originally
made by private lenders and are guaranteed by the SLMA. It is the guaranteed
loans that constitute the underlying financial assets in these asset-backed
securities. There may be other types of asset-backed securities that are
developed in the future in which the Fund may invest.
