March 5, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: First Variable Rate Fund for Government Income
File Numbers 811-2633 and 2-56809
Ladies and Gentlemen:
Pursuant to Rule 30b2-1 of the Investment Company Act of 1940, attached is
the Annual Report to Shareholders for the year ended December 31, 1996, for the
above-referenced Registrant.
Sincerely,
Nana Juarbe
Administrative Assistant
<PAGE>
CALVERT FIRST GOVERNMENT
MONEY MARKET FUND
Dear Investor:
Investors' changing outlook for Federal Reserve monetary policy caused
above-average volatility in the financial markets. In general, bond yields
trended higher during the first half of the year in anticipation of a Fed
tightening and then retraced a bit during the second half when Gross Domestic
Product and other indications of pricing pressures appeared to lessen.
Money market investments turned in modestly good returns, considering the
current low rates available on short-term securities. Most longer-term
fixed-income investments also managed to generate positive returns, but yields
covered a good bit of ground during the course of the year. The benchmark
30-year Treasury bond fluctuated within a fairly wide band of about 125 basis
points but closed 1996 just 60 basis points above its year-ago level. Stocks
posted very strong returns, for the second consecutive year. The Standard &
Poor's 500 Stock Index rose about 23%.
Fund Performance and Strategy Review
The anticipated rise in short-term rates did not materialize during 1996.
Despite wide-spread expectations that the Federal Reserve would step in and
tighten monetary policy to slow economic growth, the Fed took no action after a
January rate cut.
Compound Dividend Yield
(Graph Appears Here)
Twelve
Months 5.22%
Ended 5.26%
12/31/95
Twelve
Months 4.79%
Ended 4.75%
12/31/96
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
The First Government Money Market Fund generated a competitive level of
income during this 12-month period, but the yield was below its year-ago level
due to the lower rates available on money market securities. We kept the Fund's
weighted average maturity near the low end of its target range for the first six
months of 1996. At that time, we were anticipating a rise in short-term rates,
and we wanted to be able to quickly roll assets into higher yielding securities.
We began to modestly extend maturity late in the year , when it appeared less
likely that the Fed would take immediate steps to raise rates.
Outlook
Yields will likely continue to fluctuate during the first quarter of 1997,
but we don't expect to see a clear trend in place until after the next Federal
Reserve Open Market Committee meeting. The Fed might then adopt a bias toward a
tighter monetary policy, and rates might move a bit higher. This would be good
news for money market investors who have endured two years of very low interest
rates.
Sincerely,
David Rochat
Senior Vice President
January 21, 1997
Portfolio Statistics
Weighted Average Maturity
6/30/96 12/31/96
44 days 45 days
Average Annual Total Returns
for periods ended 12/31/96
One Year 4.79%
Five Year 3.95%
Ten Year 5.42%
Since Inception (12/76) 7.67%
Hypothetical Performance
Calvert National Intermediate Portfolio
Change in value of a hypothetical $10,000 investment.
(Graph appears here)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
FIRST GOV.M.M. $16,953 $16,178 $15,376 $14,834 $14,445 $13,971
12/31/90 12/31/89 12/31/88 12/31/87 1/1/87
FIRST GOV.M.M. $13,223 $12,289 $11,320 $10,589 $10,000
</TABLE>
Ratings Breakdown
The Fund invests solely in debt obligations issued or guaranteed by the
United States, its agencies or instrumentalities, assignments of interest in
such obligations, and commitments to purchase such obligations ("U.S.
Government-backed obligations"). The Fund may invest in U.S.
Government-backed obligations subject to repurchase aagreements with the
recognized securities dealers and banks.
Total returns assume reinvestment of dividends. Past performance is no
guarantee of future results.
Report of Independent Accountants
To the Board of Trustees of First Variable Rate Fund for Government Income
and Shareholders of Calvert First Government Money Market Fund:
We have audited the accompanying statement of net assets of Calvert First
Government Money Market Fund (one of the portfolios comprising the First
Variable Rate Fund for Government Income) as of December 31, 1996, and the
related statement of operations for the year then ended, statement of changes in
net assets for each of the two years in the period then ended and financial
highlights for each of the three years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the preceding years were audited by other auditors whose
report dated January 31, 1994 expressed an unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Calvert First Government Money Market Fund as of December 31, 1996, the results
of its operations, the changes in its net assets and financial highlights for
the respective periods stated in the first paragraph in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
February 7, 1997
Statement of Net Assets
December 31, 1996
U.S. Government Principal
Agency Obligations - 69.2% Amount Value
Federal Farm Credit Bank, Discount Note, 1/21/97 $3,005,000 $2,996,286
Federal Home Loan Bank Notes:
7.02%, 3/3/97 4,000,000 4,009,478
4.52%, 2/7/97 2,000,000 1,998,030
Federal Home Loan Bank, Discount Notes:
1/30/97 4,000,000 3,982,826
2/3/97 2,000,000 1,990,045
2/18/97 4,000,000 3,971,680
2/21/97 3,000,000 2,977,560
3/7/97 2,365,000 2,342,411
3/27/97 5,000,000 4,938,139
4/30/97 2,075,000 2,039,264
Federal Home Loan Mortgage Corporation, Discount Notes:
1/6/97 8,475,000 8,468,644
1/14/97 10,000,000 9,980,753
1/24/97 12,182,000 12,141,340
2/7/97 20,000,000 19,891,878
3/6/97 5,000,000 4,953,600
Federal National Mortgage Association, Discount Notes:
1/21/97 7,000,000 6,978,644
1/22/97 1,605,000 1,600,103
1/28/97 2,000,000 1,992,170
1/29/97 8,985,000 8,948,463
2/10/97 12,000,000 11,929,733
2/14/97 6,000,000 5,961,353
2/18/97 5,000,000 4,965,200
2/19/97 2,000,000 1,985,218
2/27/97 3,000,000 2,974,255
3/17/97 3,000,000 2,966,000
3/18/97 5,000,000 4,944,689
3/31/97 7,000,000 6,907,069
Student Loan Marketing Association, Variable Rate,
2/14/97 475,000 474,988
Tennessee Valley Authority, Discount Notes:
1/9/97 6,570,000 6,562,306
4/8/97 10,000,000 9,858,811
Total U.S. Government Agency Obligations (Cost $165,730,845) 165,730,936
Depository Receipts for U.S.
Government Guaranteed Loans - 10.7% (+)
Colson Services Corporation Loan Sets (*):
9.34375%, 1/13/98 22,635 22,643
8.50%, 8/10/99 64,572 65,681
8.34375%, 1/17/10 104,174 108,805
8.25%, 2/3/2-5/6/11 499,042 510,058
Depository Receipts for U.S. Principal
Government Guaranteed Loans (Cont'd) Amount Value
8.09375%, 2/28/00-3/12/00 $243,588 $ 244,314
8.00%, 6/2/97-6/1/07 66,291 68,588
8.00%, 4/28/97-9/6/00 64,745 66,126
7.25%, 6/5/09-3/23/12 2,415,532 2,447,849
7.125%, 2/25/02-9/9/06 238,369 240,520
7.125%, 3/12/05-5/29/12 2,181,833 2,186,347
7.00%, 8/1/10-1/22/11 851,795 852,812
7.00%, 3/19/11-8/10/12 11,341,382 11,367,276
7.00%, 10/30/01-9/2/12 4,810,090 4,820,526
6.84375%, 12/22/97-4/26/09 1,124,719 1,129,078
7.09375%, 10/1/98-7/26/10 1,314,249 1,315,662
6.59375%, 4/21/98-5/18/02 100,725 100,838
Total Depository Receipts for U.S. Government Guaranteed Loans
(Cost $25,547,123) 25,547,123
U.S. Treasury Issues - 6.3%
U.S. Treasury Notes, 5.875%, 7/31/97 15,000,000 15,042,360
Total U.S. Treasury Issues (Cost $15,042,360) 15,042,360
Variable Rate Loans Guaranteed by Agencies
of the U.S. Government - 1.4% (+)
Loan pools:
9.125%, 6/25/98 27,096 30,388
8.34375%, 3/30/99 42,345 42,345
7.375%, 3/25/10 59,686 59,383
6.75%, 8/15/12 2,183,818 2,152,225
6.00%, 3/1/07 1,212,645 1,186,526
Total Variable Rate Loans Guaranteed by Agencies of the
U.S. Government (Cost $3,470,867) 3,470,867
Repurchase Agreements, for Delivery at
Cost, Collateralized by Securities Issued
or Guaranteed by the U.S. Government - 11.6%
Donaldson, Lufkin & Jenrette Securities, Inc.: dated 12/31/96, due 1/2/97
($14,074,495 U.S. Treasury Coupon Strip, 7/15/02 & $13,733,375
U.S. Treasury Coupon Strip, 5/15/14) 27,700,000 27,700,000
Total Repurchase Agreements (Cost $27,700,000) 27,700,000
TOTAL INVESTMENTS (Cost $237,491,286) - 99.2% 237,491,286
Other assets and liabilities, net - 0.8% 1,928,323
Net Assets - 100.0% $239,419,609
Net Assets Consist of: Value
Paid-in capital applicable to 239,909,937 outstanding
shares of beneficial interest, unlimited number of
no par shares authorized $239,663,249
Undistributed net investment income (loss) 27,597
Accumulated net realized gain (loss) on investments (271,237)
Net Assets $239,419,609
Net Asset Value per Share $1.00
Statement of Operations
Year Ended December 31, 1996
Net Investment Income
Investment Income
Interest income $13,731,314
Expenses
Investment advisory fee 1,238,849
Transfer agency fees and expenses 561,279
Trustees' fees and expenses 24,721
Custodian fees 31,592
Registration fees 61,782
Reports to shareholders 126,410
Professional fees 34,895
Miscellaneous 63,123
Total expenses 2,142,651
Fees paid indirectly (31,592)
Net expenses 2,111,059
Net Investment Income 11,620,255
Realized Gain (Loss) on Investments
Net realized gain (loss) 18,329
Increase (Decrease) in Net Assets
Resulting from Operations $11,638,584
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, December 31,
Increase (Decrease) in Net Assets 1996 1995
Operations
Net investment income $11,620,255 $11,927,149
Net realized gain (loss) 18,329 26,318
Increase (Decrease) in Net Assets
Resulting from Operations 11,638,584 11,953,467
Distributions to shareholders from
Net investment income (11,593,209) (12,034,495)
Capital share transactions
Shares sold 380,258,409 353,189,418
Reinvestment of distributions 11,294,463 11,826,953
Shares redeemed (393,328,271) (353,969,141)
Total capital share transactions (1,775,399) 11,047,230
Total Increase (Decrease) in Net Assets (1,730,024) 10,966,202
Net Assets
Beginning of year 241,149,633 230,183,431
End of year (including undistributed net investment
income of $27,597 and $551, respectively) $239,419,609 $241,149,633
Capital Share Activity
Shares sold 380,258,409 353,189,418
Reinvestment of distributions 11,294,463 11,826,953
Shares redeemed (393,328,271) (353,969,141)
Net share activity (1,775,399) 11,047,230
Notes to Financial Statements
Note A-Significant Accounting Policies
General: The Calvert First Government Money Market Fund (the "Fund"), a
series of First Variable Rate Fund for Government Income, is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. The operations of each series are accounted for separately.
The Fund offers shares of beneficial interest to the public with no sales
charge.
Security Valuation: Securities are valued at amortized cost which
approximates market.
Repurchase Agreements: The Fund may enter into repurchase agreements with
recognized financial institutions or registered broker/dealers and, in all
instances, holds underlying securities with a value exceeding the total
repurchase price, including accrued interest.
Security Transactions and Investment Income: Security transactions are
accounted for on trade date. Realized gains and losses are recorded on an
identified cost basis. Interest income, accretion of discount and amortization
of premium are recorded on an accrual basis.
Distributions to Shareholders: Distributions to shareholders are recorded
by the Fund on ex-dividend date. Dividends from net investment income are
accrued daily and paid monthly. Distributions from net realized capital gains,
if any, are paid at least annually. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles; accordingly, periodic reclassifications are made within the Fund's
capital accounts to reflect income and gains available for distribution under
income tax regulations.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Expense Offset Arrangements: The Fund has an arrangement with its custodian
bank whereby the custodian's fees are paid indirectly by credits earned on the
Fund's cash on deposit with the bank. Such deposit arrangement is an alternative
to overnight investments.
Federal Income Taxes: No provision for federal income or excise tax is
required since the Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code and to distribute substantially all of
its earnings.
Note B-Related Party Transactions
Calvert Asset Management Company, Inc. (the "Advisor") is wholly-owned by
Calvert Group, Ltd. ("Calvert"), which is indirectly wholly-owned by Acacia
Mutual Life Insurance Company. The Advisor provides investment advisory services
and pays the salaries and fees of officers and affiliated Trustees of the Fund.
For its services, the Advisor receives a monthly fee based on the following
annual rates of average daily net assets: .50% on the first $500 million, .45%
on the next $400 million, .40% on the next $400 million, .35% on the next $700
million and .30% on the excess of $2 billion.
Calvert Distributors, Inc., an affiliate of the Advisor, is the distributor
and principal underwriter for the Fund.
Calvert Shareholder Services, Inc., an affiliate of the Advisor, acts as
transfer, dividend disbursing and shareholder servicing agent for the Fund.
Each Trustee who is not affiliated with the Advisor received an annual fee
of $20,250 plus up to $1,200 for each Board and Committee meeting attended.
Trustee's fees are allocated to each of the funds served. Effective August 1,
1996, annual fees and meeting fees were increased to $20,500 and $1,500,
respectively.
Note C-Investment Activity
The cost of investments owned at December 31, 1996 was substantially the
same for federal income tax and financial reporting purposes. Net realized
capital loss carryforwards, for federal income tax purposes, of $271,237 at
December 31, 1996 may be utilized to offset current and future capital gains
until expiration through 2001.
Financial Highlights
Years Ended
December 31,
1996 1995 1994
Net asset value, beginning $1.00 $1.00 $1.00
Income from investment operations
Net investment income .047 .051 .036
Distributions from
Net investment income (.047) (.051) (.036)
Net asset value, ending $1.00 $1.00 $1.00
Total return 4.79% 5.22% 3.66%
Ratios to average net assets:
Net investment income 4.69% 5.04% 3.56%
Total expenses + .86% .89% --
Net expenses .85% .88% .81%
Net assets, ending (in thousands) $239,420 $241,150 $230,183
Number of shares outstanding,
ending (in thousands) 239,910 241,685 230,618
Years Ended
December 31,
1993 1992
Net asset value, beginning $1.00 $1.00
Income from investment operations
Net investment income .027 .033
Distributions from
Net investment income (.027) (.033)
Net asset value, ending $1.00 $1.00
Total return 2.70% 3.40%
Ratios to average net assets:
Net investment income 2.66% 3.30%
Total expenses + -- --
Net expenses .81% .82%
Net assets, ending (in thousands) $263,260 $314,999
Number of shares outstanding,
ending (in thousands) 263,930 315,667
