FEDERATED ADJUSTABLE RATE U S GOVERNMENT FUND INC, 485APOS, 2000-07-07

FEDERATED ADJUSTABLE RATE U S GOVERNMENT FUND INC
485APOS, 2000-07-07

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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
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Pre-Effective Amendment No. ......................
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Post-Effective Amendment No. __17_ ..................... X
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. _14_ ..................................... X
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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
SEPTEMBER 7, 2000 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 LIMITED DURATION GOVERNMENT FUND, INC.

(FORMERLY, FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.)
INSTITUTIONAL SHARES

A mutual fund seeking total return by investing its assets in U.S. government
and government agency securities, including mortgage backed securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. 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 Shares
Account and Share Information
Who Manages the Fund?
Financial Information

NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE

September 7, 2000

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. The Fund's total
return will consist of two components: (1) changes in the market value of its
portfolio of securities (both realized and unrealized appreciation); and (2)
income from its portfolio of securities. The Fund's Adviser expects that income
will comprise the largest component of total return. 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 in securities that are
issued or guaranteed by the U.S. government and its agencies or
instrumentalities, including mortgage backed securities that are issued by U.S.
government agencies or instrumentalities. Although the value of the Fund's
Shares will fluctuate, the Adviser will seek to manage the magnitude of the
fluctuation by limiting the Fund's dollar-weighted average duration to within
20% of the duration of the Merrill Lynch 1-3 Year Treasury Index. Duration
measures the price sensitivity of a fixed income security to changes in interest
rates. 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
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

o PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
interest rates, the Fund will be required to reinvest the proceeds at the
lower interest rates available. Also, when interest rates fall, the price of
mortgage backed securities may not rise to as great an extent as that of
other fixed income securities.

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

RISK/RETURN BAR CHART AND TABLE

(TO BE PROVIDED)
The total return shown here is for Institutional Service Shares which is another
class of shares offered by Federated Limited Duration Government Fund, Inc.
Institutional Service Shares are not offered in this prospectus for the Fund's
Institutional Shares. The total returns for Institutional Service Shares are
disclosed here because Institutional Shares have only been offered since
September 7, 2000. These total returns would be substantially similar to the
annual returns for Institutional Shares over the same period and would differ
only to the extent that the two classes do not have the same expenses. It is
anticipated that expenses of Institutional Service Shares will exceed those of
the Institutional Shares.

A performance bar chart and total return information for the Fund's
Institutional Shares will be provided after the Fund has been in operation for a
full calendar year.

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods ended December 31,
1999. The table shows the Fund's total returns averaged over a period of years
relative to the Merrill Lynch 1-Year Treasury Index ("ML1YRTI") and the Merrill
Lynch 2-Year Treasury Index ("ML2YRTI"), broad-based market indexes tracking
U.S. government securities, and the Lipper Adjustable Rate Mortgage Funds
Average ("LARMFA"), an average of funds with similar investment objectives.
Effective September 7, 2000, the Fund changed its fundamental investment
objective. Accordingly, the Fund's Adviser has elected to add the Merrill Lynch
1-3 year Treasury Index (ML13YTL) as an additional benchmark index which is
representative of the securities in which the Fund intends to invest. Total
returns for the indexes shown do not reflect sales charges, expenses or other
fees that the SEC requires to be reflected in the Fund's performance. Indexes
are unmanaged, and it is not possible to invest directly in an index.

CALENDAR PERIOD FUND ML1YRTI ML2YRTILARMFML13YTI
1 Year 4.14%4.03% 1.89% 4.38%3.06%
5 Year 5.56%5.85% 6.11% 5.79%6.51%
Start of Performance1 4.60%5.33% 5.81% 4.81%
1 THE FUND'S INSTITUTIONAL SERVICE SHARES START OF PERFORMANCE DATE WAS JULY 25,
1991.
Past performance is no guarantee of future results. This information provides
you with historical performance information so that you can analyze whether the
Fund's investment risks are balanced by its potential returns.

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED LIMITED DURATION GOVERNMENT FUND, INC. (INSTITUTIONAL SHARES)

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.

SHAREHOLDER FEES

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

ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Reimbursements)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS) Management Fee (2) 0.40% Distribution (12b-1) Fee None Shareholder
Services Fee (3) 0.25% Other Expenses(4) 0.33% Total Annual Fund Operating
Expenses 0.98% 1 Although not contractually obligated to do so, the Adviser

and Distributor expect to waive certain amounts. These are
shown below along with the net expenses the Fund expects to
ACTUALLY PAY for the fiscal year ending February 28, 2001.
Total Waivers and Reimbursements of Fund Expenses 0.68%
Total Actual Annual Fund Operating Expenses (after 0.30%
waivers and reimbursements)
2 The Adviser expects to voluntarily waive a portion of its management fee. The
Adviser can terminate this voluntary waiver at any time. The management fee
paid by the Fund (after the expected voluntary waiver) will be 0.00% for the
fiscal year ending February 28, 2001.

3 The Fund does not anticipate accruing or paying shareholder servicing fees for
the fiscal year ending February 28, 2001. If the Fund was to accrue or pay
shareholder servicing fees, it could pay up to 0.25% of its average net
assets.

4 The administrator expects to voluntarily reimburse certain operating expenses.
The administrator can terminate this anticipated voluntary reimbursement at
any time. Total other operating expenses paid by the Fund (after the expected
voluntary reimbursement) will be 0.30% for the fiscal year ending February 28,
2001.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund's Institutional Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are before
waivers and reimbursements as shown in the table and remain the same. Although
your actual costs and returns may be higher or lower, based on these assumptions
your costs would be:

1 Year $100
3 Years $312
5 Years $542
10 Years $1,201

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund invests in a diversified portfolio of direct obligations of the U.S.
government, its agencies or instrumentalities, including mortgage backed
securities issued by U.S. government agencies or instrumentalities. The Fund's
Adviser actively manages the Fund's portfolio, seeking to limit fluctuation in
the Fund's Share price due to changes in market interest rates, while selecting
investments that should offer enhanced returns based on the Adviser's analysis
of economic and market conditions. Although, unlike a money market fund, the
value of the Fund's Shares will fluctuate, the Adviser attempts to limit
fluctuation by managing the dollar-weighted average duration within 20% of the
duration of the Merrill Lynch 1-3 Year Treasury Index. The Adviser then seeks
higher returns, through security selection, than are possible in a portfolio
limited by the maturity constraints of a money market fund. The Adviser may seek
to increase the Fund's current income by lengthening or shortening duration from
time-to-time based on its interest rate outlook. If the Adviser expects interest
rates to decline, it will generally lengthen the Fund's duration. If the Adviser
expects interest rates to increase, it will generally shorten the Fund's
duration. The Adviser formulates its interest rate outlook and otherwise
attempts to anticipate changes in economic and market conditions by analyzing a
variety of factors, such as:

O current and expected U.S. growth;
O current and expected interest rates and inflation;
O the Federal Reserve's monetary policy; and
O changes in the supply of or demand for U.S. government securities.
There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates in particular will be
successful. In addition to managing the Fund's portfolio duration, the Adviser
seeks to enhance the Fund's current income through its allocation of the Fund's
holdings between U.S. government mortgage backed securities and other types of
U.S. government securities. Mortgage backed securities generally offer higher
yields versus other government securities of comparable duration in order to
compensate for prepayment risk. Prepayment risk is the unscheduled partial or
complete payment of the principal outstanding on the underlying mortgage loans
by the homeowners. The Adviser attempts to limit prepayment risk by selecting
those mortgage backed securities with characteristics which make prepayments
less likely.

The Adviser increases the portfolio's mortgage backed securities component when,
in the opinion of the Adviser, mortgage backed securities have an attractive
current and expected yield "spread" versus Treasury securities. (The spread is
the difference between the yield of a security versus the yield of a U.S.
Treasury security with comparable average life). The Adviser may also attempt to
take advantage of current and potential yield differentials existing from time
to time between various government mortgage backed securities in order to
increase the Fund's return. The Adviser may use collateralized mortgage
obligations ("CMOs") with relatively predictable cash flows (such as sequential
pay, planned amortization class and targeted amortization class), to reduce
prepayment risk. CMOs in which the Fund invests are issued by agencies or
instumentalities of the U.S. government.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term 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 PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME 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 principal types of fixed income securities in which
the Fund may invest:

MORTGAGE BACKED SECURITIES

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 interest rate risks for each CMO class. The degree of
prepayment risk of CMOs depends upon the structure of the CMOs. However, the
actual returns of any type of mortgage backed security depends upon the
performance of the underlying pool of mortgages, which no one can predict and
will vary among pools.

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, TACS AND COMPANION CLASSES

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.

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.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

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.

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 interest
rate 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
interest rate 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 interest rate 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 without 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.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

O Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

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.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and a partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as unscheduled payments from the voluntary prepayment,
refinancing, or foreclosure of the underlying loans. These unscheduled payments
of principal can adversely affect the price and yield of mortgage backed
securities.

For example, during periods of declining interest rates, prepayments can be
expected to accelerate, and the Fund would be required to reinvest the proceeds
at the lower interest rates then available. In addition, like other
interest-bearing securities, the values of mortgage backed securities generally
fall when interest rates rise. Since rising interest rates generally result in
decreased prepayments of mortgage backed securities, this could cause mortgage
securities to have greater average lives than expected and their value may
decline more than other fixed income securities. Conversely, when interest rates
fall, their potential for capital appreciation is limited due to the existence
of the prepayment feature.

Generally, mortgage backed securities compensate for greater prepayment risk by
paying a higher yield. The additional interest paid for risk is measured by 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). An increase in
the spread will cause the price of the security to decline. Spreads generally
increase in response to adverse economic or market conditions.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus), 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 generally values fixed income securities
according to the mean between bid and asked prices as furnished by an
independent pricing service, except that fixed income securities with remaining
maturities of less than 60 days at the time of purchase may be valued at
amortized cost.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.

The required minimum initial investment for Fund Shares is $100,000. The
required minimum subsequent investment amount is $100. The minimum initial and
subsequent investment amounts for retirement plans are $250 and $100,
respectively.

An institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions acting in an agency or fiduciary capacity or
to individuals directly or through 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).

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase 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
three business days. 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 incurred by the Fund or Federated Shareholder Services Company, the Fund's
transfer agent.

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).

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.

HOW TO REDEEM SHARES

You should redeem 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 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 Shares by calling the Fund at 1-800-341-7400 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 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 and

o signatures of all shareholders exactly as registered.

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, or

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

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.

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 does not issue share certificates.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares daily 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 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

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

WHO MANAGES THE FUND?

The Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.

THE FUND'S PORTFOLIO MANAGERS ARE:

TODD A. ABRAHAM

Todd A. Abraham has been the Fund's Portfolio Manager since October 1995. He is
Vice President of the Fund. Mr. Abraham has been a Portfolio Manager since 1995
and a Vice President of the Fund's Adviser since 1997. Mr. Abraham joined
Federated 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.

SUSAN M. NASON

Susan M. Nason has been the Fund's Portfolio Manager since September 2000. Ms.
Nason joined Federated in 1987 and has been a Senior Portfolio Manager and
Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a
Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason
is a Chartered Financial Analyst and received her M.S.I.A. concentrating in
Finance from Carnegie Mellon University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% 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.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The Fund's fiscal year end is February 28. As this is the Fund's Institutional
Shares first fiscal year, financial information is not yet available.

FEDERATED LIMITED DURATION GOVERNMENT FUND INC.

(formerly, Federated Adjustable Rate U.S. Government Fund, Inc.)

INSTITUTIONAL SHARES

A Statement of Additional Information (SAI) dated September 7, 2000, 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, and make inquiries,
call your investment professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

INVESTMENT COMPANY ACT FILE NO. 811-6307
CUSIP 314072109

1071005A (8/00)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED LIMITED DURATION GOVERNMENT FUND, INC.

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

INSTITUTIONAL SERVICE SHARES

INSTITUTIONAL SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Limited Duration
Government Fund (Fund) Institutional Service Shares and Institutional Shares,
dated September 7, 2000.

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

September 7, 2000

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

1071005 B (8/00)

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, and
from "Federated Adjustable Rate U.S. Government Fund, Inc." to "Federated
Limited Duration Government Fund, Inc." on September 7, 2000. The Board of
Directors (Board) (the Board has established two classes of shares of the Fund,
known as Institutional Service Shares and Institutional Shares (Shares). This
SAI relates to both classes of Shares. The Fund's investment adviser is
Federated Investment Management Company (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.

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. 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 prepayments from the underlying mortgages. As a result, the
holders assume all the prepayment risks of the underlying mortgages.

ADJUSTABLE RATE MORTGAGES (ARMS)

The Fund invests in interests in pools of adjustable rate mortgages, which are
known as ARMs. While fixed rate mortgage securities have a stated interest rate,
ARMs have periodic adjustments in the interest rate on the underlying mortgages.
The adjustable rate feature of the mortgages underlying the ARMs 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
ARMs reset periodically (for example, semi-annually or annually), the yields of
the ARMs held in the portfolio will gradually adjust to reflect the overall
changes in interest rates.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

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 interest rate risks for each CMO class. 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.

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.

FLOATERS AND INVERSE FLOATERS

Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market index
such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate risks from the
Floater to the Inverse Floater class, reducing the price volatility of the
Floater class and increasing the price volatility of the Inverse Floater class.

TREASURY SECURITIES

Treasury securities are direct obligations of the government of the United
States. Treasury securities are generally regarded as having the lowest credit
risks.

AGENCY SECURITIES

REPURCHASE AGREEMENTS

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. 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.

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

The Fund may engage in dollar roll transactions with respect to mortgage
securities issued by the Government National Mortgage Association, Federal
National Mortgage Association, and Federal Home Loan Mortgage Corporation.
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

INTER-FUND BORROWING AND LENDING ARRANGEMENTS

The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. (Federated Funds) to lend
and borrow money for certain temporary purposes directly to and from other
Federated Funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board of Directors (the "Board"), and the
Board monitors the operation of the program. Any inter-fund loan must comply
with certain conditions set out in the exemption, which are designed to assure
fairness and protect all participating funds. For example, inter-fund lending is
permitted only (a) to meet shareholder redemption requests, and (b) to meet
commitments arising from "failed" trades. All inter-fund loans must be repaid in
seven days or less. The Fund's participation in this program must be consistent
with its investment policies and limitations, and must meet certain percentage
tests. Inter-fund loans may be made only when the rate of interest to be charged
is more attractive to the lending fund than market-competitive rates on
overnight repurchase agreements (the "Repo Rate") AND more attractive to the
borrowing fund than the rate of interest that would be charged by an
unaffiliated bank for short-term borrowings (the "Bank Loan Rate"), as
determined by the Board. The interest rate imposed on inter-fund loans is the
average of the Repo Rate and the Bank Loan Rate.

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 interest rate risks and credit
risks.

INVESTMENT RISKS

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

INTEREST RATE 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. However, market factors, such as the demand
for particular fixed income securities, may cause the price of certain fixed
income securities to fall while the prices of other securities rise or remain
unchanged.

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.

PREPAYMENT RISKS

o Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and a partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price and yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be
required to reinvest the proceeds at the lower interest rates then available.
In addition, like other interest bearing securities, the values of mortgage
backed securities generally fall when interest rates rise. Since rising
interest rates generally result in decreased prepayments of mortgage backed
securities, this could cause mortgage securities to have greater average
lives than expected and their value may decline more than other fixed income
securities. Conversely, when interest rates fall, their potential for capital
appreciation is limited due to the existence of the prepayment feature.

o Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their
stated principal amount. Conversely, the prepayment of mortgage securities
purchased at a market discount from their stated principal amount will
accelerate the recognition of interest income by the Fund, which would be
taxed as ordinary income when distributed to the shareholders.

o Generally, mortgage backed securities compensate for greater prepayment risk
by paying a higher yield. The additional interest paid for risk is measured
by 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). An
increase in the spread will cause the price of the security to decline.
Spreads generally increase in response to adverse economic or market
conditions.

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 (not 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.

INVESTMENT LIMITATIONS

DIVERSIFICATION

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 the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.

UNDERWRITING

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.

INVESTING IN COMMODITIES

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.

INVESTING IN REAL ESTATE

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.

BORROWING MONEY AND ISSUING SENIOR SECURITIES

The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940 (1940
Act).

LENDING

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.

THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD AND BY
THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
1940 ACT. THE FOLLOWING LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD
WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL
CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.

SECURITIES LENDING

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 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.

INVESTING IN STRIPPED MORTGAGE SECURITIES

The Fund will not invest its assets in stripped mortgage securities.

ILLIQUID SECURITIES

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.

INVESTING IN OTHER INVESTMENT COMPANIES

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 may include shares of money
market funds, including funds affiliated with the Fund's investment adviser.

PURCHASES ON MARGIN

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.

PLEDGING ASSETS

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. For purposes of the above limitations, the Fund
considers certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items." Except with respect to borrowing money, if a percentage
limitations 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 limitation.

INVESTMENT POLICY

The Fund pursues its objective by investing its assets in U.S. government and
government agency securities, including mortgage backed securities.

DETERMINING MARKET VALUE OF SECURITIES

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

o for fixed income securities, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that fixed
income securities with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost; and

o 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.

WHAT DO SHARES COST?

The net asset value (NAV) for each class of Shares may differ due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.

HOW IS THE FUND SOLD?

Underthe Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN (INSTITUTIONAL SERVICE SHARES ONLY)

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. In
addition, 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.

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 (such as broker/dealers or banks) may be paid fees, in
significant amounts, out of the assets of the Distributor and/or Federated
Shareholder Services Company (these fees do not come 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
and/or shareholder services, such as advertising, providing incentives to their
sales personnel, sponsoring other activities intended to promote sales, and
maintaining shareholder accounts. These payments may be based upon such factors
as the number or value of Shares the investment professional sells or may sell;
the value of client assets invested; and/or the type and nature of sales or
marketing support furnished by the investment professional.

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 1940 Act,
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, except that in matters affecting only a particular class,
only Shares of that class are entitled to vote.

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 June 27, 2000, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Shares: MLPF&S, Jacksonville, FL, owned
approximately 3,003,878 Shares (28.22%).

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.

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, birth date, 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 43 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of June 27, 2000, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Shares.

------------------------------------------------------------------------------------------------

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX

----------------------

JOHN F. DONAHUE*+# Chief Executive Officer and Director or $0 $0 for the Fund
Birth Date: July Trustee of the Federated Fund Complex; and 43 other
28, 1924 Chairman and Director, Federated investment
Federated Investors Investors, Inc.; Chairman, Federated companies in the
Tower Investment Management Company, Fund Complex
1001 Liberty Avenue Federated Global Investment Management
Pittsburgh, PA Corp. and Passport Research, Ltd. ;
CHAIRMAN AND DIRECTOR formerly: Trustee, Federated Investment
Management Company and Chairman and
Director, Federated Investment
Counseling.
----------------------

THOMAS G. BIGLEY Director or Trustee of the Federated $1,108.46 $116,760.63 for
Birth Date: February Fund Complex; Director, Member of the Fund
3, 1934 Executive Committee, Children's and 43 other
15 Old Timber Trail Hospital of Pittsburgh; Director, investment
Pittsburgh, PA Robroy Industries, Inc. (coated steel companies in the
DIRECTOR conduits/computer storage equipment); Fund Complex
formerly: Senior Partner, Ernst & Young

LLP; Director, MED 3000 Group, Inc.
(physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
----------------------

JOHN T. CONROY, JR. Director or Trustee of the Federated $1,189.75 $128,455.37 for
Birth Date: June 23, Fund Complex; President, Investment the Fund
1937 Properties Corporation; Senior Vice and 43 other
Grubb & President, John R. Wood and Associates, investment
Ellis/Investment Inc., Realtors; Partner or Trustee in companies in the
Properties private real estate ventures in Fund Complex
Corporation Southwest Florida; formerly: President,
3201 Tamiami Trail Naples Property Management, Inc. and
North Northgate Village Development
Naples, FL Corporation.
DIRECTOR

----------------------

NICHOLAS P. Director or Trustee of the Federated $1,108.46 $73,191.21 for the
CONSTANTAKIS Fund Complex; Director, Michael Baker Fund
Birth Date: Corporation (engineering, construction, and 37 other
September 3, 1939 operations and technical services); investment
175 Woodshire Drive formerly: Partner, Andersen Worldwide companies in the
Pittsburgh, PA SC. Fund Complex
DIRECTOR

----------------------

JOHN F. CUNNINGHAM Director or Trustee of some of the $1,081.43 $93,190.48 for the
Birth Date: March 5, Federated Fund Complex; Chairman, Fund
1943 President and Chief Executive Officer, and 37 other
353 El Brillo Way Cunningham & Co., Inc. (strategic investment
Palm Beach, FL business consulting); Trustee companies in the
DIRECTOR Associate, Boston College; Director, Fund Complex
Iperia Corp. (communications/software);
formerly: Director, Redgate
Communications and EMC Corporation
(computer storage systems).

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.
----------------------

LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,081.43 $116,760.63 for
M.D.* Fund Complex; Professor of Medicine, the Fund
Birth Date: October University of Pittsburgh; Medical and 43 other
11, 1932 Director, University of Pittsburgh investment
3471 Fifth Avenue Medical Center - Downtown; companies in the
Suite 1111 Hematologist, Oncologist and Internist, Fund Complex
Pittsburgh, PA University of Pittsburgh Medical
DIRECTOR Center; Member, National Board of
Trustees, Leukemia Society of America.

----------------------

PETER E. MADDEN Director or Trustee of the Federated $984.27 $109,153.60 for
Birth Date: March Fund Complex; formerly: Representative, the Fund
16, 1942 Commonwealth of Massachusetts General and 43 other
One Royal Palm Way Court; President, State Street Bank and investment
100 Royal Palm Way Trust Company and State Street companies in the
Palm Beach, FL Corporation. Fund Complex
DIRECTOR

Previous Positions: Director, VISA USA

and VISA International; Chairman and

Director, Massachusetts Bankers

Association; Director, Depository Trust

Corporation; Director, The Boston Stock
Exchange.

----------------------

CHARLES F. Director or Trustee of some of the $594.10 $102,573.91 for
MANSFIELD, JR. Federated Fund Complex; Executive Vice the Fund
Birth Date: April President, Legal and External Affairs, and 40 other
10, 1945 Dugan Valva Contess, Inc. (marketing, investment
80 South Road communications, technology and companies in the
Westhampton Beach, consulting); formerly: Management Fund Complex
NY DIRECTOR Consultant.

Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.

----------------------

JOHN E. MURRAY, JR., Director or Trustee of the Federated $1,162.71 $128,455.37 for
J.D., S.J.D.# Fund Complex; President, Law Professor, the Fund
Birth Date: December Duquesne University; Consulting and 43 other
20, 1932 Partner, Mollica & Murray; Director, investment
President, Duquesne Michael Baker Corp. (engineering, companies in the
University construction, operations and technical Fund Complex
Pittsburgh, PA services).
DIRECTOR

Previous Positions: Dean and Professor

of Law, University of Pittsburgh School
of Law; Dean and Professor of Law,
Villanova University School of Law.
----------------------

MARJORIE P. SMUTS Director or Trustee of the Federated $1,081.43 $116,760.63 for
Birth Date: June 21, Fund Complex; Public the Fund
1935 Relations/Marketing/Conference Planning. and 43 other
4905 Bayard Street investment
Pittsburgh, PA Previous Positions: National companies in the
DIRECTOR Spokesperson, Aluminum Company of Fund Complex
America; television producer; business owner.

----------------------

JOHN S. WALSH Director or Trustee of some of the $540.01 $94,536.85 for the
Birth Date: November Federated Fund Complex; President and Fund
28, 1957 Director, Heat Wagon, Inc. and 39 other
2007 Sherwood Drive (manufacturer of construction temporary investment
Valparaiso, IN heaters); President and Director, companies in the
DIRECTOR Manufacturers Products, Inc. Fund Complex
(distributor of portable construction
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway contractor);
formerly: Vice President, Walsh &
Kelly, Inc.
----------------------

J. CHRISTOPHER President or Executive Vice President $0 $0 for the Fund
DONAHUE +* of the Federated Fund Complex; Director and 30 other
Birth Date: April or Trustee of some of the Funds in the investment
11, 1949 Federated Fund Complex; President, companies in the
Federated Investors Chief Executive Officer and Director, Fund Complex
Tower Federated Investors, Inc.; President,
1001 Liberty Avenue Chief Executive Officer and Trustee,
Pittsburgh, PA Federated Investment Management
EXECUTIVE VICE Company; Trustee, Federated Investment
PRESIDENT AND Counseling; President, Chief Executive
DIRECTOR Officer and Director, Federated Global
Investment Management Corp.; President

and Chief Executive Officer, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company; formerly:
President, Federated Investment
Counseling.
----------------------

EDWARD C. GONZALES President, Executive Vice President and $0 $0 for the Fund
Birth Date: October Treasurer of some of the Funds in the and 42 other
22, 1930 Federated Fund Complex; Vice Chairman, investment
Federated Investors Federated Investors, Inc.; Trustee, companies in the
Tower Federated Administrative Services; Fund Complex
1001 Liberty Avenue formerly: Trustee or Director of some
Pittsburgh, PA of the Funds in the Federated Fund
EXECUTIVE VICE Complex; CEO and Chairman, Federated
PRESIDENT Administrative Services; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Director and
Executive Vice President, Federated
Securities Corp.; Director, Federated
Services Company; Trustee, Federated
Shareholder Services Company.
----------------------

JOHN W. MCGONIGLE Executive Vice President and Secretary $0 $0 for the Fund
Birth Date: October of the Federated Fund Complex; and 43 other
26, 1938 Executive Vice President, Secretary and investment
Federated Investors Director, Federated Investors, Inc.; companies in the
Tower formerly: Trustee, Federated Investment Fund Complex
1001 Liberty Avenue Management Company and Federated
Pittsburgh, PA Investment Counseling; Director,
EXECUTIVE VICE Federated Global Investment Management
PRESIDENT Corp., Federated Services Company and

Federated Securities Corp.
----------------------

RICHARD B. FISHER President or Vice President of some of $0 $0 for the Fund
Birth Date: May 17, the Funds in the Federated Fund and 41 other
1923 Complex; Vice Chairman, Federated investment
Federated Investors Investors, Inc.; Chairman, Federated companies in the
Tower Securities Corp.; formerly: Director or Fund Complex
1001 Liberty Avenue Trustee of some of the Funds in the
Pittsburgh, PA Federated Fund Complex,; Executive Vice
PRESIDENT President, Federated Investors, Inc.
and Director and Chief Executive
Officer, Federated Securities Corp.
----------------------

RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the Fund
Birth Date: June 17, Complex; Senior Vice President, and 43 other
1954 Federated Administrative Services; investment
Federated Investors formerly: Vice President, Federated companies in the
Tower Administrative Services; held various Fund Complex
1001 Liberty Avenue management positions within Funds
Pittsburgh, PA Financial Services Division of
TREASURER Federated Investors, Inc.
----------------------

WILLIAM D. DAWSON, Chief Investment Officer of this Fund $0 $0 for the Fund
III and various other Funds in the and 27 other
Birth Date: March 3, Federated Fund Complex; Executive Vice investment
1949 President, Federated Investment companies in the
Federated Investors Counseling, Federated Global Investment Fund Complex
Tower Management Corp., Federated Investment
1001 Liberty Avenue Management Company and Passport
Pittsburgh, PA Research, Ltd.; Director, Federated
CHIEF INVESTMENT Global Investment Management Corp. and
OFFICER Federated Investment Management
Company; Registered 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 Investment
Management Company and Passport
Research, Ltd.
----------------------

TODD A. ABRAHAM Todd A. Abraham has been the Fund's $0 $0 for the Fund
Birth Date: February Portfolio Manager since October 1995. and 2 other
10, 1966 He is Vice President of the Fund. Mr. investment
Federated Investors Abraham has been a Portfolio Manager companies in the
Tower since 1995 and a Vice President of the Fund Complex
1001 Liberty Avenue Fund's investment adviser since 1997.
Pittsburgh, PA Mr. Abraham joined Federated in 1993 as
VICE PRESIDENT an Investment Analyst and served as
Assistant Vice President from 1995 to

1997. Mr. Abraham is a Chartered
Financial Analyst and received his

M.B.A. in Finance from Loyola College.

</TABLE>

* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE 1940 ACT. # A POUND SIGN DENOTES A MEMBER OF THE BOARD'S
EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS
MEETINGS.

+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE PRESIDENT
AND DIRECTOR OF THE FUND.

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.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Directors, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.

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. 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

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:

AVERAGE AGGREGATE DAILY

MAXIMUM NET ASSETS OF THE
ADMINISTRATIVE FEE FEDERATED 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 and $30,000 per each additional class of Shares.
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.

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.

INDEPENDENT PUBLIC ACCOUNTANTS

The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES (INSTITUTIONAL SERVICE SHARES)

FOR THE YEAR ENDED 2000 1999 1998
FEBRUARY 28 OR 29
Advisory Fee Earned $738,126 $955,395 $1,201,782
Advisory Fee Reduction $243,057 $119,907 $65,849
Administrative Fee $125,000 $125,000 $151,178
12b-1 Fee
Institutional Service $12,302 -- --
Shares
Shareholder Services Fee

Institutional Service $295,250 -- --
Shares

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using SEC's 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.

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 (INSTITUTIONAL SERVICE SHARES) Total
returns are given for the one-year , five-year and Start of Performance periods
ended February 29, 2000.

Yield is given for the 30-day period ended February 29, 2000.

-----------------
Start of
Performance on

30-DAY PERIOD 1 Year 5 Years July 25, 1991
-----------------
INSTITUTIONAL
SERVICE SHARES

-----------------
Total Return N/A 2.90% 5.20% 4.59%
-----------------
Yield 5.34% N/A N/A N/A
----------------------------------------------------------------------------
Since the Fund's Institutional Shares did not commence operations prior to
February 29, 2000, there is no similar performance information.

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 30-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 30-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 Fund; 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:

MERRILL LYNCH 1-3 YEAR TREASURY INDEX

Merrill Lynch Treasury Indices are unmanaged indices tracking short-term U.S.
treasury securities between 1 and 2.99 years. The index is produced by Merrill
Lynch, Pierce, Fenner & Smith, Inc.

MERRILL LYNCH 1-YEAR TREASURY INDEX AND MERRILL LYNCH 2-YEAR TREASURY INDEX
Merrill Lynch Treasury Indices are unmanaged indices tracking U.S. government
securities. The indices are produced by Merrill Lynch, Pierce, Fenner & Smith,
Inc.

LEHMAN BROTHERS ADJUSTABLE RATE MORTGAGE FUNDS AVERAGE

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.

LEHMAN BROTHERS MUTUAL FUND SHORT (1-3) U.S. GOVERNMENT INDEX

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.

LIPPER ANALYTICAL SERVICES, INC.

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 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.

MORNINGSTAR, INC.

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, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 27 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, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16 government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime, 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115
million, 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 1,160 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 29,
2000 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Adjustable Rate U.S. Government Fund, Inc. dated February 29, 2000.

ADDRESSES

FEDERATED LIMITED DURATION GOVERNMENT FUND, INC.

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

INSTITUTIONAL SERVICE SHARES

INSTITUTIONAL SHARES

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 Investment Management Company
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
200 Berkeley Street
Boston, MA 02116

PROSPECTUS

FEDERATED LIMITED DURATION GOVERNMENT FUND, INC.

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

INSTITUTIONAL SERVICE SHARES

A mutual fund seeking total return by investing its assets in U.S. government
and government agency securities, including mortgage backed securities.

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 Shares
Account and Share Information
Who Manages the Fund?
Financial Information
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE

September 7, 2000

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

o INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

RISK/RETURN BAR CHART AND TABLE

(TO BE PROVIDED)

The graphic presentation displayed here consist of a bar chart representing the
annual total returns of Institutional Service Shares as of the calendar year-end
for each of 6 years.

The `y' axis reflects the "% Total Return" beginning with (5%) and increasing in
increments of 5% up to 10%.

The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended 1997. The light gray shaded chart features 6 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 Institutional Service Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1992 through 1997. The percentages noted are: 4.57%, 3.54%, (0.31%),
8.30%, 5.90% and 5.89%.

THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
TOTAL RETURNS ON A CALENDAR YEAR-END BASIS. THE TOTAL RETURNS DISPLAYED FOR THE
FUND'S INSTITUTIONAL SERVICE SHARES DO NOT REFLECT THE PAYMENT OF ANY SALES
CHARGES OR RECURRING SHAREHOLDER ACCOUNT FEES. IF THESE CHARGES OR FEES HAD BEEN
INCLUDED, THE RETURNS WOULD HAVE BEEN LOWER. THE FUND'S INSTITUTIONAL SERVICE
SHARES TOTAL RETURN FOR THE THREE-MONTH PERIOD FROM JANUARY 1, 2000 TO JUNE 30,
2000 WAS ____% WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S INSTITUTIONAL
SERVICE SHARES 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 TABLE

The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods ended December 31,
1999. The table shows the Fund's total returns averaged over a period of years
relative to the Merrill Lynch 1-Year Treasury Index ("ML1YRTI") and the Merrill
Lynch 2-Year Treasury Index ("ML2YRTI"), broad-based market indexes tracking
U.S. government securities, and the Lipper Adjustable Rate Mortgage Funds
Average ("LARMFA"), an average of funds with similar investment objectives.
Effective September 7, 2000, the Fund changed its fundamental investment
objective. Accordingly, the Fund's Adviser has elected to add the Merrill Lynch
1-3 Year Treasury Index (ML13YTL) as an additional benchmark index which is
representative of the securities in which the Fund intends to invest. Total
returns for the indexes shown do not reflect sales charges, expenses or other
fees that the SEC requires to be reflected in the Fund's performance. Indexes
are unmanaged, and it is not possible to invest directly in an index.

CALENDAR PERIOD FUND ML1YRTI ML2YRTILARMFML13YTI
1 Year 4.14%4.03% 1.89% 4.38%3.06%
5 Year 5.56%5.85% 6.11% 5.79%6.51%
Start of Performance1 4.60%5.33% 5.81% 4.81%6.08%

1 THE FUND'S INSTITUTIONAL SERVICE SHARES START OF PERFORMANCE DATE WAS JULY 25,
1991. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THIS INFORMATION
PROVIDES YOU WITH HISTORICAL PERFORMANCE INFORMATION SO THAT YOU CAN ANALYZE
WHETHER THE FUND'S INVESTMENT RISKS ARE BALANCED BY ITS POTENTIAL RETURNS.

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED LIMITED DURATION GOVERNMENT FUND, INC. (INSTITUTIONAL SERVICE SHARES)

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

SHAREHOLDER FEES

ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Reimbursements)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS) Management Fee (2) 0.40% Distribution (12b-1) Fee (3) 0.25% Shareholder
Services Fee 0.25% Other Expenses(4) 0.33% Total Annual Fund Operating Expenses
1.23% 1 Although not contractually obligated to do so, the Adviser

and Distributor expect to waive certain amounts. These are
shown below along with the net expenses the Fund expects to
ACTUALLY PAY for the fiscal year ending February 28, 2001.
Total Waivers and Reimbursements of Fund Expenses 0.68%
Total Actual Annual Fund Operating Expenses (after 0.55%
waivers and reimbursements)
2 The Adviser expects to voluntarily waive a portion of its management fee. The
Adviser can terminate this voluntary waiver at any time. The management fee
paid by the Fund (after the expected voluntary waiver) will be 0.00% for the
fiscal year ending February 28, 2001.

3 The Fund does not anticipate accruing or paying distribution (12b-1)fees for
the fiscal year ending February 28, 2001. If the Fund was to accrue or pay
distribution (12b-1) fees, it could pay up to 0.25% of its average net assets.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are before waivers and reimbursements as shown in the table and remain
the same. Although your actual costs and returns may be higher or lower, based
on these assumptions your costs would be:

1 Year $125
3 Years $390
5 Years $676
10 Years $1,489

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

In addition to managing the Fund's portfolio duration, the Adviser seeks to
enhance the Fund's current income through its allocation of the Fund's holdings
between U.S. government mortgage backed securities and other types of U.S.
government securities. Mortgage backed securities generally offer higher yields
versus other government securities of comparable duration in order to compensate
for prepayment risk. Prepayment risk is the unscheduled partial or complete
payment of the principal outstanding on the underlying mortgage loans by the
homeowners. The Adviser attempts to limit prepayment risk by selecting those
mortgage backed securities with characteristics which make prepayments less
likely.

TEMPORARY DEFENSIVE INVESTMENTS

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

The following describes the principal types of fixed income securities in which
the Fund may invest:

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS

SEQUENTIAL CMOS

PACS, TACS AND COMPANION CLASSES

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

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

ASSET COVERAGE

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

PREPAYMENT RISK

WHAT DO SHARES COST?

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.

The required minimum initial investment for Fund Shares is $25,000. The required
minimum subsequent investment amount is $100. The minimum initial and subsequent
investment amounts for retirement plans are $250 and $100, respectively. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to retail and private banking customers of financial
institutions or 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 Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different marketing fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase 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 three
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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.

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).

BY AUTOMATED CLEARING HOUSE (ACH)

HOW TO REDEEM SHARES

You should redeem 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

DIRECTLY FROM THE FUND

BY TELEPHONE

BY MAIL

You may redeem 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 and

o signatures of all shareholders exactly as registered.

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; or

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

PAYMENT METHODS FOR REDEMPTIONS

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.

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 Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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 and redemptions (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

ACCOUNTS WITH LOW BALANCES

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 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 Investment Management Company. 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.
The Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.

THE FUND'S PORTFOLIO MANAGERS ARE:

TODD A. ABRAHAM

SUSAN M. NASON

ADVISORY FEES

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS (INSTITUTIONAL SERVICE SHARES)

Effective September 7, 2000, the Fund added a second class of Shares called
Institutional Shares, the existing Shares were named Institutional Service
Shares. The Financial Highlights will help you understand the Fund's
Institutional Service Shares financial performance for its past five fiscal
years. 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 Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED FEBRUARY 28 OR 29 2000 1999 1998 1997 1996
NET ASSET VALUE, BEGINNING OF PERIOD $ $ $ $ $
9.43 9.52 9.56 9.55 9.46
INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.46 0.48 0.53 0.52 0.54
Net realized and unrealized gain (0.10 ) (0.09 ) (0.04 ) 0.03 0.08
(loss) on investments

TOTAL FROM INVESTMENT OPERATIONS 0.36 0.39 0.49 0.55 0.62

LESS DISTRIBUTIONS:

Distributions from net investment (0.46 ) (0.48 ) (0.53 ) (0.52 ) (0.53 )
income

Distributions in excess of net - - - (0.02 ) -
investment income1

Total distributions (0.46 ) (0.48 ) (0.53 ) (0.54 ) (0.53 )

NET ASSET VALUE, END OF PERIOD $ $ $ $ $
9.33 9.43 9.52 9.56 9.55

TOTAL RETURN2 3.89 % 4.20 % 5.25 % 5.90 % 6.77 %

RATIOS TO AVERAGE NET ASSETS:

Expenses 1.02 % 1.02 % 1.10 % 1.02 % 1.02 %

Net investment income 4.76 % 5.03 % 5.53 % 5.42 % 5.67 %

Expense waiver/reimbursement3 0.45 % 0.33 % 0.28 % 0.42 % 0.34 %

SUPPLEMENTAL DATA:

Net assets, end of period (000 $108,918$139,968$183,604$224,447$304,191
omitted)

Portfolio turnover 65 % 55 % 67 % 108 % 144 %

1 Distributions in excess of net investment income were the result of certain
book and tax timing differences. These distributions do not represent a return
of capital for federal income tax purposes.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable. 3 This voluntary expense
decrease is reflected in both the expense and net investment income ratios shown
above.

See Notes which are an integral part of the Financial Statements

FEDERATED LIMITED DURATION GOVERNMENT FUND, INC.

(formerly, Federated Adjustable Rate U.S. Government Fund, Inc.)

INSTITUTIONAL SERVICE SHARES

A Statement of Additional Information (SAI) dated September 7, 2000, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

INVESTMENT COMPANY ACT FILE NO. 811-6307
CUSIP 314072109

1071005A (8/00)

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)

(iv) Conformed Copy of Amendment (dated 1/13/00) to Articles of
Incorporation of the Registrant; (8)

(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;
(7)

(iv) Copy of Amendment No. 3 to the By-Laws of the Registrant;
(7)

(v) Copy of Amendment No. 4 to the By-Laws of the Registrant;
(7)

(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).

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed February 26, 1999. (File Nos. 33-41004 and
811-6307).

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed April 25, 2000. (File Nos. 33-41004 and
811-6307).

(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 24(b)(9)(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 Auditors; (9) (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) Not applicable;
(o) Conformed copy of Power of Attorney of the
Registrant;(9)

(p) The Registrant hereby incorporates the conformed copy of the Code of
Ethics for Access Persons from Item 23(p) of the Money Market
Obligations Trust Registration Statement on Form N-1A filed with the
Commission on February 25, 2000. (File Nos. 33-31602 and 811-5950).

+ 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).

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed February 26, 1999. (File Nos. 33-41004
and 811-6307).

9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed April 25, 2000. (File Nos. 33-41004 and
811-6307).

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

None

Item 25. INDEMNIFICATION: (2)
----------------

Item 26. Business and Other Connections of 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 Trustees 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 Trustees of the investment adviser and, in
parentheses, their principal occupations are: Thomas R. Donahue, (Chief
Financial Officer, Federated Investors, Inc.), 1001 Liberty Avenue,
Pittsburgh, PA, 15222-3779 and Mark D. Olson (a principal of the firm
Mark D. Olson & Company, L.L.C. and Partner, Wilson, Halbrook &
Bayard), Suite 301 Little Falls Center Two, 2751 Centerville Road,
Wilmington, DE 19808.

The remaining Officers of the investment adviser are:

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

Senior Vice Presidents: Stephen F. Auth
Joseph M. Balestrino
David A. Briggs
Jonathan C. Conley
Deborah A. Cunningham
Michael P. Donnelly
Linda A. Duessel
Mark E. Durbiano
James E. Grefenstette
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Bernard A. Picchi
Peter Vutz
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
G. Andrew Bonnewell
-------------------

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

Item 26. Business and Other Connections of Investment Adviser (continued):
Vice Presidents Micheal W. Casey
Robert E. Cauley
Alexandre de Bethmann

B. Anthony Delserone, Jr.
Donald T. Ellenberger
Eamonn G. Folan
Kathleen M. Foody-Malus
Thomas M. Franks
Marc Halperin
John W. Harris
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Robert M. Kowit
Richard J. Lazarchic
Steven J. Lehman
Marian R. Marinack
Christopher Matyszewski
Jeffrey A. Petro
Keith J. Sabol
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Edward J. Tiedge
Leonardo A. Vila
Paige M. Wilhelm
Lori A. Wolff
George B. Wright
Assistant Vice Presidents: Catherine A. Arendas
Nancy J. Belz
James R. Crea, Jr.
Karol M. Krummie
Lee R. Cunningham, II
Fred B. Crutchfield
James H. Davis, II
Paul S. Drotch
Salvatore A. Esposito
Gary E. Falwell
John T. Gentry
Nikola A. Ivanov
Nathan H. Kehm
John C. Kerber
Ted T. Lietz, Sr.
Monica Lugani
Grant K. McKay
Natalie F. Metz
Thomas Mitchell
Joseph M. Natoli
Bob Nolte
Mary Kay Pavuk

Item 26. Business and Other Connections of Investment Adviser (continued):
Assistant Vice Presidents: John Quartarolo
Rae Ann Rice
Roberto Sanchez-Dahl, Sr.
Sarath Sathkumara
James W. Schaub
John Sidawi
Diane R. Startari
Diane Tolby
Timothy G. Trebilcock
Michael R. Tucker
Steven J. Wagner

Secretary: G. Andrew Bonnewell

Treasurer: Thomas R. Donahue

Assistant Secretaries: C. Grant Anderson
Karen M. Brownlee
Leslie K. Ross

Assistant Treasurer: Denis McAuley, III

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.

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:

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
Fixed Income Securities, Inc.;

Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; 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 International Series, Inc.; Federated Investment
Series Funds, Inc.; Federated Managed Allocation Portfolios; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated
Municipal Securities Income Trust; Federated Short-Term Municipal 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.; Federated World Investment Series, Inc.;
FirstMerit Funds; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; Marshall Funds, Inc.; Money Market Obligations Trust; Regions
Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The Wachovia
Funds; The Wachovia Municipal Funds; and Vision Group of Funds, Inc.

(b)

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

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

Arthur L. Cherry Director, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director,
1001 Liberty Avenue Federated Securities Corp.
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

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

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

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

Ronald M. Petnuch 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

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

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

John M. Albert 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

Matthew W. Brown 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

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

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

(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

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

Robert J. Deuberry 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

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

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

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

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

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

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

Anthony J. Harper 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

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

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

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

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

Michael H. Liss 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

Amy Michalisyn 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

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

Thomas A. Peter 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

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

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 J. Segura 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

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

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

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

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

Robert W. Bauman Assistant 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

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

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

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

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

Ernest L. Linane 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

Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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 Investment Federated Investors Tower
Management Company 1001 Liberty Avenue
("Adviser") 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.

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
7th day of July, 2000.

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

BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue

July 7, 2000

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/ C. Grant Anderson

C. Grant Anderson Attorney In Fact July 7, 2000
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

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

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

Nicholas P. Constantakis* Director

John F. Cunningham* Director

J. Christopher Donahue* Director

Lawrence D. Ellis, M.D.* Director

Peter E. Madden* Director

Charles F. Mansfield* Director

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

Marjorie P. Smuts* Director

John S. Walsh* Director

* By Power of Attorney