FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
Supplement to Prospectus and Statement of Additional Information,
as appropriate, dated April 30, 1999
I. At the June 30, 1999 shareholder meeting, shareholders approved the
following changes to become effective July 1, 1999:
(1) Elected seven Directors.
(2) Ratified the selection of the Fund's independent auditors.
II. The meeting was adjourned to September 10, 1999, 2:00 p.m., (Eastern time),
at 2800 Corporate Drive, Pittsburgh, PA 15237-7000 with respect to the
following proposals. Unless shareholders are notified otherwise, these
changes will take effect on September 13, 1999.
(3) To make changes to the Fund's fundamental investment policies and
limitations:
(a) To amend the Fund's fundamental investment limitation regarding
diversification to read as follows:
"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; securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities and repurchase agreements
collateralized by such U.S. government securities; and securities of other
investment companies) if, as a result, more than 5% of the value of its total
assets would be invested in securities of that issuer, or the Fund would own
more than 10% of the outstanding voting securities of that issuer."
(b) To amend the Fund's fundamental investment limitation regarding borrowing
money and issuing senior securities to read as follows:
"The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
(c) To amend the Fund's fundamental investment limitation regarding investments
in real estate to read as
follows:
"The Fund may not purchase or sell real estate, provided that this
restriction does not prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner."
(d) To amend the Fund's fundamental investment limitation regarding investments
in commodities to read as follows:
"The Fund may not purchase or sell physical commodities, provided that the
Fund may purchase securities of companies that deal in commodities. For purposes
of this restriction, investments in transactions involving futures contracts and
options, forward currency contracts, swap transactions and other financial
contracts that settle by payment of cash are not deemed to be investments in
commodities."
(e) To amend the Fund's fundamental investment limitation regarding
underwriting securities to read as follows:
"The Fund may not underwrite the securities of other issuers, except that
the Fund may engage in transactions involving the acquisition, disposition or
resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933."
(f) To amend the Fund's fundamental investment limitation regarding lending by
the Fund to read as follows:
"The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests."
(g) To amend the Fund's fundamental investment policy regarding permissible
investments to read as follows:
"Under normal circumstances, the Fund will invest at least 65% of the value
of its total assets in U.S. government securities and adjustable and floating
rate mortgage securities that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities."
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
limitation regarding buying securities on margin to read as follows:
"The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases and sales
of securities and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments."
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
limitation regarding pledging assets to read as follows:
"The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities."
(j) To eliminate the Fund's fundamental limitation on investing restricted
securities and to amend, and to make non-fundamental, the Fund's
fundamental investment limitation regarding investing in illiquid
securities to read as follows:
"The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of the Fund's net
assets."
(k) To amend, and to make non-fundamental, the Fund's fundamental investment
limitation regarding investing in other investment companies to read as
follows:
"The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management fees,
and, therefore, any investment by the Fund in shares of other investment
companies may be subject to such duplicate expenses. At the present time, the
Fund expects that its investments in other investment companies will be limited
to shares of money market funds, including funds affiliated with the Fund's
investment adviser."
(l) To make non-fundamental the Fund's fundamental investment policy regarding
collateralized mortgage obligations;
(m) To make non-fundamental the Fund's fundamental investment policy regarding
dollar roll transactions;
(n) To make non-fundamental the Fund's fundamental investment policies
regarding securities lending activities;
(o) To make non-fundamental the Fund's fundamental investment policies
regarding repurchase agreement transactions;
(p) To make non-fundamental the Fund's fundamental investment policy regarding
reverse repurchase agreements;
(q) To make non-fundamental the Fund's fundamental investment policy regarding
investments in stripped mortgage securities;
(r) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding when-issued and delayed delivery transactions to read as
follows:
"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. Segregated assets are marked to market daily
and sufficient assets are maintained until the transaction is settled."
(4) To remove certain of the Fund's fundamental investment policies:
(a) To eliminate the Fund's fundamental investment policy on investing in oil,
gas and minerals;
(b) To eliminate the Fund's fundamental investment policy on investing in
issuers whose securities are owned by officers and Board members;
(c) To eliminate the Fund's fundamental investment policy on investing in
securities of new issuers;
(d) To eliminate the Fund's fundamental investment policy on selling securities
short;
(e) To eliminate the Fund's fundamental investment policy regarding trading
portfolio securities; and
(f) To eliminate the Fund's fundamental investment policy regarding temporary
investments.
(5) To approve amendments to the Fund's Articles of Incorporation to require
the approval of a "1940 Act" majority of shareholders in the event of the
sale or conveyance of the assets of the Fund to another fund or
corporation.
III. The following actions have been taken by the Board of Directors with regard
to non-fundamental investment policies:
(1) Approved the elimination of the following undertakings of the Fund:
(a) The Fund does not expect to pledge securities or invest in stock of
closed-end investment companies during the coming year.
(b) The Fund does not expect to borrow money or sell securities short in an
amount exceeding 5% of the value of its net assets during the coming fiscal
year.
(2) Approved the elimination of the Fund's non-fundamental investment
limitation that provides that, to the extent that investments in temporary
investments are not for defensive purposes, the Fund intends to limit its
investment in these securities to 20% of its total assets.
June 30, 1999
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Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
www.federatedinvestors.com
Cusip 314072109
G02619-03 (6/99)
