FEDERATED ADJUSTABLE RATE U S GOVERNMENT FUND INC, 485APOS, 1999-02-26

FEDERATED ADJUSTABLE RATE U S GOVERNMENT FUND INC
485APOS, 1999-02-26

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1933 Act File No. 33-41004
1940 Act File No. 811-6307

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
------

Pre-Effective Amendment No. .........................

Post-Effective Amendment No. __14_ ........................ X
---- - ------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. _11_ ...........................................X
----- ------

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds

5800 Corporate Drive

Pittsburgh, PA 15237-7000

(Address of Principal Executive Offices)

(412) 288-1900

(Registrant's Telephone Number)

John W. McGonigle, Esquire

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, Pennsylvania 15222-3779

(Name and Address of Agent for Service)

(Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)

X on APRIL 30, 1999 pursuant to paragraph (a) (i) 75 days after filing
pursuant to paragraph (a)(ii) on _______________ pursuant to paragraph
(a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copy to: Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP

2101 L Street, N.W.
Washington, D.C. 20037

PROSPECTUS

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

A mutual fund seeking to provide current income with volatility of principal
which is lower than investment companies investing primarily in fixed rate
mortgage securities by investing in adjustable and floating rate mortgage
securities issued by the U.S. government, its agencies or instrumentalities.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information

April 30, 1999

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The investment objective of the Fund is to provide current income with
volatility of principal which is lower than investment companies investing
primarily in fixed rate mortgage securities. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in adjustable and floating rate mortgage backed securities which are
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
The Fund limits its investments to those that would enable it to qualify as a
permissible investment for federal credit unions.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose
money in the Fund. The primary factors that may reduce the Fund's returns
include:

o changes in prevailing interest rates and

o increased prepayment of mortgages.

Complex mortgage backed securities generally entail greater risks than ordinary
mortgage backed securities. An investment in the Fund includes additional risks
such as credit risks and liquidity risks.

The Shares offered by this prospectus are not deposit or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency.

<PAGE>

Risk/Return Bar Chart and Table

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Federated Adjustable Rate U.S.
Government Fund, Inc. as of the calendar year-end for each of seven years.

The `y' axis reflects the "% Total Return" beginning with "-1.00%" and
increasing in increments of 1% up to 9%.

The `x' axis represents calculation periods (from the earliest calendar year end
of the Fund's start of business) through the calendar year ended 1998. The light
gray shaded chart features seven distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1992 through 1998. The percentages
noted are: 4.57%, 3.54%, -0.31%, 8.30%, 5.90%, 5.89% and 3.62%, respectively.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower. The Fund's total return from
January 1, 1999 to March 31, 1999 was ____%. Within the period shown in the
Chart, the Fund's highest quarterly return was 3.18% (quarter ended March 31,
1995). Its lowest quarterly return was -0.53% (quarter ended June 30, 1994).

AVERAGE ANNUAL TOTAL RETURN

LIFE OF THE FUND1 1 YEAR 5 YEARS
Fund 4.66% 2.63% 4.64%
LBARMI 4.15% 5.87%
LARMFA % %
ML1YTI 5.89% 5.53%
ML2YTI 6.57% 5.76%
1 Since inception date of 7/25/91.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows how the Fund's performance compares to an index of
funds with similar investment objectives.

The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers Adjustable Rate Mortgage Index ("LBARMI"), the
Lipper Adjustable Rate Mortgage Funds Average ("LARMFA"), the Merrill Lynch
1-Year Treasury Index ("ML1YTI"), and the Merrill Lynch 2-Year Treasury Index
("ML2YTI"), broad based market indices, for the calendar periods ending December
31, 1998. Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of 1.00%
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and None
other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee (2) 0.60%
Distribution (12b-1) Fee (3) 0.25%
Shareholder Services Fee (4) 0.25%
Other Expenses 0.20%
Total Annual Fund Operating Expenses 1.30%
1 Although not contractually obligated to do so, the adviser,
distributor and shareholder services provider waived certain
amounts. These are shown below along with the net expenses
the Fund aCTUALLY PAID for the fiscal year ended February 28,
1999.
Waiver of Fund Expenses 0.28%
Total Actual Annual Fund Operating Expenses (after waivers) 1.02%

2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.57% for the year ended February 28,
1999. 3 The distribution (12b-1) fee has been voluntarily reduced. This
voluntary reduction can be terminated at any time. The distribution (12b-1) fee
paid by the Fund (after the voluntary reduction) was 0.01% for the year ended
February 28, 1999. 4 The shareholder services fee has been voluntarily reduced.
This voluntary reduction can be terminated at any time. The shareholder services
fee paid by the Fund (after the voluntary reduction) was 0.24% for the year
ended February 28, 1999.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Shares operating expenses are BEFORE WAIVERS as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming redemption $232 $512 $713 $1568
Expenses assuming no $132 $412 $713 $1568
redemption

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund provides exposure to the adjustable rate mortgage sector of the U.S.
government mortgage market. Mortgage-backed securities may provide more
attractive current yields than other types of U.S. government securities and can
add current income to a portfolio. Adjustable-rate mortgage-backed securities
provide this relatively higher income with less interest rate risk. The adviser
actively manages the Fund's portfolio of U.S. government mortgage-backed
securities seeking attractive yields under current market conditions while
attempting to minimize portfolio volatility.

Because ARM rates periodically reset according to various market indices, ARM
yields will rise and fall with market interest rates. The adviser seeks to
continually maximize the Fund's portfolio yield through its selection of
securities having attractive current yields. In addition, when the adviser
expects ARMs to be subject to heavy prepayments due to an anticipated decline in
market interest rates, the adviser may adjust its portfolio composition by
investing up to 35 percent of its assets in other fixed income assets.

The adviser attempts to minimize portfolio volatility by managing the prepayment
risks of ARMs. When market interest rates decline, prepayments by mortgage
holders cause the outstanding principal amount of ARMs to decline, which, in
turn, reduces the expected amount of interest receivable by the holder of ARMs.
The reduction in interest income receivable adversely affects the market value
of the ARMs in relation to other fixed income securities. The adviser manages
this prepayment risk by, first, continually assessing whether it expects market
interest rates to rise or fall. Then, based on this market interest rate
outlook, the adviser makes a judgment as to the amount of the Fund's portfolio
to invest in adjustable rate mortgages. If the adviser expects market interest
rates to decline, the adviser may invest up to 35 percent of the Fund's
portfolio in fixed income assets which are usually of a short maturity.

The adviser seeks to forecast market interest rates by analyzing a variety of
factors, such as:

o.......current U.S. economic activity and the economic outlook,

o.......current interest rates,

o.......the Federal Reserve Board's policies regarding short-term interest
rates, and

o.......potential effects of foreign economic activity on interest rates.

In order to generate additional current income, the Fund will invest in delayed
delivery transactions and dollar rolls.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of principal or adjusted periodically.
In addition, the issuer of a fixed income security must repay the principal
amount of the security, normally within a specified period of time. A security's
yield measures the annual income earned on a security as a percentage of its
price. A security's yield will increase or decrease depending upon whether it
costs less (a discount) or more (a premium) than the principal amount. If the
issuer may redeem the security before its scheduled maturity, the price and
yield on a discount or premium security may change based upon the probability of
an early redemption. Securities with higher risks generally have higher yields.

The following describes the types of fixed income securities in which the Fund
invests:

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks. AGENCY SECURITIES Agency securities are issued or guaranteed by a
federal agency or other government sponsored entity acting under federal
authority (a GSE). The United States supports some GSEs with its full, faith and
credit. Other GSEs receive support through federal subsidies, loans or other
benefits. A few GSEs have no explicit financial support, but are regarded as
having implied support because the federal government sponsors their activities.
Agency securities are generally regarded as having low credit risks, but not as
low as Treasury securities. MORTGAGE BACKED SECURITIES Mortgage backed
securities represent interests in pools of mortgages. The mortgages that
comprise a pool normally have similar interest rates, maturities and other
terms. Mortgages may have fixed or adjustable interest rates. The Fund invests
in interests in pools of adjustable rate mortgages, which are known as ARMs.
While fixed rate mortgage securities have a stated coupon, ARMs have periodic
adjustments in the coupons on the underlying mortgages. The adjustable rate
feature of the mortgages underlying the ARM securities will help to limit sharp
movements in the Fund's net asset value in response to normal fluctuations in
interest rates. As interest rates on the mortgages underlying ARM reset
periodically (for example, semi-annually or annually), the yields of the
securities held in the portfolio will gradually adjust to reflect the overall
changes in interest rates. Mortgage backed securities come in a variety of
forms. Many have extremely complicated terms. The simplest form of mortgage
backed securities are pass-through certificates. An issuer of pass-through
certificates gathers monthly payments from an underlying pool of mortgages.
Then, the issuer deducts its fees and expenses and passes the balance of the
payments onto the certificate holders once a month. Holders of pass-through
certificates receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the PREPAYMENT RISKS
of the underlying mortgages. COLLATERALIZED MORTGAGE OBLIGATIONS CMOs, including
interests in real estate mortgage investment conduits (REMICs), allocate
payments and prepayments from an underlying pass-through certificate among
holders of different classes of mortgage backed securities. This creates
different PREPAYMENT AND MARKET RISKS for each CMO class.

SEQUENTIAL CMOS

In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes. PACS AND TACS More sophisticated CMOs include planned
amortization classes (PACs) and targeted amortization classes (TACs). PACs and
TACs are issued with companion classes. PACs and TACs receive principal payments
and prepayments at a specified rate. The companion classes receive principal
payments and prepayments in excess of the specified rate. In addition, PACs will
receive the companion classes' share of principal payments, if necessary, to
cover a shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risks by increasing the risks to their companion classes. SPECIAL
TRANSACTIONS REPURCHASE AGREEMENTS Repurchase agreements are transactions in
which the Fund buys a security from a dealer or bank and agrees to sell the
security back at a mutually agreed upon time and price. The repurchase price
exceeds the sale price, reflecting the Fund's return on the transaction. This
return is unrelated to the interest rate on the underlying security. The Fund
will enter into repurchase agreements only with banks and other recognized
financial institutions, such as securities dealers, deemed creditworthy by the
adviser. The Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the value
of the security always equals or exceeds the repurchase price. DELAYED DELIVERY
TRANSACTIONS Delayed delivery transactions, including when issued transactions,
are arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for the Fund. Delayed delivery transactions also involve CREDIT RISKS in
the event of a counterparty default. TO BE ANNOUNCED SECURITIES (TBAS) As with
other delayed delivery transactions, a seller agrees to issue a TBA security at
a future date. However, the seller does not specify the particular securities to
be delivered. Instead, the Fund agrees to accept any security that meets
specified terms. For example, in a TBA mortgage backed transaction, the Fund and
the seller would agree upon the issuer, interest rate and terms of the
underlying mortgages. The seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities increase
market risks because the underlying mortgages may be less favorable than
anticipated by the Fund. DOLLAR ROLLS Dollar rolls are transactions where the
Fund sells mortgage-backed securities with a commitment to buy similar, but not
identical, mortgage-backed securities on a future date at a lower price.
Normally, one or both securities involved are TBA mortgage backed securities.
Dollar rolls are subject to MARKET RISKS and CREDIT RISKS. ASSET COVERAGE In
order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities. The Fund will reinvest cash collateral in securities that qualify as
an acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of cash collateral. Loans are subject to termination at
the option of the Fund or the borrower. The Fund will not have the right to vote
on securities while they are on loan, but it will terminate a loan in
anticipation of any important vote. The Fund may pay administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
PORTFOLIO TURNOVER Prepayments of mortgage backed securities will cause the Fund
to have an increased portfolio turnover rate, which is likely to generate
short-term gains (losses) for its shareholders. Short-term gains are taxed at a
higher rate than long-term gains. Portfolio turnover increases the Fund's
trading costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS The Fund may temporarily depart from its
principal investment strategies by investing its assets in cash, cash items, and
shorter-term, higher quality debt securities and similar obligations. It may do
this to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause the Fund to give up
greater investment returns to maintain the safety of principal, that is, the
original amount invested by shareholders. WHAT ARE THE SPECIFIC RISKS OF
INVESTING IN THE FUND? BOND MARKET RISKS o.......Prices of fixed income
securities rise and fall in response to interest rate changes for similar
securities. Generally, when interest rates rise, prices of

fixed income securities fall.

o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.

CREDIT RISKS

o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.

<PAGE>

PREPAYMENT RISKS

o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates. As
a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.

o Mortgage backed securities generally compensate for greater prepayment risk
by paying a higher yield. The difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security is
perceived to have increased prepayment risk or less market demand. An
increase in the spread may cause the price of the security to decline. The
adviser attempts to limit price volatility by investing in primarily in
adjustable rate, rather than fixed rate, securities, by maintaining a
relatively short portfolio maturity; and by limiting prepayments by
investing in seasoned securities and in certain types of CMOs.

o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

LIQUIDITY RISKS

o Trading opportunities are more limited for CMOs that have complicated terms
or that are not widely held. These features may make it more difficult to
sell or buy a security at a favorable price or time. Consequently, the Fund
may have to accept a lower price to sell a security, sell other securities
to raise cash or give up an investment opportunity, any of which could have
a negative effect on the Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.

o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security when it wants to. If this happens, the Fund will be
required to continue to hold the security, and the Fund could incur losses.

REGULATORY COMPLIANCE

In accordance with the rules and regulations established by the National Credit
Union Administration (NCUA), unless the purchase is made solely to reduce
interest-rate risk, the Fund will not invest in any CMO or REMIC security that
meets any of the following three tests: (1) the CMO or REMIC has an expected
average life greater than 10 years; (2) the average life of the CMO or REMIC
extends by more than four years assuming an immediate and sustained parallel
shift in the yield curve of plus 300 basis points, or shortens by more than six
years assuming an immediately and sustained parallel shift in the yield curve of
minus 300 basis points; or (3) the estimated change in the price of the CMO or
REMIC is more than 17%, due to an immediate and sustained parallel shift in the
yield curve of plus or minus 300 basis points.

Neither test (1) nor (2) above apply to floating or adjustable rate CMOs or
REMICs with all of the following characteristics: (a) the interest rate of the
instrument is reset at least annually; (b) the interest rate is below the
contractual cap of the instrument; (c) the instrument is tied to a widely-used
market rate; and (d) the instrument varies directly (no inversely) and is reset
in proportion with the index's changes.

The Fund may not purchase a residual interest in CMO or REMIC. In addition, the
Fund will not purchase zero coupon securities with maturities greater than 10
years. WHAT DO SHARES COST? You can purchase, redeem, or exchange Shares any day
the New York Stock Exchange (NYSE) is open. When the Fund receives your
transaction request in proper form, it is processed at the next calculated net
asset value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund's current NAV and public offering price may be
found in the mutual funds section of local newspapers under "Federated."

The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.

MAXIMUM SALES CHARGE

MINIMUM FRONT-END CONTINGENT
INITIAL/SUBSEQUENT SALES CHARGE2 DEFERRED SALES
INVESTMENT AMOUNTS1 CHARGE3

$1,500/$100 None 1.00%
1 The minimum subsequent investment amounts for Systematic Investment Programs
is $50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund. 2 Front-End
Sales Charge is expressed as a percentage of public offering price. See "Sales
Charge When You Purchase".

3 See "Sales Charge When You Redeem."

If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.

ELIMINATING THE SALES CHARGE

The Fund's Shares are sold at NAV. HOWEVER, SHAREHOLDERS MAY ELIMINATE THE
APPLICABLE SALES CHARGE WHEN PURCHASING CLASS F SHARES OF OTHER FEDERATED FUNDS
BY: opurchasing Shares in greater quantities to reduce the applicable sales
charge; ocombining concurrent purchases of Shares:

- by you, your spouse, and your children under age 21; or

- of the same share class of two or more Federated Funds
(other than money market funds);

oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or osigning a letter of intent to purchase a specific dollar
amount of Shares within 13 months (call your investment professional or the Fund
for more information).

<PAGE>

IN ADDITION, THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE CLASS F
SHARES OF OTHER FEDERATED FUNDS: owithin 120 days of redeeming Shares of an
equal or lesser amount; owhen the Fund's Distributor does not advance payment to
the investment professional for your purchase; oby exchanging shares from the
same share class of another Federated Fund; ofor trusts or pension or
profit-sharing plans where the third party administrator has an arrangement with
the Fund's Distributor or its affiliates to purchase shares without a sales
charge; or othrough investment professionals that receive no portion of the
sales charge. If your investment qualifies for an elimination of the sales
charge, you or your investment professional should notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. If the
Distributor is not notified, you will receive the reduced sales charge only on
additional purchases, and not retroactively on previous purchases.

SALES CHARGE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

Purchase Amount Shares Held CDSC
Up to $2 million 4 years or 1.00%

less

$2 - $5 million 2 years or 0.50%
less

$5 - $25 million 1 year or less 0.25%
$25 million or more N/A None

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

o purchased with reinvested dividends or capital gains;

o purchased within 120 days of redeeming Shares of an equal or lesser amount;

o that you exchanged into the same share class of another Federated Fund
where the shares were held for the applicable CDSC holding period (other
than a money market fund);

o purchased through investment professionals that did not receive advanced
sales payments; or

O if, after you purchase Shares, you become disabled as defined by the IRS.

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;

o if your redemption is a required retirement plan distribution;

o upon the death of the last surviving shareholder of the account.

If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.

<PAGE>

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:

o Shares that are not subject to a CDSC;

o Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund); and

o then, the CDSC is calculated using the share price at the time of purchase
or redemption, whichever is lower.

HOW IS THE FUND SOLD?

The Fund's Distributor markets the Shares described in this prospectus to
individuals, directly or through investment professionals.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o Establish an account with the investment professional; and

o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within one
business day. You will become the owner of Shares and receive dividends when
the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o Establish your account with the Fund by submitting a completed New Account
Form; and

o Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire

ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).

THROUGH AN EXCHANGE

You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

RETIREMENT INVESTMENTS

You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.

<PAGE>

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

o through an investment professional if you purchased Shares through an
investment professional; or

o directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317 All requests must include:

o Fund Name and Share Class, account number and account registration;

o amount to be redeemed or exchanged;

o signatures of all Shareholders exactly as registered; and

o IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o your redemption will be sent to an address other than the address of
record;

o your redemption will be sent to an address of record that was changed
within the last 30 days;

o a redemption is payable to someone other than the shareholder(s) of record;
or

o IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o an electronic transfer to your account at a financial institution that is
an ACH member; or

o wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o to allow your purchase to clear;

o during periods of market volatility; or

o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGES

You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:

o ensure that the account registrations are identical;

o meet any minimum initial investment requirements; and

o receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Advisers. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

<PAGE>

THE FUND'S PORTFOLIO MANAGERS ARE:

Kathleen M. Foody-Malus has been the Fund's portfolio manager since July
1991. Ms. Foody-Malus joined Federated Investors in 1983 and has been a Senior
Portfolio Manager since 1996 and a Vice President of the Fund's investment
adviser since 1993. She was a Portfolio Manager and a Vice President of the
Fund's investment adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A.
in Accounting/Finance from the University of Pittsburgh.

Todd A. Abraham has been the Fund's portfolio manager since October 1995.
Mr. Abraham has been a Vice President of the Fund's investment adviser since
July 1997. Mr. Abraham joined Federated Investors in 1993 as an Investment
Analyst and served as Assistant Vice President from 1995 to 1997. Mr. Abraham
served as a Portfolio Analyst at Ryland Mortgage Co. from 1992 to 1993. Mr.
Abraham is a Chartered Financial Analyst and received his M.B.A. in finance from
Loyola College. Robert E. Cauley has been the Fund's portfolio manager since
October 1997. Mr. Cauley joined Federated Investors in 1996 as a Senior
Investment Analyst and an Assistant Vice President of the Fund's adviser and has
been a Portfolio Manager since 1997. Mr. Cauley has been a Portfolio Manager and
a Vice President of the adviser since 1999. Mr. Cauley was a member of the
Asset-Backed Structuring Group at Lehman Brothers Holding, Inc. from 1994 to
1996. From 1992 to 1994, Mr. Cauley served as a Senior Associate/Credit Analyst
at Barclays Bank, PLC. Mr. Cauley earned his M.S.I.A., concentrating in Finance
and Economics, from Carnegie Mellon University.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total more than $111 billion in assets as of
December 31, 1998. Federated was established in 1955 and is one of the largest
mutual fund investment managers in the United States with approximately 1,900
employees. More than 4,000 investment professionals make Federated Funds
available to their customers.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.60% of the Fund's
average daily net assets . The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Deliotte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

[To Be Filed by Amendment]

<PAGE>

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

A Statement of Additional Information (SAI) dated April 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

INVESTMENT COMPANY ACT FILE NO. 811-6307
CUSIP 314072109

107100-5A (4/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Adjustable Rate U.S.
Government Fund, Inc. dated April 30, 1999.

This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-341-7400.

April 30, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Addresses

CUSIP 314072109

3070701B (4/99)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on March 20, 1991. The Fund
changed its name from Fortress Adjustable Rate U.S. Government Fund, Inc. to
Federated Adjustable Rate U.S. Government Fund, Inc. on March 31, 1996. The
Fund's investment adviser is Federated Advisers (Adviser).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields

The following describes the types of fixed income securities in which the Fund
principally invests:

TREASURY SECURITIES

<PAGE>

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto
the certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the PREPAYMENT
RISKS of the underlying mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS

CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different PREPAYMENT AND MARKET RISKS
for each CMO class. SEQUENTIAL CMOS In a sequential pay CMO, one class
of CMOs receives all principal payments and prepayments. The next class
of CMOs receives all principal payments after the first class is paid
off. This process repeats for each sequential class of CMO. As a result,
each class of sequential pay CMOs reduces the prepayment risks

of subsequent classes.

PACS AND TACS

More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with
companion classes. PACs and TACs receive principal payments and
prepayments at a specified rate. The companion classes receive principal
payments and prepayments in excess of the specified rate. In addition,
PACs will receive the companion classes' share of principal payments, if
necessary, to cover a shortfall in the prepayment rate. This helps PACs
and TACs to control prepayment risks by increasing the risks to their
companion classes.

The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.

SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually
agreed upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated to
the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor
the value of the underlying security each day to ensure that the value of
the security always equals or exceeds the repurchase price.

Repurchase agreements are subject to CREDIT RISKS.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
repurchase agreements are subject to CREDIT RISKS. In addition, reverse
repurchase agreements create LEVERAGE RISKS because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the
period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, delayed
delivery transactions create market risks for the Fund. Delayed delivery
transactions also involve CREDIT RISKS in the event of a counterparty
default.

TO BE ANNOUNCED SECURITIES (TBAS)

As with other delayed delivery transactions, a seller agrees to issue a
TBA security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Fund and the seller would agree upon
the issuer, interest rate and terms of the underlying mortgages. The
seller would not identify the specific underlying mortgages until it
issues the security. TBA mortgage backed securities increase market
risks because the underlying mortgages may be less favorable than
anticipated by the Fund.

DOLLAR ROLLS

Dollar rolls are transactions where the Fund sells mortgage-backed
securities with a commitment to buy similar, but not identical,
mortgage-backed securities on a future date at a lower price.
Normally, one or both securities involved are TBA mortgage backed
securities. Dollar rolls are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives
contracts or special transactions, the Fund will either own the
underlying assets, enter into an offsetting transaction or set aside
readily marketable securities with a value that equals or exceeds the
Fund's obligations. Unless the Fund has other readily marketable assets
to set aside, it cannot trade assets used to secure such obligations
entering into an offsetting derivative contract or terminating a special
transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

SECURITIES LENDING

INVESTMENT RISKS

There are many factors which may effect an investment in the Fund. The
Fund's principal risks are described in its prospectus. Additional risk factors
are outlined
below.

BOND MARKET RISKS

o Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.

CREDIT RISKS

o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.

PREPAYMENT RISKS

LIQUIDITY RISKS

FUNDAMENTAL INVESTMENT POLICIES

Under normal circumstances, the Fund will invest at least 65% of the value of
its total assets in adjustable and floating rate mortgage securities which are
issued or guaranteed by the U.S. government, its agencies or instrumentalities.

The Fund engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objective and policies, and not for investment leverage. Liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its respective
assets.

The Fund may invest temporarily in cash and cash items during times of unusual
market conditions for defensive purposes and to maintain liquidity.

The Fund may engage in dollar roll transactions with respect to mortgage
securities issued by GNMA, FNMA, and FHLMC.

The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund.

The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily.

The Fund may enter into reverse repurchase agreements. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Fund's Board of
Directors.

The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective.

The Fund may lend portfolio securities up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined are creditworthy
under guidelines established by the Fund's Board of Directors. The Fund will
receive collateral in the form of cash or U.S. government securities equal to at
least 100% of the value of the securities loaned.

The Fund may enter into reverse repurchase agreements. When effecting reverse
repurchase agreements, liquid assets of the Fund in a dollar amount sufficient
to make payment for the obligations to be purchased, are segregated at the trade
date. These securities are marked to market daily and are maintained until the
transaction is settled.

INVESTMENT LIMITATIONS

The following limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act.

BUYING ON MARGIN

The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding, but only
to the extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio instruments
to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed
or 10% of the value of total assets at the time of the borrowing.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S. government securities) if
as a result more than 5% of the value of its total assets would be
invested in the securities of that issuer.

INVESTING IN REAL ESTATE

The Fund will not buy or sell real estate, including limited partnership
interests in real estate, although it may invest in securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities.

INVESTING IN RESTRICTED SECURITIES

The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933,
including repurchase agreements providing for settlement in more than
seven days after notice.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objective, policies, and
limitations.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent
the Fund from purchasing or holding U.S. government obligations, money
market instruments, variable amount demand master notes, bonds,
debentures, notes, certificates of indebtedness, or other securities,
entering into repurchase agreements, or engaging in other transactions
where permitted by a Fund's investment objective, policies and
limitations.

SELLING SHORT

The Fund will not sell securities short unless:

o during the time the short position is open, it owns an equal amount of
the securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and

o not more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.

INVESTING IN NEW ISSUERS

The Fund will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years of
operating history, including the operation of any predecessor. (This
limitation does not apply to issuers of collateralized mortgage
obligationsCMOs or real estate mortgage investment conduitsREMICs which
are collateralized by securities or mortgages issued or guaranteed as to
prompt payment of principal and interest by an agency of the U.S.
government.)

INVESTING IN MINERALS

The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE FUND

The Fund will not purchase or retain the securities of any issuer if the
Officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may not own securities of open-end investment companies. The
Fund can acquire up to 3 %per centum of the total outstanding stock of
closed-end investment companies. The Fund will not be subject to any
other limitations with regard to the acquisition of securities of
closed-end investment companies so long as the public offering price of
the Fund's shares does not include a sales chargeload exceeding 1.5% 1/2
per cent. The Fund will purchase securities of closed-end investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, or acquisition
of assets.

INVESTING IN STRIPPED MORTGAGE SECURITIES

The Fund will not invest its assets in stripped mortgage securities

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

The Fund does not expect to pledge securities or invest in stock of closed-end
investment companies during the coming year.

The Fund has not borrowed money or sold any securities short in an amount
exceeding 5% of the value of its net assets during the last fiscal year and has
no present intent to do so in the coming fiscal year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings associationand loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal years ended February 28, 1999
and 1998, the portfolio turnover rates were ___% and 67%, respectively.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and

for all other securities, at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Share; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:

o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;

o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;

o representing a total or partial distribution from a qualified plan. A total
or partial distribution does not include an account transfer, rollover or
other redemption made for purposes of reinvestment. A qualified plan does not
include an Individual Retirement Account, Keogh Plan, or a custodial account,
following retirement;

o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;

o of Shares that represent a reinvestment within 120 days of a previous
redemption;

o of Shares acquired through the exchange of shares of Federated Government
Income Securities, Inc. where those shares were purchased during that fund's
Charter Offering Period;

o of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and

o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator
has entered into certain arrangements with the Distributor or its affiliates,
or any other investment professional, to the extent that no payments were
advanced for purchases made through these entities.

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

The Distributor may pay investment professionals 0.25% of the purchase price of
$1 million or more of Fund Shares that its customer has not redeemed over the
first year.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares.

As of February 8, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: MLPF&S for the sole
benefit of its customers, Jacksonville, FL. owned approximately 4,445,330 shares
(29.84%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

<PAGE>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Fund,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Director from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of February 8, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

NAME
BIRTHDATE AGGREGATE TOTAL
ADDRESS COMPENSATION COMPENSATION
POSITION WITH FUND PRINCIPAL OCCUPATIONS FROM FROM FUND
FOR PAST 5 YEARS FUND AND FUND COMPLEX

JOHN F. DONAHUE*+ Chief Executive Officer and Director or $0 $0 for the
Birthdate: July 28, 1924 Trustee of the Federated Fund Complex; Fund and
Federated Investors Chairman and Director, Federated Investors, 54 other
Tower Inc.; Chairman and Trustee, Federated investment
1001 Liberty Avenue Advisers, Federated Management, and companies
Pittsburgh, PA Federated Research; Chairman and Director, in the Fund
CHAIRMAN AND DIRECTOR Federated Research Corp., and Federated Complex
Global Research Corp.; Chairman, Passport
Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of the Federated Fund $ $113,860.22 for
Birthdate: February 3, Complex; Director, Member of Executive the
1934 Committee, Children's Hospital of Fund and
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst 54 other
Pittsburgh, PA & Young LLP; Director, MED 3000 Group, investment
DIRECTOR Inc.; Director, Member of Executive companies
Committee, University of Pittsburgh. in the Fund
Complex

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $ $125,264.48for
Birthdate: June 23, 1937 Complex; President, Investment Properties the
Wood/IPC Commercial Corporation; Senior Vice President, Fund and
Dept. John R. Wood and Associates, Inc., 54 other
John R. Wood Realtors; Partner or Trustee in private investment
Associates, Inc. real estate ventures in Southwest Florida; companies
Realtors formerly: President, Naples Property in the Fund
3255 Tamiami Trial Management, Inc. and Northgate Village Complex
North Naples, FL Development Corporation.

DIRECTOR

NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $ $47,958.02for
Birthdate: September 3, Complex; formerly: Partner, Andersen the
1939 Worldwide SC. Fund and
175 Woodshire Drive 29 other
Pittsburgh, PA investment
DIRECTOR companies
in the Fund
Complex

WILLIAM J. COPELAND Director or Trustee of the Federated Fund $ $125,264.48 for
Birthdate: July 4, 1918 Complex; Director and Member of the the
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; Fund and
Pittsburgh, PA formerly: Vice Chairman and Director, PNC 54 other
DIRECTOR Bank, N.A., and PNC Bank Corp.; Director, investment
Ryan Homes, Inc. companies
in the Fund

Previous Positions: Director, United Complex
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman, Pittsburgh

Civic Light Opera.

JOHN F. CUNNINGHAM ++ Director or Trustee of some of the $ $0 for the
Birthdate: March 5, 1943 Federated Funds; Chairman, President and Fund and
353 El Brillo Way Chief Executive Officer, Cunningham & Co., 0 other
Palm Beach, FL Inc. ; Trustee Associate, Boston College; investment
DIRECTOR Director, EMC Corporation; formerly: companies
Director, Redgate Communications. in the Fund
Complex

Previous Positions: Chairman of the Board
and Chief Executive Officer, Computer
Consoles, Inc.; President and Chief
Operating Officer, Wang Laboratories;
Director, First National Bank of Boston;
Director, Apollo Computer, Inc.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund $ $125,264.48 for
Birthdate: May 18, 1922 Complex; Attorney-at-law; Director, The the
571 Hayward Mill Road Emerging Germany Fund, Inc. Fund and
Concord, MA 54 other
DIRECTOR Previous Positions: President, Boston Stock investment

Exchange, Inc.; Regional Administrator, companies
United States Securities and Exchange in the Fund
Commission. Complex

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $ $113,860.22 for
Birthdate: October 11, Complex; Professor of Medicine, University the
1932 of Pittsburgh; Medical Director, University Fund and
3471 Fifth Avenue of Pittsburgh Medical Center - Downtown; 54 other
Suite 1111 Hematologist, Oncologist, and Internist, investment
Pittsburgh, PA University of Pittsburgh Medical Center; companies
DIRECTOR Member, National Board of Trustees, in the Fund
Leukemia Society of America. Complex

EDWARD L. FLAHERTY, Director or Trustee of the Federated Fund $ $125,264.48 for
JR., ESQ. # Complex; Attorney, of Counsel, Miller, the
Birthdate: June 18, 1924 Ament, Henny & Kochuba; Director Emeritus, Fund and
Miller, Ament, Henny & Eat'N Park Restaurants, Inc.; formerly: 54 other
Kochuba Counsel, Horizon Financial, F.A., Western investment
205 Ross Street Region; Partner, Meyer and Flaherty. companies
Pittsburgh, PA in the Fund
DIRECTOR Complex

PETER E. MADDEN Director or Trustee of the Federated Fund $ $113,860.22 for
Birthdate: March 16, Complex; formerly: Representative, the
1942 Commonwealth of Massachusetts General Fund and
One Royal Palm Way Court; President, State Street Bank and 54 other
100 Royal Palm Way Trust Company and State Street Corporation. investment
Palm Beach, FL companies
DIRECTOR Previous Positions: Director, VISA USA and in the Fund
VISA International; Chairman and Director, Complex
Massachusetts Bankers Association;

Director, Depository Trust Corporation.

JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $ $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, Duquesne the
Birthdate: December 20, University; Consulting Partner, Mollica & Fund and
1932 Murray. 54 other
President, Duquesne investment
University Previous Positions: Dean and Professor of companies
Pittsburgh, PA Law, University of Pittsburgh School of in the Fund
DIRECTOR Law; Dean and Professor of Law, Villanova Complex
University School of Law.

WESLEY W. POSVAR Director or Trustee of the Federated Fund $ $113,860.22 for
Birthdate: September Complex; President, World Society of the
14, 1925 Ekistics (metropolitan planning), Athens; Fund and
1202 Cathedral of Professor, International Politics; 54 other
Learning Management Consultant; Trustee, Carnegie investment
University of Pittsburgh Endowment for International Peace, RAND companies
Pittsbugh, PA Corporation, Online Computer Library in the Fund
DIRECTOR Center, Inc., National Defense University Complex
and U.S. Space Foundation; President
Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory
Council for Environmental Policy and
Technology, Federal Emergency Management
Advisory Board; Trustee, Czech Management

Center, Prague.

Previous Positions: Professor, United
States Military Academy; Professor, United
States Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund $ $113,860.22 for
Birthdate: June 21, 1935 Complex; Public the
4905 Bayard Street Relations/Marketing/Conference Planning. Fund and
Pittsburgh, PA 54 other
DIRECTOR Previous Positions: National Spokesperson, investment
Aluminum Company of America; business owner. companies
in the Fund
Complex

J. CHRISTOPHER DONAHUE+ President or Executive Vice President of $0 $0 for the
Birthdate: April 11, the Federated Fund Complex; Director or Fund and
1949 Trustee of some of the Funds in the 16 other
Federated Investors Federated Fund Complex; President and investment
Tower Director, Federated Investors, Inc.; companies
1001 Liberty Avenue President and Trustee, Federated Advisers, in the Fund
Pittsburgh, PA Federated Management, and Federated Complex
EXECUTIVE VICE PRESIDENT Research; President and Director, Federated
Research Corp. and Federated Global
Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.

<PAGE>

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the
Birthdate: October 22, the Federated Fund Complex; President, Fund and
1930 Executive Vice President and Treasurer of 1 other
Federated Investors some of the Funds in the Federated Fund investment
Tower Complex; Vice Chairman, Federated company
1001 Liberty Avenue Investors, Inc.; Vice President, Federated in the Fund
Pittsburgh, PA Advisers, Federated Management, Federated Complex
EXECUTIVE VICE PRESIDENT Research, Federated Research Corp.,
Federated Global Research Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the
Birthdate: October 26, the Federated Fund Complex; Executive Vice Fund and
1938 President, Secretary, and Director, 54 other
Federated Investors Federated Investors, Inc.; Trustee, investment
Tower Federated Advisers, Federated Management, companies
1001 Liberty Avenue and Federated Research; Director, Federated in the Fund
Pittsburgh, PA Research Corp. and Federated Global Complex
EXECUTIVE VICE Research Corp.; Director, Federated
PRESIDENT AND SECRETARY Services Company; Director, Federated
Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the
Birthdate: June 17, Vice President - Funds Financial Services Fund and
1954 Division, Federated Investors, Inc.; 54 other
Federated Investors Formerly: various management positions investment
Tower within Funds Financial Services Division of companies
1001 Liberty Avenue Federated Investors, Inc. in the Fund
Pittsburgh, PA Complex
TREASURER

RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Fund and
Federated Investors Director or Trustee of some of the Funds in 6 other
Tower the Federated Fund Complex; Executive Vice investment
1001 Liberty Avenue President, Federated Investors, Inc.; companies
Pittsburgh, PA Chairman and Director, Federated Securities in the Fund
PRESIDENT Corp. Complex

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the
Birthdate: March 3, 1949 various other Funds in the Federated Fund Fund and
Federated Investors Complex; Executive Vice President, 41 other
Tower Federated Investment Counseling, Federated investment
1001 Liberty Avenue Global Research Corp., Federated Advisers, companies
Pittsburgh, PA Federated Management, Federated Research, in the Fund
CHIEF INVESTMENT OFFICER and Passport Research, Ltd.; Registered Complex
Representative, Federated Securities Corp.;
Portfolio Manager, Federated Administrative
Services; Vice President, Federated Investors,
Inc.; Formerly: Executive Vice President and Senior
Vice President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Senior Vice President, Federated Research
Corp., Federated Advisers, Federated Management,
Federated Research, and Passport Research, Ltd.

TODD A. ABRAHAM Todd A. Abraham has been the Fund's $0 $0 for the
(TO BE UPDATED 2-16-99) portfolio manager since 1995. He is Vice Fund and
President of the Fund. Mr. Abraham has been 2 other
a Portfolio Manager since 1995 and a Vice investment
President of the Fund's Adviser since July companies
1997. Mr. Abraham joined Federated in the Fund
Investors in 1993 as an Investment Analyst Complex

and served as Assistant Vice President from
1995 to 1997. Mr. Abraham served as a
Portfolio Analyst at Ryland Mortgage Co.
from 1992 to 1993. Mr. Abraham is a
Chartered Financial Analyst and received
his M.B.A. in finance from Loyola College.
</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.

++ Mr. Cunningham became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Company.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly-owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

RESEARCH SERVICES

Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE FUNDS
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio. Federated Services Company may voluntarily waive a
portion of its fee and may reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

<PAGE>

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED FEBRUARY 28 1999 1998 1997
Advisory Fee Earned $ $1,201,782 $1,540,544
Advisory Fee Reduction $ $65,849 $432,964
Brokerage Commissions $ -- --
Administrative Fee $ $151,178 $194,044
12b-1 Fee -- --
Shareholder Services Fee -- --

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year, five-year and since inception periods
ended February 28, 1999.

Yield given for the 30-day period ended February 28, 1999.

30 -DAY PERIOD 1 YEAR 5 YEARS SINCE INCEPTION
ON JULY 25, 1991

Total Return
Yield

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and

o information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

o LEHMAN BROTHERS ADJUSTABLE RATE MORTGAGE FUNDS AVERAGE is comprised of
all agency guaranteed securities with coupons that periodically adjust
over a spread of a published index.

o LEHMAN BROTHERS MUTUAL FUND SHORT (1-3) U.S. GOVERNMENT INDEX is an
index comprised of mutual funds which invest in short-term (1-3 year)
government securities.

o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in offering price net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "U.S.
Mortgage Funds" category in advertising and sales literature.

o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the

Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.

FINANCIAL INFORMATION

[The Financial Statements for the Fund for the fiscal year ended February
28, 1999 are incorporated herein by reference to the Annual Report to
Shareholders of Federated Adjustable Rate U.S. Government Fund, Inc. dated
February 28, 1999.]

<PAGE>

ADDRESSES

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110-1617

PART C. OTHER INFORMATION.

Item 23. EXHIBITS:

(a) (i) Conformed Copy of Articles of Incorporation of
the Registrant; (3)
(ii) Conformed Copy of Amendment (dated 5/31/91) to
Articles of Incorporation of the Registrant;(3)
(iii) Conformed Copy of Amendment (dated 3/29/96) to
Articles of Incorporation of the Registrant;(6)
(b) (i) Copy of By-Laws of the Registrant; (3)
(ii) Copy of Amendment No. 1 to the By-Laws of the
Registrant; (3)
(iii) Copy of Amendment No. 2 to the By-Laws of the
Registrant; +
(iv) Copy of Amendment No. 3 to the By-Laws of the
Registrant; +
(v) Copy of Amendment No. 4 to the By-Laws of the
Registrant; +
(c) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant; (5) (d) Conformed copy of Investment
Advisory Contract of the Registrant; (3) (e) (i) Conformed copy
of Distributor's Contract of the Registrant; (3)

(ii) The Registrant hereby incorporates the conformed copy
of the specimen Mutual Funds Sales and Service Agreement;
Mutual Funds Service Agreement; and Plan Trustee/Mutual
Funds Service Agreement from Item 24(b)(6) of the Cash Trust
Series II Registration Statement on Form N1-A, filed with
the Commission on July 24, 1995. (File Numbers 33-38550 and
811-6269

(f) Not applicable;

(g) (i) Conformed Copy of Custodian Agreement of the
Registrant; (3)

(ii) Conformed Copy of Custodian Fee Schedule; (6)

+ All exhibits have been filed electronically.

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed April 21, 1995. (File Nos. 33-41004 and
811-6307).

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed April 28, 1997. (File Nos. 33-41004 and
811-6307).

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 28, 1998. (File Nos. 33-41004 and
811-6307).

<PAGE>

(h) (i) Conformed copy of Amended and Restated Agreement for
Fund Accounting Services, Administrative Services,
Shareholder Transfer Agency Services and Custody
Services Procurement; (4)

(ii) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract
between Fidelity and Federated Shareholder Services
from Item 23(h) (iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 26, 1996. (File Nos. 2-75670
and 811-3375)

(iii) Conformed copy of Shareholder Services Agreement;
(6) (iv) The responses described in Item 23(e)(ii) are
hereby

incorporated by reference.

(i) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (3)

(j) Conformed copy of Consent of Independent Public
Accountants; (6)

(k) Not applicable;

(l) Conformed copy of Initial Capital Understanding; (3) (m) (i)
Conformed copy of Distribution Plan of the

Registrant; (1)

(ii) The responses described in Item 23(e)(ii) are
hereby incorporated by reference.

(n) Copy of Financial Data Schedules; (6) (o) Not applicable; (p)
(i) Conformed copy of Power of Attorney of the

Registrant;(6)

(ii) Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; +

(iii) Conformed copy of Power of Attorney of Treasurer of
the Registrant; + (iv) Conformed copy of Power of Attorney
of Director of the Registrant; +

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Post-Effective
Registration Statement on Form N-1A filed April 24, 1994. (File Nos.
33-41004 and 811-6307).

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed April 21, 1995. (File Nos. 33-41004 and
811-6307).

4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed April 25, 1996. (File Nos. 33-41004 and
811-6307).

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 28, 1998. (File Nos. 33-41004 and
811-6307).

<PAGE>

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND:

None

Item 25. INDEMNIFICATION: (2)

Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER:

For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Fund" in Part A. The
affiliations with the Registrant of four of the Directors and one of
the Officers of the investment adviser are included in Part B of this
Registration Statement under "Who Manages and Provides Services to
the Fund." The remaining Director of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 filed July 18, 1991. (File Nos. 33-41004 and 811-6307).

<PAGE>

Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Marc Halperin

Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Gary Farwell

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. Newcamp

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the investment
companies in the Federated Fund Complex described in Part B of this
Registration Statement.

<PAGE>

Item 27. PRINCIPAL UNDERWRITERS:

(a) Federated Securities Corp. the Distributor for shares of the Registrant,
acts as principal underwriter for the following open-end investment
companies, including the Registrant:

Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Richard B. Fisher Director, Chairman, Chief President and
Federated Investors Tower Executive Officer, Chief Director

1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.

Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, President

1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

</TABLE>

<PAGE>

Item 28. LOCATION OF ACCOUNTS AND RECORDS:

All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:

Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(Notices should be sent to the Agent for Service at above address)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Federated Shareholder

Services Company P.O. Box 8600
("Transfer Agent and Boston, MA 02266-8600

Dividend Disbursing Agent")

Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue

Pittsburgh, PA 15222-3779

Federated Advisers Federated Investors Tower
("Adviser") 1001 Liberty Avenue

Pittsburgh, PA 15222-3779

State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600

("Custodian")

Item 29. MANAGEMENT SERVICES: Not applicable.

Item 30. UNDERTAKINGS:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC., has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
26rd, day of February, 1999.

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

BY: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis, Assistant Secretary
Attorney in Fact for John F. Donahue

February 26, 1999

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By: /s/ Nicholas J. Seitanakis

Nicholas J. Seitanakis Attorney In Fact February 26, 1999
ASSISTANT SECRETARY For the Persons

Listed Below

John F. Donahue* Chairman and Director
(Chief Executive Officer)

William D. Dawson, III* Chief Investment Officer

Richard B. Fisher* President and Director

Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

Nicholas P. Constantakis* Director

William J. Copeland* Director

John F. Cunningham* Director

James E. Dowd, Esq.* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr., Esq.* Director

Peter E. Madden* Director

John E. Murray, Jr., J.D., S.J.D.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

* By Power of Attorney

Exhibit (b) (iii)under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

(FORMERLY: FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.)

AMENDMENT #2
TO THE BY-LAWS

(EFFECTIVE FEBRUARY 23, 1998)

Delete Sections 1, 2, 3, 4 & 5 from Article IV, OFFICERS, and replace with the
following:

Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be
a President, one or more Vice Presidents, a Treasurer, and a Secretary.
The Board of Directors, in its discretion, may elect or appoint a
Chairman of the Board of Directors and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by
a single person except the offices of President and Vice President may
not be held by the same person concurrently. It shall not be necessary
for any Director or any Officer to be a holder of shares in any Series
or Class of the Corporation.

Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers
shall be elected annually by the Board of Directors at its Annual
Meeting. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier
resignation or removal. The Chairman of the Board of Directors, if there
is one, shall be elected annually by and from the Directors, and serve
until a successor is so elected and qualified, or until earlier
resignation or removal.

<PAGE>

Section 3. REMOVAL. Any Officer elected by the Board of Directors or
whose appointment has been ratified by the Board of Directors may be
removed with or without cause at any time by a majority vote of all of
the Directors. Any other employee of the Corporation may be removed or
dismissed at any time by the President.

Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall
take effect at the time specified therein or, if no time is specified,
at the time of receipt. Unless otherwise specified , the acceptance of
such resignation shall not be necessary to make it effective.

Section 5. VACANCIES. Any vacancy in any of the offices, whether by
resignation, removal or otherwise, may be filled for the unexpired
portion of the term by the President. A vacancy in the office of
Assistant Vice President may be filled by a Vice President; in the
office of by the Secretary; or in the office of Assistant Treasurer by
the Treasurer. Any appointment to fill any vacancy shall serve subject
to ratification by the Board of Directors at its next Regular Meeting.

Exhibit (b) (iv) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

AMENDMENT #3
TO THE BY-LAWS

(EFFECTIVE FEBRUARY 27, 1998)

Delete Section 7 PROXIES of Article I, MEETINGS OF SHAREHOLDERS, and replace
with the following:

Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which
is dated more than eleven months before the meeting named therein shall
be accepted unless otherwise provided in the proxy. Every proxy shall be
in writing and signed by the Shareholder or his duly authorized agent or
be in such other form as may be permitted by the Maryland General
Corporation Law, including electronic transmissions from the shareholder
or his authorized agent. Authorization may be given orally, in writing,
by telephone, or by other means of communication. A copy, facsimile
transmission or other reproduction of the writing or transmission may be
substituted for the original writing or transmission for any purpose for
which the original transmission could be used. Every proxy shall be
dated, but need not be sealed, witnessed or acknowledged. Where Shares
are held of record by more than one person, any co-owner or co-fiduciary
may appoint a proxy holder, unless the Secretary of the Corporation is
notified in writing by any co-owner or co-fiduciary that the joinder of
more than one is to be required. All proxies shall be filed with and
verified by the Secretary or an Assistant Secretary of the Corporation,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not
be valid after the final adjournment of such meeting.

Exhibit (b) (v) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.

AMENDMENT #4
TO THE BY-LAWS

(EFFECTIVE MAY 12, 1998)

Strike Section 3 - Place of Meetings from Article I - Meeting of Shareholder and
replace it with the following:

Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the
Corporation or a particular Series or Class, shall be held at such place
within or without the State of Maryland as may be fixed by the Board of
Directors.

Exhibit (p) (ii) under Form N-1A
Exhibit (24) under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretaries of FEDERATED ADJUSTABLE RATE
U.S. GOVERNMENT FUND, INC. and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ William D. Dawson, III

Chief Investment Officer February 4, 1999

William D. Dawson, III

Sworn to and subscribed before me this 4th day of February, 1999

/S/ CHERI S. GOOD

Exhibit (p) (iii) under Form N-1A
Exhibit (24) under Item 601/Reg. S-K

POWER OF ATTORNEY

SIGNATURES TITLE DATE

/s/ Richard J. Thomas
Treasurer December 11, 1998

Richard J. Thomas (Principal Financial and
Accounting Officer)

Sworn to and subscribed before me this 11th day of December, 1998

/s/ Cheri S. Good

Exhibit (p) (iv) under Form N-1A
Exhibit (24) under Item 601/Reg. S-K

POWER OF ATTORNEY

SIGNATURES TITLE DATE

/s/ John F. Cunningham

Director February 4, 1999

John F. Cunningham

Sworn to and subscribed before me this 4th day of February, 1999

/S/ CHERI S. GOOD