AFBA FIVE STAR FUNDS INC, 485BPOS, 1997-11-26

AFBA FIVE STAR FUNDS INC
485BPOS, 1997-11-26

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 1 [X]

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940 [X]

Amendment No. 4 [X]

File Nos. 333-20637; 811-8035

AFBA FIVE STAR FUND, INC.
(Exact Name of Registrant as Specified in Charter)

700 Karnes Blvd, Kansas City, MO 64108-3306
(Address of Principal Executive Office)

Registrant's Telephone Number, including Area Code (816) 471-5200

Larry D. Armel, AFBA Five Star Fund, Inc.
700 Karnes Blvd, Kansas City, MO 64108-3306
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: December 2, 1997

It is proposed that this filing become effective:

X Immediately upon filing pursuant to paragraph (b) of Rule 485

Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 of the
Investment Company Act of 1940, and will file its required Rule 24f-2
Notice for the Registrant's fiscal year ended March 31, 1998, by May 31, 1998.

Please address inquiries and communications to:

John G. Dyer, Esq.
Jones & Babson, Inc.
700 Karnes Blvd.
Kansas City, MO 64108-3306
Telephone: (816) 751-5900

and a carbon copy of all communications to:

Mark H. Plafker, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telephone: (215) 564-8000

<PAGE>

AFBA FIVE STAR FUND, INC.

CROSS REFERENCE SHEET

Form N-1A Item Number Location in Prospectus

Item 1. Cover Page Cover Page

Item 2. Synopsis Highlights

Item 3. Condensed Financial Information Per Share Capital and
Income Changes

Item 4. General Description of Registrant Investment Objective
and Portfolio
Management Policy

Item 5. Management of the Fund Officers and
Directors; Management
and Investment Counsel

Item 6. Capital Stock and Other Securities How to Purchase
Shares; How to
Redeem Shares; How Share
Price is Determined;
General Information
and History;
Dividends,
Distributions and
Their Taxation

Item 7. Purchase of Securities being Offered Cover Page; How to
Purchase Shares;
Shareholder Services

Item 8. Redemption or Repurchase How to Redeem Shares

Item 9. Pending Legal Proceedings Not Applicable

<PAGE>

Form N-1A Item Number Location in Statement
of Additional
Information

Item 10. Cover Page Cover Page

Item 11. Table of Contents Cover Page

Item 12. General Information and History Investment Objectives and
Policies; Management and
Investment Counsel

Item 13. Investment Objectives and Policies Investment Objectives
and Policies;
Investment
Restrictions

Item 14. Management of the Fund Management and Investment
Counsel

Item 15. Control Persons and Principal Management and
Holders of Securities Investment Counsel;
Officers and Directors

Item 16. Investment Advisory and Other Management and
Services Investment Counsel

Item 17. Brokerage Allocation Portfolio Transactions

Item 18. Capital Stock and Other Securities General Information
and History
(Prospectus);
Financial Statements

Item 19. Purchase, Redemption and Pricing How Share Purchases
are of Securities Being Offered are Handled;
Redemption of Shares;
Financial Statements

Item 20. Tax Status Dividends,
of Money Market Fund Distributions and
Their Taxation
(Prospectus)

Item 21. Underwriters How the Fund's Shares are
Distributed

Item 22. Calculation of Yield Quotations Not Applicable

Item 23. Financial Statements Financial Statements

<PAGE>

PROSPECTUS

AFBA Five Star Balanced Fund
AFBA Five Star Equity Fund
AFBA Five Star High Yield Fund
AFBA Five Star USA Global Fund

June 2, 1997

Manager:
AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia 22314
1-800-243-9865

Investment Counsel:
Kornitzer Capital Management, Inc.
7715 Shawnee Mission Parkway
Shawnee Mission, Kansas 66202

Underwriter and Distributor:
Jones & Babson, Inc.
700 Karnes Blvd.
Kansas City, Missouri 64108=3306

For Shareholder Inquiries
1-888-578-2733

AFBA Five Star Balanced Fund (the "Balanced Fund") seeks both long-term
capital growth and high current income. Long-term capital growth is intended
to be achieved primarily by the Balanced Fund's investment in common stocks
and secondarily by the investment in convertible preferred stocks. High
current income is intended to be achieved by the Balanced Fund's investment in
corporate bonds, government bonds, mortgage-backed securities, convertible
bonds, preferred stocks and convertible preferred stocks.

AFBA Five Star Equity Fund (the "Equity Fund") seeks long-term capital
appreciation. Long-term capital appreciation is intended to be achieved
primarily by the Equity Fund's investment in common stocks. Realization of
dividend income is a secondary consideration to the extent that it supplements
the return on the Equity Fund's investments and investment in the dividend-
producing securities is consistent with achieving the objective of long-term
capital appreciation.

AFBA Five Star High Yield Fund (the "High Yield Fund") primarily seeks a high
level of current income and secondarily, capital growth. The High Yield Fund
invests primarily in a diversified portfolio of high-yielding fixed income
securities. The High Yield Fund will invest in debt securities and preferred
stock. The High Yield Fund may invest in any fixed income securities, whether
nonconvertible or convertible, without restriction.

The High Yield Fund will invest a significant portion, up to 100% of its
assets, in lower rated bonds, commonly known as "junk bonds," that entail
greater risks including default risks, than those found in higher rated
securities. The High Yield Fund's fixed income investments may consist totally
of securities rated below investment grade. Investors should carefully
consider these risks before investing. See "Investment Objectives and
Portfolio Management Policies," page 9; "Risk Factors," page 13; "Investment
Restrictions," page 15 and "Description of Securities Ratings," page 25.
Secondarily, the High Yield Fund may invest up to 10% of the value of its
total assets in common stocks and other equity securities.

AFBA Five Star USA Global Fund (the "USA Global Fund") seeks capital growth.
Capital growth is intended to be achieved primarily by the USA Global Fund's
investment in common stocks of companies based in the United States that
receive greater than 40% of their revenues or pre-tax income from
international operations, measured as of the preceding four completed quarters
of business or the companies' most recently completed fiscal year. At least
65% of the value of the USA Global Fund's total assets must be invested in at
least three different countries. This diversification is achieved through the
international operations of United States-based companies as described above.
The USA Global Fund will invest in common stocks considered by the manager to
have above average potential for appreciation; income is a secondary
consideration. The USA Global Fund will invest primarily in common stocks
listed on the New York Stock Exchange.

Purchase Information

Minimum Investment (each Fund selected)
Initial Purchase $ 500
Initial IRA and Uniform Transfers (Gifts)
to Minors Purchases $ 250
Initial Purchase for Automatic Monthly Purchases
(ACH) any type of account $ 100
Subsequent Purchase:
By Mail $ 100
By Telephone Purchase (ACH) $ 100
By Wire $ 500
All Automatic Monthly Purchases (ACH) $ 50

Shares are purchased and redeemed at net asset value. There are no sales,
redemption or Rule 12b-1 distribution charges. If you need further
information, please call the Fund at the telephone number indicated.

Additional Information

This prospectus should be read and retained for future reference. It contains
the information that you should know before you invest. A "Statement of
Additional Information" of the same date as this prospectus has been filed
with the U.S. Securities and Exchange Commission and is incorporated by
reference. Investors desiring additional information about the Fund may obtain
a copy without charge by writing or calling the Fund.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

Table of Contents Page

Highlights 5
Fund Expenses 8
Investment Objectives and Portfolio Management Policies 9
Repurchase Agreements 13
Asset-Backed Securities 13
Risk Factors 13
Investment Restrictions 15
Performance Measures 15
How to Purchase Shares 16
Initial Investments 17
Investments Subsequent to Initial Investment 17
Telephone Investment Service 17
Automatic Monthly Investment Plan 18
How to Redeem Shares 18
Systematic Redemption Plan 19
How to Exchange Shares Between Funds 20
How Share Price is Determined 20
Officers and Directors 21
Management and Investment Counsel 21
Adviser's Historical Performance 22
General Information and History 23
Dividends, Distributions and Their Taxation 24
Description of Securities Ratings 25
Shareholder Services 26
Shareholder Inquiries 27

4
<PAGE>

Highlights

For more information on this subject see page . . .

The Funds

The AFBA Five Star Balanced Fund, the AFBA Five Star Equity Fund, the AFBA
Five Star High Yield Fund and the AFBA Five Star USA Global Fund (the "AFBA
Funds," the "AFBA Five Star Funds" or individually, the "Fund") are separate
series of AFBA Five Star Fund, Inc. (the "Company"), which is an open-end
diversified management investment company commonly known as a mutual fund. The
Funds are sponsored and managed by AFBA Investment Management Company (the
"Manager") and Kornitzer Capital Management, Inc. (the "Adviser") serves as
investment counsel. Each Fund offers one class of shares of non-assessable
common stock with equal voting rights. Each share represents an interest in a
pool of investment securities invested in accordance with the particular
Fund's investment objective. 3

AFBA Five Star Balanced Fund seeks both long-term capital growth and high
current income. The Fund will invest in a diversified array of common stocks,
preferred stocks, convertible bonds, convertible preferred stocks, corporate
bonds and government bonds. 9

AFBA Five Star Equity Fund seeks long-term capital appreciation by investment
in a broad array of common stocks, in terms of companies and industries.
10

AFBA Five Star High Yield Fund primarily seeks a high level of current income
and secondarily, capital growth. The Fund invests primarily in debt securities
and may invest in preferred stock. 11

AFBA Five Star USA Global Fund seeks capital growth by investing in common
stocks of companies based in the United States that receive greater than 40%
of their revenues or pre-tax income from international operations. 12

How to Invest

Fund shares can only be purchased directly from the Funds through their
distributor, Jones & Babson, Inc. ("Jones & Babson" or the "Distributor").
Because no sales charges are added to the price of the shares, the full amount
of any purchase is invested for the benefit of the shareholder. The minimum
initial purchase is $500 ($250 for IRA and Uniform Transfers/Gifts to Minors
purchases). The minimum initial purchase is reduced to $100 when an Automatic
Monthly Investment (ACH) plan is established. Subsequent purchases by mail
must be at least $100. Wire purchases must be in the amount of $500 or more.
16

Telephone Investment - You may make investments of $100 or more by telephone
if you have authorized such investment on your application, or, subsequently,
on a special authorization form provided upon request. 17

Automatic Monthly Investment - You may elect to make monthly investments in a
constant dollar amount from your checking account ($50 minimum). The Fund will
draft your checking account on the same day each month in the amount you
authorize on your application, or, subsequently, on a special authorization
form provided upon request. 18

5
<PAGE>

Redemption

Shares of the Funds are redeemable at net asset value next effective after
receipt by the Fund of a shareholder's request in good order. No redemption
charge is made. 18

Exchange
Privilege
with Other
Funds

Shareholders may transfer their investments without charge to any other AFBA
Five Star Fund or D.L. Babson Money Market Fund, Inc. underwritten by Jones &
Babson, Inc. This exchange involves the liquidation of shares from one Fund
and a purchase of shares in the Fund to which the investment is being
transferred. This is a transaction which may or may not be taxable depending
on the shareholder's tax status. 20

Automatic Exchange - You may exchange shares from your account ($100 minimum)
in any of the AFBA Five Star funds to an identically registered account in any
other Fund in the AFBA Five Star Group, including D.L. Babson Money Market
Fund, Inc., according to your instructions. Monthly exchanges will be
continued until all shares have been exchanged or until you terminate the
Automatic Exchange authorization. A special authorization form will be
provided upon request.

Management
of the Funds

The Funds' investments and business operations are managed by the Manager
which employs as the Adviser an investment counsel to assist in the investment
advisory function for each of the AFBA Five Star Funds. 21

The Management
Fee Covers
the Investment
Advisory Fee
and All
Other Normal
Operating
Costs.

The Manager agrees to provide overall investment supervision of the Funds'
portfolios and of the activities of the Adviser. The Manager will also provide
certain business management services to the Funds. Jones & Babson will supply
to the Funds all normal services necessary for their functions as series of an
open-end diversified investment company not provided by the Manager, exclusive
of taxes and other charges of governments and their agencies (including the
cost of filing notices and fees in jurisdictions indicating that the Funds'
shares are for sale), certain fees, dues, interest, brokerage commissions and
extraordinary costs, if any. For its services, the Manager charges each Fund a
fee based on an annual rate of one percent (1%) of average daily net assets of
the particular Fund from which the Manager pays the Adviser an investment
counsel fee of one-third of one percent (.33%) of average daily net assets and
Jones & Babson an administrative services fee of one-third of one percent
(.33%) of average daily net assets.

Although these fees are higher than the fees of most other advisers whose
charges cover only investment advisory services with all remaining operational
expenses absorbed directly by the Fund, the combined charges compare favorably
with other fund fee structures when all expenses to shareholders are taken
into account. 21

6
<PAGE>

Dividend
Policies

AFBA Five Star Balanced Fund and AFBA Five Star High Yield Fund will pay
substantially all of their net investment income quarterly, usually in March,
June, September and December. It is contemplated that distributions from
capital gains, if any, will be declared annually on or before December 31 for
AFBA Five Star Balanced Fund. Distributions from capital gains, if any, will
be declared semiannually, usually in June and December for AFBA Five Star High
Yield Fund. 24

AFBA Five Star Equity Fund and AFBA Five Star USA Global Fund will pay
dividends from net investment income and capital gains semiannually, usually
in June and December. 24

Taxes

The Funds will distribute substantially all of their net investment income
each year in order to be exempt from federal income tax. Dividend and capital
gains distributions will be taxable to each shareholder whether taken in cash
or reinvested in additional shares in accordance with the shareholder's tax
status. 24

Risk Factors

For a discussion of risk factors applicable to repurchase agreements. 13

For a discussion of risk factors applicable to covered call options. 13

For a discussion of risk factors applicable to American Depository Receipts
(ADRs). 14

For a discussion of risk factors applicable to common stocks. 14

For a discussion of risk factors applicable to high yielding high risk debt
securities. 14

For a discussion of risk factors applicable to global operations. 15

7
<PAGE>
Fund Expenses

AFBA Five Star AFBA Five Star AFBA Five Star AFBA Five Star
Balanced Fund Equity Fund High Yield Fund USA Global Fund

<S> <C> <C> <C> <C>
Shareholder Transaction Expenses

Maximum sales load imposed
on purchases None None None None
Maximum sales load imposed
on reinvested dividends None None None None
Deferred sales load None None None None
Redemption fee None None None None
Exchange fee None None None None

Annual Fund Operation Expenses
(as a percentage of average net assets)
Management fees 1.00% 1.00% 1.00% 1.00%
12b-1 fees None None None None
Other expenses* .06% .06% .06% .06%
Total Fund operating expenses* 1.06% 1.06% 1.06% 1.06%
</TABLE>

*Jones & Babson, Inc. has voluntarily agreed to assume certain expenses of
the Funds so that the total annual operating expenses of a Fund will not
exceed 1.08% of its average daily net assets. The expenses set forth above are
estimated amounts for the first year of operations of each Fund. Expense
waiver arrangements are not expected to reduce Fund expenses for the current
fiscal year.

Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Year
$11 $34

The above information is provided in order to assist you in understanding the
various costs and expenses that a shareholder of each Fund will bear directly
or indirectly. The amount of "Other Expenses (after voluntary waiver)" in the
expense table and the numbers in the Example are based on estimated amounts
for the current fiscal year. The Example should not be considered a
representation of future expenses. Actual expenses may be greater or less than
those shown. The assumed 5% annual return is hypothetical and should not be
considered a representation of future annual return. The actual return may be
greater or less than the assumed amount.

The purpose of the foregoing fee table is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. The various costs and expenses are explained in
more detail in this prospectus. Management fees are discussed in greater
detail under "Management and Investment Counsel."

8
<PAGE>

Investment Objectives and Portfolio
Management Policies

Each Fund's objectives and policies as described in this section will not be
changed without approval of a majority of the Fund's outstanding shares.

AFBA Five Star Balanced Fund

AFBA Five Star Balanced Fund seeks both long-term capital growth and high
current income. Long-term capital growth is intended to be achieved primarily
by the Fund's investment in common stocks and secondarily by the Fund's
investment in convertible bonds and convertible preferred stocks. High current
income is intended to be achieved by the Fund's investment in corporate bonds,
government bonds, mortgage-backed securities, convertible bonds, preferred
stocks and convertible preferred stocks.

AFBA Five Star Balanced Fund will normally invest in a broad array of
securities, diversified not only in terms of companies and industries, but
also in terms of types of securities. The types of securities include common
stocks, preferred stocks, convertible bonds, convertible preferred stocks,
corporate bonds and government bonds. It is expected that the majority of
common stocks purchased by the Fund will be large capitalization companies
with most, if not all, listed on the New York Stock Exchange. Large
capitalization stocks are considered to be those with capitalization in excess
of $1 billion.

It is not the manager's intention to make wide use of NASDAQ traded, smaller
capitalization common stocks. Smaller capitalization stocks are considered to
be those with capitalization of less than $1 billion. The Fund may invest up
to 75% of its assets in corporate bonds, convertible bonds, preferred stocks
and convertible preferred stocks. The manager expects that from time-to-time
these securities may be rated below investment grade (BBB) by the major rating
agencies. The manager believes this policy is justified given the adviser's
view that these securities from time to time offer superior value and given
the adviser's experience and substantial in-house credit research capabilities
with higher yielding securities.

Securities rated Baa or higher by Moody's or BBB by Standard & Poor's or
higher are classified as investment grade securities. Although securities
rated Baa by Moody's and BBB by Standard & Poor's have speculative
characteristics, they are considered to be investment grade. Such securities
carry a lower degree of risk than lower rated securities. (See "Risk Factors
Applicable to High Yielding High Risk Debt Securities.")

Securities rated below Baa by Moody's or BBB by Standard & Poor's are commonly
known as junk bonds and are considered to be high risk. Yields on such bonds
will fluctuate over time, and achievement of the Fund's investment objective
may be more dependent on the Fund's own credit analysis than is the case for
higher rated bonds. (See "Risk Factors Applicable to High Yielding High Risk
Debt Securities.")

The Fund may also invest in high-yielding, high-risk corporate debt securities
(so-called "junk bonds"). Up to 20% of the Fund's assets may be invested in
debt securities which are rated less than B or unrated.

The Fund will not invest in securities that, at the time of initial
investment, are rated less than B by Moody's or Standard & Poor's. Securities
that are subsequently downgraded in quality below B may continue to be held by
the Fund, and will be sold only if the Fund's adviser believes it would be
advantageous to do so. In addition, the credit quality of unrated securities
purchased by the Fund must be, in the opinion of the Fund's adviser, at least
equivalent to a B rating by Moody's or Standard & Poor's.

Securities rated less than Baa by Moody's or BBB by Standard & Poor's are
classified as non-investment grade securities. Such securities carry a high
degree of risk and are considered speculative by the major credit rating
agencies. (See "Risk Factors Applicable to High Yielding Debt Securities.")

The proportion of the Fund invested in each type of security is expected to
change over time in accordance with the Manager's and Adviser's
interpretations of economic conditions and underlying security values.
However, it is expected that a minimum of 25% of the Fund's total assets will
always be invested in fixed income senior securities and that a minimum of 25%
of its total assets will always be invested in equity securities. When, in the
Manager's and Adviser's judgment, market conditions warrant substantial
temporary investments in high-quality money market securities, the Fund may do

9
<PAGE>

The Fund is authorized to write (i.e. sell) covered call options on the
securities in which it invests and to enter into closing purchase transactions
with respect to certain of such options. A covered call option is an option
where the Fund, in return for a premium, gives another party a right to buy
specified securities owned by the Fund at a specified future date and price
set at the time of the contract. (See "Risk Factors Applicable to Covered Call
Options.")

Covered call options serve as a partial hedge against the price of the
underlying security declining.

Investments in money market securities shall include government securities,
commercial paper, bank certificates of deposit and repurchase agreements
collateralized by government securities. Investment in commercial paper is
restricted to companies in the top two rating categories by Moody's and
Standard & Poor's.

The Fund may also invest in issues of the United States Treasury or a United
States government agency subject to repurchase agreements. The use of
repurchase agreements by the Fund involves certain risks. For a discussion of
these risks, see "Risk Factors Applicable to Repurchase Agreements."

There is no assurance that the Fund's objective of long-term growth of capital
and high current income can be achieved. Portfolio turnover will be no more
than is necessary to meet the Fund's objective. Under normal circumstances, it
is anticipated that portfolio turnover will not exceed 100% on an annual
basis.

AFBA Five Star Equity Fund

AFBA Five Star Equity Fund seeks long-term capital appreciation. Long-term
capital appreciation is intended to be achieved primarily by the Fund's
investment in common stocks. Realization of dividend income is a secondary
consideration to the extent that it supplements the return on the Fund's
investments and investment in the dividend-producing securities is consistent
with achieving the Fund's objective of long-term capital appreciation.

The Fund will normally invest in a broad array of common stocks, in terms of
companies and industries. It is expected that the majority of common stocks
purchased in the Fund will be large capitalization companies with most, if not
all, listed on the New York Stock Exchange. Large capitalization stocks are
considered to be those with capitalization in excess of $1 billion.

The Fund may purchase foreign securities through dollar-denominated American
Depository Receipts (ADRs), which do not involve the same direct currency and
liquidity risks as securities denominated in foreign currency and which are
issued by domestic banks and publicly traded in the United States. The Fund
does not intend to invest directly in foreign securities or foreign
currencies.

The Fund will invest at least 65% of its assets in common stocks under normal
circumstances. When, in the Manager's judgment, market conditions warrant
substantial temporary defensive investments in high-quality money market
securities, the Fund may do so.

Covered call options serve as a partial hedge against the price of the
underlying security declining.

There is no assurance that the Fund's objective of long-term capital
appreciation can be achieved. Portfolio turnover will be no more than is
necessary to meet the Fund's objective. Under normal circumstances, it is
anticipated that portfolio turnover will not exceed 100% on an annual basis.

10
<PAGE>

AFBA Five Star High Yield Fund

AFBA Five Star High Yield Fund primarily seeks a high level of current income
and secondarily, capital growth. The Fund invests primarily in a diversified
portfolio of high-yielding fixed income securities. High current income is
intended to be achieved by the Fund's investment in any fixed income
securities, without restrictions, such as corporate bonds, government bonds,
convertible bonds, preferred stocks and convertible preferred stocks. The Fund
may not invest in foreign government bonds. Capital growth is intended to be
achieved by the appreciation of fixed income and equity investments held in
the Fund.

The Fund may invest up to 100% of its assets in any fixed income securities,
including without limitation, corporate bonds, convertible bonds, preferred
stocks and convertible preferred stocks. These securities may be rated below
investment grade (BB/Ba and B/B) by the major rating agencies or, if unrated,
are in the opinion of the Manager of similar quality. The Manager believes
this policy is justified given the Manager's view that these securities from
time-to-time offer superior value and given the Adviser's experience and
substantial in-house credit research capabilities with higher yielding
securities.

Securities rated Baa or higher by Moody's or BBB by Standard & Poor's or
higher are classified as investment grade securities. Although securities
rated Baa by Moody's and BBB by Standard & Poor's have speculative
characteristics, they are considered to be "medium" investment grade. Such
securities carry a lower degree of risk than lower rated securities.

Securities rated Baa and below by Moody's or BBB and below by Standard &
Poor's are commonly known as "junk bonds" and are considered to be high risk.
Yields on such bonds will fluctuate over time, and achievement of the Fund's
investment objective may be more dependent on the Fund's own credit analysis
than is the case for higher rated bonds. (See "Risk Factors Applicable to High
Yielding High Risk Debt Securities.")

Up to 20% of the Fund's assets may be invested in debt securities which are
rated less than B at the time of purchase or if unrated are in the opinion of
the manager of similar quality. Securities rated B or higher at the time of
purchase, which are subsequently downgraded, will not be subject to this
limitation.

The lowest rating that may be held in the Fund is D, or that of defaulted
securities. (See "Risk Factors Applicable to High Yielding High Risk Debt
Securities.") The Fund will not purchase obligations that are in default, but
may hold in the portfolio securities which go into default subsequent to
acquisition by the Fund.

The proportion of the Fund invested in each type of security is expected to
change over time in accordance with the manager's interpretation of economic
conditions and underlying security values. However, it is expected that a
minimum of 65% of the Fund's total assets will always be invested in fixed
income securities and that a maximum of 10% of its total assets will be
invested in equity securities. The Fund's flexible investment policy allows it
to invest in securities with varying maturities; however, it is anticipated
that the average maturity of securities acquired by the Fund will not exceed
15 years. The average maturity of the Fund will be generally ten years or
less. The manager may look at a number of factors in selecting securities for
the Fund's portfolio. These include the past, current and estimated future:
(1) financial strength of the issuer; (2) cash flow; (3) management; (4)
borrowing requirements; and (5) responsiveness to changes in interest rates
and business conditions. Sometimes the manager may believe that a full or
partial temporary defensive position is desirable, due to present or
anticipated market or economic conditions. To achieve a defensive posture, the
manager may take any one or more of the following steps with respect to assets
in the Fund's portfolio: (1) shortening the average maturity of the Fund's
debt portfolio; (2) holding cash or cash equivalents; and (3) emphasizing
high-grade debt securities. Taking a defensive posture as described above may
involve a reduction in the yield on the Fund's portfolio.

11
<PAGE>

Covered call options serve as a partial hedge against the price of the
underlying security declining.

The Fund may also invest in issues of the United States treasury or a United
States government agency subject to repurchase agreements. The use of
repurchase agreements by the Fund involves certain risks, see "Risk Factors
Applicable to Repurchase Agreements."

There is no assurance that the Fund's objective of a high level of current
income and secondarily capital growth can be achieved. Portfolio turnover will
be no more than is necessary to meet the Fund's objective. Under normal
circumstances, it is anticipated that portfolio turnover will not exceed 100%
on an annual basis.

AFBA Five Star USA Global Fund

AFBA Five Star USA Global Fund seeks capital growth. Capital growth is
intended to be achieved primarily by the Fund's investment in common stocks of
companies based in the United States that receive greater than 40% of their
revenues or pre-tax income from international operations, measured as of the
preceding four completed quarters of business or the respective company's most
recently completed fiscal year. At least 65% of the value of the Fund's total
assets must be invested in at least three different countries. This
diversification is achieved through the international operations of United
States - based companies as described above. The Fund will invest in common
stocks considered by the Manager to have above average potential for
appreciation; income is a secondary consideration. Under normal circumstances,
the Fund will invest a majority of its assets in common stocks listed on the
New York Stock Exchange.

The Fund's manager believes that the investment policies of the Fund reduce or
eliminate several risks associated with direct investment in foreign
securities. Trading costs are usually higher in foreign countries because
commission rates are generally fixed rather than negotiated, as in the United
States. Liquidity risk is generally lowered because trading volumes are
generally higher on United States exchanges. Many foreign stock exchanges
require extended clearance and settlement periods, which can impair a manager
from implementing specific investment policies. Finally, there is generally
less enforcement of security laws and supervision of developing country stock
exchanges.

When, in the manager's judgment, market conditions warrant substantial
temporary defensive investments in high quality money market securities, the
Fund may do so.

The Fund is authorized to write (i.e. sell) covered call options on the
securities in which it invests and to enter into closing purchased
transactions with respect to certain of such options. A covered call option is
an option where the Fund, in return for a premium, gives another party a right
to buy specified securities owned by the Fund at a specified future date and
price set at the time of the contract. (See "Risk Factors Applicable to
Covered Call Options.")

Covered call options serve as a partial hedge against the price of the
underlying security declining.

There is no assurance that the Fund's objective of capital growth can be
achieved. Portfolio turnover will be no more than is necessary to meet the
Fund's objective. Under normal circumstances, it is anticipated that portfolio
turnover for the Fund will not exceed 100% on an annual basis.

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Repurchase Agreements

A repurchase agreement involves the sale of securities to the Fund with the
concurrent agreement by the seller to repurchase the securities at the Fund's
cost plus interest at an agreed rate upon demand or within a specified time,
thereby determining the yield during the purchaser's period of ownership. The
result is a fixed rate of return insulated from market fluctuations during
such period. Under the Investment Company Act of 1940, repurchase agreements
are considered loans by a Fund.

A Fund will enter into such repurchase agreements only with United States
banks having assets in excess of $1 billion which are members of the Federal
Deposit Insurance Corporation, and with certain securities dealers who meet
the qualifications set from time to time by the Board of Directors of the
Fund. The term to maturity of a repurchase agreement normally will be no
longer than a few days. Repurchase agreements maturing in more than seven days
and other illiquid securities will not exceed 10% of the total assets of any
Fund.

During the initial month of operations, it is anticipated that a Fund may be
invested up to 100% in repurchase agreements; however under normal
circumstances, a Fund may invest up to 25% of its assets in repurchase
agreements. (See "Risk Factors Applicable to Repurchase Agreements.") Each of
the AFBA Five Star funds may enter into repurchase agreements.

Asset-Backed Securities

AFBA Five Star High Yield Fund may invest in asset-backed securities. Asset-
backed securities are collateralized by short maturity loans such as
automobile receivables, credit card receivables, other types of receivables or
assets. Credit support for asset-backed securities may be based on the
underlying assets and/or provided through credit enhancements by a third
party. Credit enhancement techniques include letters of credit, insurance
bonds, limited guarantees (which are generally provided by the issuer),
senior-subordinated structures and over-collateralization.

Risk Factors

Risk Factors Applicable To Repurchase Agreements

Each of the AFBA Five Star funds may enter into repurchase agreements. The use
of repurchase agreements involves certain risks. For example, if the seller of
the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a Fund
may incur a loss upon disposition of them. If the seller of the agreement
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, disposition of the underlying securities may be
delayed pending court proceedings. Finally, it is possible that a Fund may not
be able to perfect its interest in the underlying securities. While the Fund's
management acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and careful
monitoring procedures.

Risk Factors Applicable to Covered Call Options

Each of the AFBA Five Star funds may engage in covered call option
transactions as described herein. Up to 25% of a Fund's total assets may be
subject to covered call options. By writing covered call options, the Fund
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, a Fund's ability to sell the underlying security will be limited
while the option is in effect unless the Fund effects a closing purchase
transaction. A closing purchase transaction cancels out a Fund's position as
the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written.

Upon the termination of a Fund's obligation under a covered call option other
than through exercise of the option, the Fund will realize a short-term
capital gain or loss. Any gain realized by a Fund from the exercise of an
option will be short- or long-term depending on the period for which the stock
was held. The writing of covered call options creates a straddle that is
potentially subject to the straddle rules, which may override some of the
foregoing rules and result in a deferral of some losses for tax purposes.

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<PAGE>
Risk Factors Applicable to
American Depository Receipts (ADRs)

Up to 25% of the AFBA Five Star Equity Fund's total assets may be invested in
ADRs. ADRs (sponsored or unsponsored) are receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying foreign
securities. Most ADRs are traded on a U.S. stock exchange. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information in the U.S. and, therefore, there may not be a correlation between
such information and the market value of the unsponsored ADR.

Risk Factors Applicable to Common Stocks

AFBA Five Star Equity Fund, AFBA Five Star Balanced Fund and AFBA Five Star
USA Global Fund invest in common stocks. AFBA Five Star High Yield Fund may
invest up to 10% of its assets in common stocks. The Funds are subject to
market risk and performance risk. Market risk is the possibility that stock
prices in general will decline over short or even extended periods of time.
Stock markets tend to be cyclical, with periods when stock prices generally
rise and periods when stock prices generally decline. Performance risk is the
possibility that a fund's performance during a specific period may not meet or
exceed that of the stock market as a whole.

Risk Factors Applicable to High Yielding
High Risk Debt Securities

AFBA Five Star Balanced Fund and AFBA Five Star High Yield Fund invest in
high-yielding, high-risk debt securities. Lower rated bonds involve a higher
degree of credit risk, the risk that the issuer will not make interest or
principal payments when due. In the event of an unanticipated default, a Fund
would experience a reduction in its income, and could expect a decline in the
market value of the securities so affected. More careful analysis of the
financial condition of each issuer of lower grade securities is therefore
necessary. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals and to obtain additional
financing.

The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or, in the case of corporate issuers,
individual corporate developments. Periods of economic or political
uncertainty and change can be expected to result in volatility of prices of
these securities. Since the last major economic recession, there has been a
substantial increase in the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings, so past experience with
high-yield securities in a prolonged economic downturn may not provide an
accurate indication of future performance during such periods. Lower rated
securities also may have less liquid markets than higher rated securities, and
their liquidity as well as their value may be adversely affected by adverse
economic conditions. Adverse publicity and investor perceptions, as well as
new or proposed laws, may also have a negative impact on the market for high-
yield/high-risk bonds.

Credit quality of high-yield/high-risk securities (so-called "junk bonds") can
change suddenly and unexpectedly and even recently issued credit ratings may
not fully reflect the actual risks posed by a particular high-yield/high-risk
security. For these reasons, it is the Funds' policy not to rely primarily on
ratings issued by established credit rating agencies, but to utilize such
ratings in conjunction with the manager's own independent and ongoing review
of credit quality. As a mutual fund investing in fixed income securities, each
of the Funds is subject primarily to interest rate, income and credit risk.
Interest rate risk is the potential for a decline in bond prices due to rising
interest rates. In general, bond prices vary inversely with interest rates.
When interest rates rise, bond prices generally fall. Conversely, when
interest rates fall, bond prices generally rise. The change in price depends
on several factors, including the bond's maturity date. In general, bonds with
longer maturities are more sensitive to interest rates than bonds with shorter
maturities.

Each of the Funds is also subject to income risk, which is the potential for a
decline in the respective Fund's income due to falling market interest rates.

In addition to interest rate and income risks, each Fund is subject to credit
risk. Credit risk, also known as default

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<PAGE>

risk, is the possibility that a bond
issuer will fail to make timely payments of interest or principal to a Fund.
The credit risk of a Fund depends on the quality of its investments.
Reflecting their higher risks, lower-quality bonds generally offer higher
yields (all other factors being equal). Ratings of debt securities are defined
under the caption "Fixed Income Securities Described and Ratings."

Risk Factors Applicable to Global Operations

The risks to which the U.S. companies in which AFBA Five Star USA Global Fund
plans to invest are exposed and, consequently, the concurrent risks
experienced by the Fund as a result of investing in such companies include:
the risk of fluctuations in the value of foreign currencies; adverse political
and economic developments; and the possibility of expropriation,
nationalization or confiscatory taxation or limitations on the removal of
funds or other assets. The performance of foreign currencies relative to the
U.S. dollar and the relative strength of the U.S. dollar may be an important
factor in the performance of the Fund.

Investment Restrictions

In addition to the investment objective and portfolio management policies set
forth under the caption "Investment Objectives and Portfolio Management
Policies," the Funds are subject to certain other restrictions which may not
be changed without approval of the lesser of: (1) at least 67% of the voting
securities present at a meeting if the holders of more than 50% of the
outstanding securities of the Fund are present or represented by proxy, or (2)
more than 50% of the outstanding voting securities of the Fund. Among these
restrictions, the more important ones are that the Fund will not purchase the
securities of any issuer if more than 5% of the Fund's total assets would be
invested in the securities of such issuer, or the Fund would hold more than
10% of any class of securities of such issuer; the Fund will not make any loan
(the purchase of a security subject to a repurchase agreement or the purchase
of a portion of an issue of publicly distributed debt securities is not
considered the making of a loan); and the Fund will not borrow or pledge its
credit under normal circumstances, except up to 10% of its total assets
(computed at the lower of fair market value or cost) temporarily for emergency
or extraordinary purposes, and not for the purpose of leveraging its
investments; and provided further that any borrowings shall have asset
coverage of at least 3 to 1. The Fund will not buy securities while borrowings
are outstanding. The full text of these restrictions are set forth in the
"Statement of Additional Information."

Performance Measures

From time to time, each of the Funds may advertise its performance in various
ways, as summarized below. Further discussion of these matters also appears in
the "Statement of Additional Information." A discussion of each Fund's
performance will be included in the Fund's Annual Report to Shareholders which
will be available from the Fund upon request at no charge.

Total Return

The Funds may advertise "average annual total return" over various periods of
time. Such total return figures show the average percentage change in value of
an investment in the respective Fund from the beginning date of the measuring
period to the end of the measuring period. These figures reflect changes in
the price of the Fund's shares and assume that any income dividends and/or
capital gains distributions made by the respective Fund during the period were
reinvested in shares of the Fund. Figures will be given for recent one-, five-
and ten-year periods (if applicable), and may be given for other periods as
well (such as from commencement of the Fund's operations, or on a year-by-year
basis). When considering "average" total return figures for periods longer
than one year, it is important to note that a Fund's annual total return for
any one year in the period might have been greater or less than the average
for the entire period.

Yield

AFBA Five Star Balanced Fund and AFBA Five Star High Yield Fund may advertise
a yield figure derived by dividing the Fund's net investment income per share
during a 30-day base period by the per share price on the last day of the base
period.

Performance Comparisons

In advertisements or in reports to shareholders, each of the Funds may compare
its performance to that of other

15
<PAGE>
mutual funds with similar investment
objectives and to stock or other relevant indices. For example, AFBA Five Star
funds may compare their performance to rankings prepared by Lipper Analytical
Services, Inc. (Lipper), a widely recognized independent service which
monitors the performance of mutual funds. AFBA Five Star Balanced Fund, AFBA
Five Star Equity Fund and AFBA Five Star USA Global Fund may compare their
performance to the Standard & Poor's 500 Stock Index (S&P 500), an index of
unmanaged groups of common stocks; the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed
on the NYSE; or the Consumer Price Index. AFBA Five Star Balanced Fund may
compare its performance to a hypothetical equal weighted composite of the S&P
500 and the Merrill Lynch Bond Fund Index, an unmanaged index of corporate
bond funds. AFBA Five Star High Yield Fund may compare its performance to the
Shearson/Lehman Government/Corporate Index, an unmanaged index of government
and corporate bonds, the Merrill Lynch High Yield Bond Fund Index, an
unmanaged index of high yield bond funds, or the Consumer Price Index.
Performance information, rankings, ratings, published editorial comments and
listings as reported in national financial publications such as Kiplinger's
Personal Finance Magazine, Business Week, Morningstar, Investor's Business
Daily, Institutional Investor, The Wall Street Journal, Mutual Fund
Forecaster, No-Load Investor, Money, Forbes, Fortune and Barron's, may also be
used in comparing performance of the Funds. Performance comparisons should not
be considered as representative of the future performance of any Fund. Further
information regarding the performance of the AFBA Five Star funds is contained
in the "Statement of Additional Information.

Performance rankings, recommendations, published editorial comments and
listings reported in Money, Barron's, Kiplinger's Personal Finance Magazine,
Financial World, Forbes, U.S. News & World Report, Business Week, The Wall
Street Journal, Investors Business Daily, USA Today, Fortune and Stanger's,
may also be cited (if any of the Funds are listed in any such publication) or
used for comparison, as well as performance listings and rankings from
Morningstar Mutual Funds, Income and Safety, The Mutual Fund Letter, No-Load
Fund Investor, United Mutual Fund Selector, No-Load Fund Analyst, No-Load Fund
X, Louis Rukeyeser's Wall Street Newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Company Service and
Donoghue's Mutual Fund Almanac.

How to Purchase Shares

You must specify the Fund in which you desire to invest on your application
form. Failure to do so will result in the application and your check or bank
wire being returned to you.

Shares are purchased at net asset value (no sales charge) from the Fund
through its agent, Jones & Babson, Inc., 700 Karnes Blvd., Kansas
City, MO 64108-3306. For information call toll free 1-888-578-2733.
If an investor wishes to engage the services of any other broker to purchase
(or redeem) shares of the Fund, a fee may be charged by such broker. The Fund
will not be responsible for the consequences of delays including delays in the
banking or Federal Reserve wire systems.

You do not pay a sales commission when you buy shares of the Funds. Shares are
purchased at the Fund's net asset value (price) per share next effective after
a purchase order and payment have been received by the Fund. In the case of
certain institutions which have made satisfactory payment arrangements with a
Fund, orders may be processed at the net asset value per share next effective
after a purchase order has been received by the Fund.

The Funds reserve the right in their sole discretion to withdraw all or any
part of the offerings made by this prospectus or to reject purchase orders
when, in the judgment of management, such withdrawal or rejection is in the
best interest of a Fund and its shareholders. The Funds also reserve the right
at any time to waive or increase the minimum requirements applicable to
initial or subsequent investments with respect to any person or class of
persons, which include shareholders of the Funds' special investment programs.
The Funds reserve the right to refuse to accept orders for Fund shares unless
accompanied by payment, except when a responsible person has indemnified the
Fund against losses resulting from the failure of investors to make payment.
In the event that a Fund sustains a loss as the result of failure by a
purchaser to make payment, the Fund's Distributor, Jones & Babson will cover
the loss.

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<PAGE>

Initial Investments

Initial investments - By mail. You may open an account and make an investment
by completing and signing the application which accompanies this prospectus.
Make your check ($500 minimum unless your purchase is pursuant to an IRA or
the Uniform Transfers (Gifts) to Minors Act in which case the minimum initial
purchase is $250) payable to UMB Bank, c/f AFBA Five Star Fund. The minimum
initial investment is reduced to $100 when an Automatic Monthly Investment
Plan is established. Mail your application and check to:

The AFBA Five Star Fund
c/o Jones & Babson, Inc.
700 Karnes Blvd.
Kansas City, Missouri 64108-3306

Initial investments - By wire. You may purchase shares of a Fund by wiring
funds ($500 minimum) through the Federal Reserve Bank to the custodian, UMB
Bank, n.a. Prior to sending your money, you must call the Fund toll free 1-
888-578-2733 and provide it with the identity of the registered account owner,
the registered address, the Social Security or Taxpayer Identification Number
of the registered owner, the amount being wired, the name and telephone number
of the wiring bank and the person to be contacted in connection with the
order. You will then be provided a Fund account number, after which you should
instruct your bank to wire the specified amount, along with the account number
and the account registration to:

UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For:
AFBA Five Star Balanced Fund/AC= 987084-1061
AFBA Five Star Equity Fund/AC= 987084-1126
AFBA Five Star High Yield Fund/AC= 987084-1150
AFBA Five Star USA Global Fund/AC= 987084-1185
OBI=(assigned Fund number and name in which registered)

A completed application must be sent to the Fund as soon as possible so the
necessary remaining information can be recorded in your account. Payment of
redemption proceeds will be delayed until the completed application is
received by the Fund.

Investments Subsequent to
Initial Investment

You may add to your Fund account at any time in amounts of $100 or more if
purchases are made by mail, or $500 or more if purchases are made by wire, or
$100 or more if purchases are made by telephone purchase (ACH). Automatic
monthly investments must be in amounts of $50 or more.

Checks should be mailed to the Fund at its address, and made payable to UMB
Bank c/f AFBA Five Star Fund. Always identify your account number or include
the detachable reminder stub which accompanies each confirmation.

Wire share purchases should include your account registration, your account
number and the AFBA Five Star Fund in which you are purchasing shares. It also
is advisable to notify the Fund by telephone that you have sent a wire
purchase order to the bank.

Telephone Investment Service

To use the Telephone Investment Service, you must first establish your Fund
account and authorize telephone orders in the application form, or,
subsequently, on a special authorization form provided upon request. If you
elect the Telephone Investment Service, you may purchase Fund shares by
telephone and authorize the Fund to draft your checking account ($100 minimum)
for the cost of the shares so purchased. You will receive the next available
price after the Fund has received your telephone call. Availability and
continuance of this privilege is subject to acceptance and approval by the
Fund and all participating banks. During periods of increased market activity,
you may have difficulty reaching the Fund by telephone, in which case you
should contact the Fund by mail or telegraph. The Funds will not be
responsible for the consequences of delays, including delays in the banking or
Federal Reserve wire systems.

The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are not
followed, the

17
<PAGE>
Funds may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to, requiring
personal identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions, and/or tape
recording of telephone instructions.

The Funds reserve the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any circumstances
where such termination or modification is in the best interest of the Fund and
its investors.

Automatic Monthly Investment Plan

You may elect to make monthly investments in a constant dollar amount from
your checking account ($50 minimum). The relevant Fund will draft your
checking account on the same day each month in the amount you authorize on
your application, or, subsequently, on a special authorization form provided
upon request. Availability and continuance of this privilege is subject to
acceptance and approval by the Fund and all participating banks. If the date
selected falls on a day upon which the Fund's shares are not priced,
investment will be made on the first date thereafter upon which the Fund's
shares are priced. The Funds will not be responsible for the consequences of
delays, including delays in the banking or Federal Reserve wire systems.

How to Redeem Shares

Each of the Funds will redeem shares at the price (net asset value per share)
effective after receipt of a redemption request in "good order." (See "How
Share Price is Determined.")

A written request for redemption, together with an endorsed share certificate
where a certificate has been issued, must be received by the Fund in order to
constitute a valid tender for redemption. For authorization of redemptions by
a corporation, it will also be necessary to have an appropriate certified copy
of resolutions on file with the Fund before a redemption request will be
considered in "good order." In the case of certain institutions which have
made satisfactory redemption arrangements with a Fund, redemption orders may
be processed by facsimile or telephone transmission at net asset value per
share next effective after receipt by the Fund. If an investor wishes to
engage the services of any other broker to redeem (or purchase) shares of any
Fund, a fee may be charged by such broker.

To be in "good order" the request must include the following:

(1) A written redemption request or stock assignment (stock power)
containing the genuine signature of each registered owner exactly as the
shares are registered, with clear identification of the account by registered
name(s) and account number and the number of shares or the dollar amount to be
redeemed;

(2) any outstanding stock certificates representing shares to be redeemed;

(3) signature guarantees as required (See Signature Guarantees); and

(4) any additional documentation which the Fund may deem necessary to insure
a genuine redemption.

Where additional documentation is normally required to support redemptions as
in the case of corporations, fiduciaries, and others who hold shares in a
representative or nominee capacity such as certified copies of corporate
resolutions, or certificates of incumbency, or such other documentation as may
be required under the Uniform Commercial Code or other applicable laws or
regulations, it is the responsibility of the shareholder to maintain such
documentation on file and in a current status. A failure to do so will delay
the redemption. If you have questions concerning redemption requirements,
please write or telephone the Fund well ahead of an anticipated redemption in
order to avoid any possible delay.

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<PAGE>

Requests which are subject to special conditions or which specify an effective
date other than as provided herein cannot be accepted. All redemption requests
must be transmitted to the relevant Fund c/o Jones & Babson, Inc. at 700
Karnes Blvd., Kansas City, Missouri 64108-3306. Each of the Funds will
redeem shares at the price (net asset value per share) next computed after
receipt of a redemption request in "good order." (See "How Share Price is
Determined.")

Each of the Funds will endeavor to transmit redemption proceeds to the proper
party, as instructed, as soon as practicable after a redemption request has
been received in "good order" and accepted, but in no event later than the
third business day thereafter. Transmissions are made by mail unless an
expedited method has been authorized and specified in the redemption request.
The Funds will not be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems.

Redemptions will not become effective until all documents in the form required
have been received. In the case of redemption requests made within 15 days of
the date of purchase, the Fund will delay transmission of proceeds until such
time as it is certain that unconditional payment in federal funds has been
collected for the purchase of shares being redeemed or 15 days from the date
of purchase. You can avoid the possibility of delay by paying for all of your
purchases with a transfer of federal funds.

Signature Guarantees are required in connection with all redemptions by mail,
or changes in share registration, except as hereinafter provided. These
requirements may be waived by a Fund in certain instances where it appears
reasonable to do so and will not unduly affect the interests of other
shareholders. Signature(s) must be guaranteed
by an "eligible Guarantor institution" as defined Rule l7Ad-15 the Securities
Exchange Act of 1934. Eligible guarantor institutions include: (1) national or
state banks, savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and credit unions; (2)
national securities exchanges, registered securities associations and clearing
agencies; or (3) securities broker/dealers which are members of a national
securities exchange or clearing agency or which have a minimum net capital of
$100,000. A notarized signature will not be sufficient for the request to be
in proper form.

Signature guarantees will be waived for mail redemptions of $10,000 or less,
but they will be required if the checks are to be payable to someone other
than the registered owner(s), or are to be mailed to an address different from
the registered address of the shareholder(s), or where there appears to be a
pattern of redemptions designed to circumvent the signature guarantee
requirement, or where a Fund has other reason to believe that this requirement
would be in the best interests of the Fund and its shareholders.

The right of redemption may be suspended or the date of payment postponed
beyond the normal three-day period when the New York Stock Exchange is closed
or under emergency circumstances as determined by the Securities and Exchange
Commission. Further, each of the Funds reserves the right to redeem its shares
in kind under certain circumstances. If shares are redeemed in kind, the
shareholder may incur brokerage costs when converting into cash. Redemptions
in kind must be in the form of readily marketable securities. Additional
details are set forth in the "Statement of Additional Information."

Due to the high cost of maintaining smaller accounts, the Board of Directors
has authorized each of the Funds to close shareholder accounts where their
value falls below the current minimum initial investment requirement at the
time of initial purchase as a result of redemptions and not as the result of
market action, and remains below this level for 60 days after each such
shareholder account is mailed a notice of: (1) the Fund's intention to close
the account, (2) the minimum account size requirement, and (3) the date on
which the account will be closed if the minimum size requirement is not met.
Since the minimum investment amount and the minimum account size are the same,
any redemption from an account containing only the minimum investment amount
may result in redemption of that account.

Systematic Redemption Plan

If you own shares in an open account valued at $10,000 or more, and desire to
make regular monthly or quarterly withdrawals without the necessity and
inconvenience of executing a separate redemption request to initiate each
withdrawal, you may enter into a Systematic Withdrawal Plan by completing
forms

19
<PAGE>

obtainable from the Fund. For this service, the manager may charge you a
fee not to exceed $1.50 for each withdrawal. Currently the manager assumes the
additional expenses arising out of this type of plan, but it reserves the
right to initiate such a charge at any time in the future when it deems it
necessary. If such a charge is imposed, participants will be provided 30 days
notice.

Subject to a $50 minimum, you may withdraw each period a specified dollar
amount. Shares also may be redeemed at a rate calculated to exhaust the
account at the end of a specified period of time.

Dividends and capital gains distributions must be reinvested in additional
shares. Under all withdrawal programs, liquidation of shares in excess of
dividends and distributions reinvested will diminish and may exhaust your
account, particularly during a period of declining share values.

You may revoke or change your plan or redeem all of your remaining shares at
any time. Withdrawal payments will be continued until the shares are exhausted
or until the Fund or you terminate the plan by written notice to the other.

How to Exchange Shares Between Funds

Shareholders may exchange their Fund shares, which have been held in open
account for 15 days or more, and for which good payment has been received, for
identically registered shares of any Fund in the AFBA Five Star Fund Group or
Babson Money Market Fund, Inc. which is legally registered for sale in the
state of residence of the investor, provided that the minimum amount exchanged
has a value of $500 or more and meets the minimum investment requirement of
the Fund into which it is exchanged.

To authorize the Telephone/Telegraph Exchange Privilege, all registered owners
must sign the appropriate section on the original application, or the Fund
must receive a special authorization form, provided upon request. During
periods of increased market activity, you may have difficulty reaching the
Fund by telephone, in which case you should contact the Fund by mail or
telegraph. The Funds reserve the right to initiate a charge for this service
and to terminate or modify any or all of the privileges in connection with
this service at any time and without prior notice under any circumstances,
where continuance of these privileges would be detrimental to the Fund or its
shareholders, such as an emergency, or where the volume of such activity
threatens the ability of the Fund to conduct business, or under any other
circumstances, upon 60 days written notice to shareholders. The Funds will not
be responsible for the consequences of delays including delays in the banking
or Federal Reserve wire systems.

The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are not
followed, the Funds may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to requiring
personal identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions, and/or tape
recording of telephone instructions.

Exchanges by mail may be accomplished by a written request properly signed by
all registered owners identifying the account, the number of shares or dollar
amount to be redeemed for exchange, and the AFBA Five Star Fund or D.L. Babson
Money Market Fund, Inc. into which the account is being transferred.

If you wish to exchange part or all of your shares in the Fund for shares of a
Fund in the AFBA Five Star Fund Group, or D.L. Babson Money Market Fund, Inc.
you should review the prospectus of the Fund to be purchased, which can be
obtained from Jones & Babson. Any such exchange will be based on the
respective net asset values of the shares involved. Any exchange between Funds
involves the sale of an asset. Unless the shareholder account is tax-deferred,
this is a taxable event.

How Share Price is Determined

In order to determine the price at which new shares will be sold and at which
issued shares presented for redemption will be liquidated, the net asset value
per share of each Fund is computed once daily, Monday through Friday, at the
specific time during the day that the Board of Directors sets at least
annually, except on days on which changes in the value of portfolio securities
will not materially affect the net asset value, or days during which no
security is tendered for redemption and no order to purchase or sell such
security is received by a Fund,

20
<PAGE>

or customary holidays. For a list of the
holidays during which the Funds are not open for business, see "How Share
Price is Determined" in the "Statement of Additional Information."

The price at which new shares of a Fund will be sold and at which issued
shares presented for redemption will be liquidated is computed once daily at
4:00 P.M. (Eastern Time), except on those days when the Fund is not open for
business.

The per share calculation is made by subtracting from each of the Fund's total
assets any liabilities and then dividing into this amount the total
outstanding shares as of the date of the calculation. Each security listed on
an exchange is valued at its last sale price on that exchange on the date as
of which assets are valued. Where the security is listed on more than one
exchange, each of the Funds will use the price of that exchange which it
generally considers to be the principal exchange on which the security is
traded. Lacking sales, the security is valued at the mean between the current
closing bid and asked prices. An unlisted security for which over-the-counter
market quotations are readily available is valued at the mean between the last
current bid and asked prices. When market quotations are not readily
available, any security or other asset is valued at its fair value as
determined in good faith by the Board of Directors.

Officers and Directors

The officers of the Company manage its day-to-day operations. The manager and
the officers of the Company are subject to the supervision and control of the
Board of Directors. A list of the officers and directors of the Company and a
brief statement of their present positions and principal occupations during
the past five years is set forth in the "Statement of Additional Information."

Management and Investment Counsel

The Manager is registered as an investment adviser under the Investment
Advisers Act of 1940. It organized the Company in 1997, and acts as its
investment and business manager. Pursuant to the current Management Agreement
for the AFBA Five Star Fund, the Manager is responsible for providing or
obtaining all management, supervisory and administrative services required in
the normal operation of the Fund. This includes investment management and
supervision; fees of the custodian, independent auditors and legal counsel;
remuneration of officers, directors and other personnel; rent; shareholder
services, including the maintenance of the shareholder accounting system and
transfer agency; and such other items as are incidental to corporate
administration.

Not considered normal operating expenses, and therefore payable by each of the
Funds, are taxes; interest; governmental charges and fees, including
registration of a Fund and its shares with the U.S. Securities and Exchange
Commission and notifications and fees to the Securities Departments of the
various States; brokerage costs; dues; and all extraordinary costs and
expenses including but not limited to legal and accounting fees incurred in
anticipation of or arising out of litigation or administrative proceedings to
which a Fund, its officers or directors may be subject or a party thereto.

As part of the Management Agreement, the Manager employs at its own expense
Kornitzer Capital Management, Inc. (previously defined as the "Adviser") as
its investment counsel to assist in the investment advisory function for AFBA
Five Star Balanced Fund, AFBA Five Star Equity Fund, AFBA Five Star High Yield
Fund and AFBA Five Star USA Global Fund. The Adviser is an independent
investment counseling firm founded in 1989, which is registered as an
investment adviser under the Investment Advisers Act of 1940. It serves a
broad variety of individual, corporate and other institutional clients by
maintaining an extensive research and analytical staff. It has an experienced
investment analysis and research staff which eliminates the need for the
Manager and the Fund to maintain an extensive duplicate staff, with the
consequent increase in the cost of investment advisory service. The cost of
the services of the Adviser is included in the fee of the Manager under the
Management Agreement. The Management Agreement limits the liability of the
Manager and the Adviser, as well as their officers, directors and personnel,
to acts or omissions involving willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. The organizational
arrangements of the adviser require that all

21
<PAGE>

investment decisions be made by
committee, and no person is primarily responsible for making recommendations
to that committee.

As compensation for all the foregoing services, AFBA Five Star Balanced Fund,
AFBA Five Star Equity Fund, AFBA Five Star High Yield Fund and AFBA Five Star
USA Global Fund each pay the manager a fee at the annual rate of one percent
(1%) of average daily net assets from which the manager pays the adviser a fee
of one-third of one percent (.33%)of average daily net assets for investment
counsel services, and also pays Jones & Babson a fee of one-third of one
percent (.33%) for administrative and other services provided to the Funds,
which are not otherwise provided by the Manager. The fees are computed daily
and paid semimonthly.

The annual fee charged by the Manager is higher than the management fees of
most other mutual fund advisers whose charges cover only investment advisory
services with all remaining operational expenses absorbed directly by the
Funds. However, it is anticipated that the total expenses of the Funds will
compare favorably with those of other mutual funds whose advisers' fees cover
only investment advisory services with all remaining operational expenses
absorbed by the Funds. For the current fiscal year, Jones & Babson has
voluntarily agreed to assume certain expenses of the Funds so that a Fund's
total annual operating expenses will not exceed 1.08% of its average daily net
assets.

Certain officers and directors of the Company are also officers or directors
or both of the Manager, Jones & Babson or the Adviser.

AFBA Investment Management Company is a wholly owned subsidiary of Armed
Forces Benefit Services, Inc. ("AFBSI"). The Manager has not previously served
as manager of an investment company. AFBSI is a for-profit services entity
which is wholly-owned by Armed Forces Benefit Association ("AFBA"). All voting
stock of AFBSI is held in a voting trust, with sole voting power for the trust
held by Lieutenant General C.C. Blanton, a director of the Company. AFBA is a
voluntary employee benefit association organized under Internal Revenue Code
Section 501(c)(9), the membership of which is open to federal employees and
uniform services members and their dependents.

Kornitzer Capital Management, Inc. is a closely held corporation and has
limitations in the ownership of its stock designed to maintain control in
those who are active in management. Owners of 5% or more of Kornitzer Capital
Management, Inc. are John C. Kornitzer, Kent W. Gasaway, Willard R. Lynch,
Thomas W. Laming and Susan Stack.

Jones & Babson, Inc. is a wholly-owned subsidiary of Business Men's Assurance
Company of America, which is considered to be a controlling person under the
Investment Company Act of 1940. Assicurazioni Generali S.p.A., an insurance
organization founded in 1831 based in Trieste, Italy, is considered to be a
controlling person and is the ultimate parent of Business Men's Assurance
Company of America. Mediobanca is a 5% owner of Assicurazioni Generali S.p.A.

The current Management Agreement between the Company and the Manager, which
includes the Investment Counsel Agreement between the Manager and the Adviser,
will continue in effect until October 31, 1998. The Agreements will continue
automatically for successive annual periods ending each October 31 so long as
such continuance is specifically approved at least annually by the Board of
Directors of the Company or by the vote of a majority of the outstanding
voting securities of the respective Fund, and, provided also that such
continuance is approved by the vote of a majority of the directors who are not
parties to the Agreements or interested persons of any such party at a meeting
held in person and called specifically for the purpose of evaluating and
voting on such approval. Both Agreements provide that either party may
terminate by giving the other 60 days written notice. The Agreements terminate
automatically if assigned by either party, as required under the Investment
Company Act of 1940.

Adviser's Historical Performance

Below are certain performance data provided by the Adviser pertaining to four
registered, open-end investment companies (the "mutual funds") that are
managed by the Adviser with identical objectives, policies, and strategies as
those of the Funds. The investment returns of the Funds may differ from those
of the mutual funds because fees and expenses of the mutual funds may differ
from those of the Funds. The Adviser is primarily responsible for the day-to-
day management of

22
<PAGE>

the mutual funds' investments, and no other person has a
significant role in achieving the mutual funds' performance. The Company and
the mutual funds are separate funds, and are members of different families of
investment companies. The results presented are not intended to predict or
suggest the return to be experienced by the series of the Company or the
return an investor might achieve by investing in the series of the Company.

Mutual Fund Total Returns1
Inception2
Year Ended to Year Ended
June 30, 1997 June 30, 1997

Buffalo Balanced Fund 17.06% 14.69%
S&P 500 and Merrill Lynch
Bond Fund Weighted Index 20.08% 18.48%
Buffalo Equity Fund 31.77% 32.76%
S&P 500 Index 31.98% 31.77%
Buffalo USA Global Fund 32.54% 30.89%
S&P 500 Index 31.98% 31.77%
Buffalo High Yield Fund 18.33% 18.31%
Merrill Lynch High Yield
Bond Fund Index 14.30% 11.95%

1 Mutual fund total return (price change and reinvested distributions).

2 The inception dates of the mutual funds are: Buffalo Balanced Fund-
August 12, 1994; Buffalo Equity Fund; Buffalo USA Global Fund;
and Buffalo High Yield Fund - May 19, 1995.

The comparative indices are not adjusted to reflect expenses or other
fees that the SEC requires to be reflected in mutual fund performance.
The fees if reflected, would reduce the performance quoted. The
mutual fund performance assumes the reinvestment of all dividends
and distributions. The comparative indices have been adjusted to
reflect reinvestment of dividends on securities in the index.

The Standard and Poor's 500 Index is an unmanaged index
composed of 400 industrial, 40 financial, 40 utilities and 20 trans-
portation stocks.

The Merrill Lynch Bond Fund Index is an unmanaged index com-
posed of all corporate bond funds including short, intermediate and
long-term bond funds.

The Merrill Lynch High Yield Bond Fund Index is an unmanaged
index composed of all high yield bond funds.

The S&P 500 and Merrill Lynch Bond Fund Index Weighted Average
is a hypothetical combination of unmanaged indices and reflects a
50% each equal weighting; at 6-30-97, the Buffalo Balanced Fund's
portfolio consisted of an approximate mix of 29% stocks and 69%
bonds (the percentage allocations did not vary significantly through-
out the periods presented).

General Information and History

The Company was incorporated in Maryland on January 9, 1997. The Articles of
Incorporation permit the Directors to issue 40,000,000 shares of common stock
in various series or classes (sub-series), with a par value of $1.00 per
share. Each series of shares, in effect, represents a separate mutual fund,
with each share of a series representing a pro rata interest in a separate
pool of investments held by the series, managed according to specified
investment objectives and policies. The Company is currently authorized to
issue four series of shares (10,000,000 shares each) which consist of AFBA
Five Star Balanced Fund, AFBA Five Star Equity Fund, AFBA Five Star High Yield
Fund and the AFBA Five Star USA Global Fund. All shares of the same series
have like rights and privileges. Each full and fractional share, when issued
and outstanding, has: (1) equal voting rights with respect to matters which
affect the Company as a whole; (2) equal voting rights with other shares of
the series with respect to matters which only affect that series; and (3)
equal dividend, distribution and redemption rights to the assets of the
series. Shares when issued are fully paid and non-assessable. The Funds may
create other series of stock but will not issue any senior securities.
Shareholders do not have pre-exemptive or conversion rights.

Non-cumulative voting - The shares of the series of the Company have non-
cumulative voting rights, which means that the holders of more than 50% of the
Company's shares voting for the election of directors can elect 100% of the
directors, if they choose to do so, and in such event, the holders of the
remaining less than 50% of the shares voting will not be able to elect any
directors.

The Maryland General Corporation Law permits registered investment companies,
such as the Funds, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the Investment
Company Act of 1940. There are procedures whereby the shareholders may remove
directors. These procedures are described in the "Statement of Additional
Information" under the caption "Officers and Directors." The Company has
adopted the appropriate provisions in its By-Laws and may not, at its
discretion, hold annual meetings of shareholders for the following purposes
unless required to do so: (1) election

23
<PAGE>

of directors; (2) approval of any
investment management agreement; (3) ratification of the selection of
independent auditors; and (4) approval of a distribution plan. As a result,
the Company does not intend to hold annual meetings.

This prospectus omits certain of the information contained in the registration
statement filed with the Securities and Exchange Commission, Washington, D.C.
These items may be inspected at the offices of the Commission or obtained from
the Commission upon payment of the fee prescribed.

Dividends, Distributions and Their Taxation

The AFBA Five Star Balanced Fund and the AFBA Five Star High Yield Fund pay
dividends from net investment income quarterly, usually in March, June,
September and December. Distribution from capital gains realized on the sale
of securities, if any, will be declared by the AFBA Five Star Balanced Fund
annually on or before December 31 and by the AFBA Five Star High Yield Fund
semiannually, usually in June and December. The AFBA Five Star Equity Fund and
the AFBA Five Star USA Global Fund pay dividends from net investment income
and capital gains semiannually, usually in June and December. Dividend and
capital gains distributions will be reinvested automatically in additional
shares at the net asset value per share computed and effective at the close of
business on the day after the record date, unless the shareholder has elected
on the original application, or by written instructions filed with the Fund,
to have them paid in cash.

Each of the Funds intends to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code so that the Funds will not be subject
to federal income tax to the extent that they distribute their income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
Fund from net investment income will be taxable to shareholders as ordinary
income, and will generally qualify in part for the 70% dividends-received
deduction for corporations. The portion of the dividends so qualified depends
on the aggregate taxable qualifying dividend income received by a Fund from
domestic (U.S.) sources. The Funds will send to shareholders a statement each
year advising the amount of the dividend income which qualifies for such
treatment.

Whether paid in cash or additional shares of a Fund, and regardless of the
length of time Fund shares have been owned by the shareholder, distributions
from long-term capital gains are taxable to shareholders as such, but are not
eligible for the dividends-received deduction for corporations. Shareholders
are notified annually by the Funds as to federal tax status of dividends and
distributions paid by the Funds. Such dividends and distributions may also be
subject to state and local taxes.

Exchange and redemption of Fund shares are taxable events for federal income
tax purposes. Shareholders may also be subject to state and municipal taxes on
such exchanges and redemptions. You should consult your tax adviser with
respect to the tax status of distributions from the Funds in your state and
locality.

The Funds intend to declare and pay dividends and capital gains distributions
so as to avoid imposition of the federal excise tax. To do so, each Fund
expects to distribute during each calendar year an amount equal to: (1) 98% of
its calendar year ordinary income; (2) 98% of its capital gains net income
(the excess of short- and long-term capital gain over short- and long-term
capital loss) for the one-year period ending each November 30; and (3) 100% of
any undistributed ordinary or capital gain net income from the prior calendar
year. Dividends declared in October, November or December and made payable to
shareholders of record in such a month are deemed to have been paid by the
Fund and received by shareholders on December 31 of such year, so long as the
dividends are actually paid before February 1 of the following year.

To comply with IRS regulations, each of the Funds is required by federal law
to withhold 31% of reportable payments (which may include dividends, capital
gains distributions and redemptions) paid to shareholders who have not
complied with IRS regulations. In order to avoid this withholding requirement,
shareholders must certify on their Application, or on a separate form supplied
by the Fund, that their Social Security or Taxpayer Identification Number
provided is correct and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding.

24
<PAGE>

The federal income tax status of all distributions will be reported to
shareholders each January as a part of the annual statement of shareholder
transactions. Shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUNDS.

Description of Securities Ratings

Fixed Income Securities Described And Ratings

Description of Bond Ratings:

Standard & Poor's Corporation (S&P)

AAA - Highest Grade. These securities possess the ultimate degree of
protection as to principal and interest. Marketwise, they move with interest
rates, and hence provide the maximum safety on all counts.

AA - High Grade. Generally, these bonds differ from AAA issues only in a
small degree. Here too, prices move with the long-term money market.

A - Upper-medium Grade. They have considerable investment strength, but are
not entirely free from adverse effects of changes in economic and trade
conditions. Interest and principal are regarded as safe. They predominately
reflect money rates in their market behavior but, to some extent, also
economic conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.

BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Moody's Investors Service, Inc. (Moody's)

Aaa - Best Quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt-edge." Interest payments are
protected by a large, or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa - High Quality by All Standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
greater.

A - Upper-medium Grade. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have predominantly speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.

25
<PAGE>

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

Shareholder Services

The Funds, the Manager and Jones & Babson offer shareholders a broad variety
of services described throughout this prospectus. In addition, the following
services are available:

Automatic Monthly Investment - You may elect to make monthly investments in a
constant dollar amount from your checking account ($50 minimum). A Fund will
draft your checking account on the same day each month in the amount you
authorize in your application, or, subsequently, on a special authorization
form provided upon request.

Automatic Reinvestment - Dividends and capital gains distributions may be
reinvested automatically, or shareholders may elect to have dividends paid in
cash and capital gains reinvested, or to have both paid in cash.

Telephone Investments - You may make investments of $100 or more by telephone
if you have authorized such investments in your application, or, subsequently,
on a special authorization form provided upon request. See "Telephone
Investment Service."

Automatic Exchange - You may exchange shares from your account ($100 minimum)
in any of the AFBA Five Star Funds to an identically registered account in any
other Fund in the AFBA Five Star Group, including D.L. Babson Money Market
Fund, Inc., according to your instructions. Monthly exchanges will be
continued until all shares have been exchanged or until you terminate the
Automatic Exchange authorization. A special authorization form will be
provided upon request.

Transfer of Ownership - A shareholder may transfer shares to another
shareholder account. The requirements which apply to redemptions apply to
transfers. A transfer to a new account must meet initial investment
requirements.

Systematic Redemption Plan - Shareholders who own shares in open account
valued at $10,000 or more may arrange to make regular withdrawals without the
necessity of executing a separate redemption request to initiate each
withdrawal.

Sub-Accounting - Keogh and corporate tax qualified retirement plans, as well
as certain other investors who must maintain separate participant accounting
records, may meet these needs through services provided by the Funds'
Administrator, Jones & Babson, Inc. Investment minimums may be met by
accumulating the separate accounts of the group. Although there is currently
no charge for sub-accounting, the Funds and their Manager reserve the right to
make reasonable charges for this service.

Prototype Retirement Plans - Jones & Babson, Inc. offers a defined
contribution prototype plan - The Universal Retirement Plan - which is
suitable for all who are self-employed, including sole proprietors,
partnerships, and corporations. The Universal Prototype includes both money
purchase pension and profit-sharing plan options.

Individual Retirement Accounts - Also available is an Individual Retirement
Account (IRA). The IRA uses the IRS model form of plan and provides an
excellent way to accumulate a retirement fund which will earn tax-deferred
dollars until withdrawn. An IRA may also be used to defer taxes on certain
distributions from employer-sponsored retirement plans. You may contribute up
to $2,000 of compensation each year ($4,000 if a spousal IRA is established),
some or all of which may be deductible. Consult your tax adviser concerning
the amount of the tax deduction, if any.

Simplified Employee Pensions (SEPs) - The IRA may be used with IRS Form 5305
- - SEP to establish a SEP-IRA, to which the self-employed individual may
contribute up to 15% of net earned income or $30,000, whichever is less. A
SEP-IRA offers the employer the ability to make the same level of deductible
contributions as a Profit-Sharing Plan with greater ease of administration,
but less flexibility in plan coverage of employees.

26
<PAGE>
Shareholder Inquiries

Telephone inquiries may be made toll free to the Funds, 1-888-578-2733.

Shareholders may address written inquiries to the Funds at:

AFBA Five Star Fund, Inc.
c/o Jones & Babson, Inc.
700 Karnes Blvd.
Kansas City, MO 64108-3306

AFBA Five Star Balanced Fund
AFBA Five Star Equity Fund
AFBA Five Star High Yield Fund
AFBA Five Star USA Global Fund

MANAGER
AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia

INVESTMENT COUNSEL
Kornitzer Capital Management, Inc.
Shawnee Mission, Kansas

INDEPENDENT AUDITORS
Ernst & Young LLP
Kansas City, Missouri

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young LLP
Philadelphia, Pennsylvania

John G. Dyer
Kansas City, Missouri

CUSTODIAN
UMB Bank, n.a.
Kansas City, Missouri

UNDERWRITER AND DISTRIBUTOR
Jones & Babson, Inc.
Kansas City, Missouri

27
<PAGE>

AFBA Five Star Fund

AFBA Five Star Balanced Fund
AFBA Five Star Equity Fund
AFBA Five Star High Yield Fund
AFBA Five Star USA Global Fund

AFBA
Five Star
Fund

AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia 22314
1-800-243-9865

Shareholder Inquiries 1-888-578-2733

6/97

<PAGE>

PART B

AFBA FIVE STAR FUND, INC.
consisting of:

AFBA FIVE STAR BALANCED FUND
AFBA FIVE STAR EQUITY FUND
AFBA FIVE STAR HIGH YIELD FUND
AFBA FIVE STAR USA GLOBAL FUND

STATEMENT OF ADDITIONAL INFORMATION

June 2, 1997

This Statement is not a Prospectus but should be read in conjunction
with the Funds' current Prospectus dated June 2, 1997. To obtain the
Prospectus please call the Fund toll free, 1-800-243-9865.

TABLE OF CONTENTS

Page

Investment Objectives and Policies 2
Portfolio Transactions 2
Investment Restrictions 3
Performance Measures 3
How the Funds' Shares are Distributed 4
How Share Purchases are Handled 4
Redemption of Shares 5
Signature Guarantees 5
Management and Investment Counsel 5
How Share Price is Determined 5
Officers and Directors 6
Custodian 7
Independent Auditors 8
Description of Commercial Paper Ratings 8
Financial Statements 9

JB55 6/97

<PAGE>

INVESTMENT OBJECTIVES
AND POLICIES

The following policies supplement the Funds'
investment objectives and policies set forth in the
prospectus.

PORTFOLIO TRANSACTIONS

Decisions to buy and sell securities for the
Funds are made by AFBA Investment
Management Company (the "Manager") pursuant
to recommendations by Kornitzer Capital
Management, Inc., investment counsel to the
Funds (the "Adviser"). Officers of the Funds and
the Manager are generally responsible for
implementing or supervising these decisions,
including allocation of portfolio brokerage and
principal business as well as the negotiation of
commissions and/or the price of the securities. In
instances where securities are purchased on a
commission basis, each of the Funds will seek
competitive and reasonable commission rates
based on circumstances of the trade involved and
to the extent that they do not detract from the
quality of the execution.

Each of the Funds, in purchasing and selling
portfolio securities, will seek the best available
combination of execution and overall price (which
shall include the cost of the transaction) consistent
with the circumstances which exist at the time.
The Funds do not intend to solicit competitive
bids on each transaction.

Each of the Funds believes it is in its best
interest and that of its shareholders to have a
stable and continuous relationship with a diverse
group of financially strong and technically
qualified broker-dealers who will provide quality
executions at competitive rates. Broker-dealers
meeting these qualifications also will be selected
for their demonstrated loyalty to the respective
Fund, when acting on its behalf, as well as for any
research or other services provided to the
respective Fund. Substantially all of the portfolio
transactions are through brokerage firms which
are members of the New York Stock Exchange
because usually the most active market in the size
of the Funds' transactions and for the types of
securities predominant in the Funds' respective
portfolios is to be found there. When buying
securities in the over-the-counter market, each of
the Funds will select a broker who maintains a
primary market for the security unless it appears
that a better combination of price and execution
may be obtained elsewhere. The Funds normally
will not pay a higher commission rate to broker-
dealers providing benefits or services to it than it
would pay to broker-dealers who do not provide it
such benefits or services. However, each of the
Funds reserves the right to do so within the
principles set out in Section 28(e) of the Securities
Exchange Act of 1934 when it appears that this
would be in the best interests of the shareholders.

No commitment is made to any broker or dealer
with regard to placing of orders for the purchase
or sale of Fund portfolio securities, and no specific
formula is used in placing such business.
Allocation is reviewed regularly by both the Board
of Directors of the AFBA Five Star Fund, Inc. (the
"Company") Company and the Manager.

Since the Funds do not market their shares
through intermediary brokers or dealers, it is not
the Funds' practice to allocate brokerage or
principal business on the basis of sales of their
shares which may be made through such firms.
However, they may place portfolio orders with
qualified broker-dealers who recommend the
Funds to other clients, or who act as agent in the
purchase of the Funds' shares for their clients.

Research services furnished by broker-dealers
may be useful to the Funds' Manager or Adviser
in serving other clients, as well as the respective
Funds. Conversely, the Funds may benefit from
research services obtained by the Manager or
Adviser from the placement of portfolio brokerage
of other clients.

When it appears to be in the best interest of its
shareholders, each of the Funds may join with
other clients of the Manager or Adviser in
acquiring or disposing of a portfolio holding.
Securities acquired or proceeds obtained will be
equitably distributed among the Funds and other
clients participating in the transaction. In some
instances, this investment procedure may affect
the price paid or received by a Fund or the size of
the position obtained by a Fund.

2
<PAGE>

INVESTMENT RESTRICTIONS

In addition to the investment objective and
portfolio management policies set forth in the
Prospectus under the caption "Investment
Objectives and Portfolio Management Policies,"
the following restrictions also may not be changed
without approval by the "holders of a majority of
the outstanding shares" of a Fund.

Each Fund will not: (1) purchase the securities
of any one issuer, except the United States
government, if immediately after and as a result of
such purchase (a) the value of the holdings of the
Fund in the securities of such issuer exceeds 5%
of the value of the Fund's total assets, or (b) the
Fund owns more than 10% of the outstanding
voting securities, or any other class of securities,
of such issuer; (2) engage in the purchase or sale
of real estate, commodities or futures contracts;
(3) underwrite the securities of other issuers; (4)
make loans to any of its officers, directors, or
employees, or to its manager, or general
distributor, or officers or directors thereof; (5)
make any loan (the purchase of a security subject
to a repurchase agreement or the purchase of a
portion of an issue of publicly distributed debt
securities is not considered the making of a loan);
(6) invest in companies for the purpose of
exercising control of management; (7) purchase
securities on margin, or sell securities short,
except that the Fund may write covered call
options; (8) purchase shares of other investment
companies except in the open market at ordinary
broker's commission or pursuant to a plan of
merger or consolidation; (9) invest in the
aggregate more than 5% of the value of its gross
assets in the securities of issuers (other than
federal, state, territorial, or local governments, or
corporations, or authorities established thereby),
which, including predecessors, have not had at
least three years' continuous operations; (10)
except for transactions in its shares or other
securities through brokerage practices which are
considered normal and generally accepted under
circumstances existing at the time, enter into
dealings with its officers or directors, its manager
or underwriter, or their officers or directors, or
any organization in which such persons have a
financial interest; (11) borrow or pledge its credit
under normal circumstances, except up to 10% of
its gross assets (computed at the lower of fair
market value or cost) temporarily for emergency
or extraordinary purposes, and not for the purpose
of leveraging its investments, and provided further
that any borrowing in excess of 5% of the total
assets of the Fund shall have asset coverage of at
least 3 to 1; (12) make itself or its assets liable for
the indebtedness of others; (13) invest in securities
which are assessable or involve unlimited liability;
or (14) purchase any securities which would cause
25% or more of the Fund's total assets at the time
of such purchase to be invested in any one
industry.

PERFORMANCE MEASURES

From time to time, the AFBA Five Star
Balanced Fund and the AFBA High Yield Fund
may quote their yield in advertisements,
shareholder reports or other communications to
shareholders. Yield is calculated according to the
following SEC standardized formula.

Current yield reflects the income per share
earned by a Fund's investments.

Current yield is determined by dividing the net
investment income per share earned during a 30-
day base period by the maximum offering price
per share on the last day of the period and
annualizing the result. Expenses accrued for the
period include any fees charged to all
shareholders during the base period.

The SEC standardized yield formula is as
follows:

Yield = 2[(a-b+1)-1]
cd
Where:

a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive income distributions
d = the maximum offering price per share on
the last day of the period

Total Return

Each of the AFBA Five Star Fund's "average
annual total return" figures will be computed
according to a formula prescribed by the

3
<PAGE>

Securities and Exchange Commission. The
formula can be expressed as follows:

P(1+T)n = ERV
Where :

P = a hypothetical initial payment of
$1000

T = average annual total return

n = number of years

ERV = Ending Redeemable Value of a
hypothetical $1000 payment
made at the beginning of the 1, 5
or 10 year (or other) periods at
the end of the 1, 5 or 10 year (or
other) periods (or fractional
portions thereof).

HOW THE FUND'S SHARES
ARE DISTRIBUTED

Jones & Babson, Inc. ("Jones & Babson"), as
agent of the Funds, agrees to supply its best efforts
as sole distributor of the Funds' shares and, at its
own expense, pay all sales and distribution
expenses in connection with their offering other
than registration fees and other government
charges.

Jones & Babson does not receive any fee or
other compensation under the Underwriting
Agreement relating to the AFBA Five Star Fund,
which continues in effect until October 31, 1998,
and which will continue automatically
for successive annual periods ending each
October 31, if continued at least annually by the
Company's Board of Directors, including a
majority of those Directors who are not parties to
such Agreement or interested persons of any such
party. The Agreement terminates automatically if
assigned by either party or upon 60 days written
notice by either party to the other.

Jones & Babson also acts as sole distributor of
the shares of David L. Babson Growth Fund, Inc.,
D. L. Babson Bond Trust, D. L. Babson Money
Market Fund, Inc., D. L. Babson Tax-Free Income
Fund, Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., Scout Stock Fund, Inc.,
Scout Bond Fund, Inc., Scout Money Market
Fund, Inc., Scout Tax-Free Money Market Fund,
Inc., Scout Regional Fund, Inc., Scout WorldWide
Fund, Inc., Scout Balanced Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc. and Buffalo USA
Global Fund, Inc.

HOW SHARE PURCHASES
ARE HANDLED

Each order accepted will be fully invested in
whole and fractional shares, unless the purchase
of a certain number of whole shares is specified, at
the net asset value per share next effective after an
order is accepted by a Fund.

Each investment is confirmed by a year-to-date
statement which provides the details of the
transactions, in your account during the current
year. This includes the dollar amount invested, the
number of shares purchased or redeemed, the
price per share, and the aggregate shares owned.
A transcript of all activity in your account during
the previous year will be furnished each January.
By retaining each annual summary and the last
year-to-date statement, you have a complete
detailed history of your account which provides
necessary tax information. A duplicate copy of a
past annual statement is available from Jones &
Babson at its cost, subject to a minimum charge of
$5 per account, per year requested.

Normally, the shares which you purchase are
held by a Fund in open account, thereby relieving
you of the responsibility of providing for the
safekeeping of a negotiable share certificate.
Should you have a special need for a certificate,
one will be issued on request for all or a portion of
the whole shares in your account. There is no
charge for the first certificate issued. A charge of
$3.50 will be made for any replacement
certificates issued. In order to protect the interests
of the other shareholders, share certificates will be
sent to those shareholders who request them only
after a Fund has determined that unconditional
payment for the shares represented by the
certificate has been received by its custodian,
UMB Bank, n.a.

If an order to purchase shares must be canceled
due to non-payment, the purchaser will be
responsible for any loss incurred by a Fund arising

4
<PAGE>

out of such cancellation. To recover any such
loss, the Funds reserve the right to redeem shares
owned by any purchaser whose order is canceled,
and such purchaser may be prohibited or restricted
in the manner of placing further orders.

The Funds reserve the right in their sole
discretion to withdraw all or any part of the
offering made by the prospectus or to reject
purchase orders when, in the judgment of
management, such withdrawal or rejection is in
the best interest of a Fund and its shareholders.
The Funds also reserve the right at any time to
waive or increase the minimum requirements
applicable to initial or subsequent investments
with respect to any person or class of persons,
which include shareholders of the Funds' special
investment programs.

REDEMPTION OF SHARES

The right of redemption may be suspended, or
the date of payment postponed beyond the normal
three-day period with respect to any Fund by the
Company's Board of Directors under the following
conditions authorized by the Investment Company
Act of 1940: (1) for any period (a) during which
the New York Stock Exchange is closed, other
than customary weekend and holiday closing, or
(b) during which trading on the New York Stock
Exchange is restricted; (2) for any period during
which an emergency exists as a result of which (a)
disposal by the Fund of securities owned by it is
not reasonably practicable, or (b) it is not
reasonably practicable for the Fund to determine
the fair value of its net assets; or (3) for such other
periods as the Securities and Exchange
Commission may by order permit for the
protection of the Funds' shareholders.

SIGNATURE GUARANTEES

Signature guarantees normally reduce the
possibility of forgery and are required in
connection with each redemption method to
protect shareholders from loss. Signature
guarantees are required in connection with all
redemptions by mail or changes in share
registration, except as provided in the Prospectus.

Signature guarantees must appear together with
the signature(s) of the registered owner(s); on:

(1) a written request for redemption;

(2) a separate instrument of assignment,
which should specify the total number
of shares to be redeemed (this "stock
power" may be obtained from the Fund
or from most banks or stock brokers); or

(3) all stock certificates tendered for
redemption.

MANAGEMENT AND
INVESTMENT COUNSEL

As a part of the Management Agreement,
AFBA Investment Management Company
employs at its own expense Kornitzer Capital
Management, Inc., as its investment counsel.
Kornitzer Capital Management, Inc., was founded
in 1989. It is a private investment research and
counseling organization serving individual,
corporate and other institutional clients.

Kornitzer Capital Management, Inc., has an
experienced investment analysis and research staff
which eliminates the need for the Manager and
the Fund to maintain an extensive duplicate staff,
with the consequent increase in the cost of
investment advisory service. The cost of the
services of Kornitzer Capital Management, Inc. is
included in the fee of the Manager.

The annual fee charged by the Manager covers
all normal operating costs of the Fund.

HOW SHARE PRICE IS DETERMINED

The net asset value per share of each Fund's
portfolio is computed once daily, Monday through
Friday, at the specific time during the day that the
Board of Directors of the Company sets at least
annually, except on days on which changes in the
value of a Fund's portfolio securities will not
materially affect the net asset value, or days
during which no security is tendered for
redemption and no order to purchase or sell such
security is received by a Fund, or the following
holidays:

New Year's Day January 1
Presidents' Holiday Third Monday
in February
Good Friday Friday before Easter
Memorial Day Last Monday in May

5
<PAGE>

Independence Day July 4
Labor Day First Monday
in September
Thanksgiving Day Fourth Thursday
in November
Christmas Day December 25

OFFICERS AND DIRECTORS

The Funds are managed by AFBA Investment
Management Company subject to the supervision
and control of the Board of Directors of the
Company. The following table lists the Officers
and Directors of the Company, their age, address
and principal occupation.

*John A. Johnson, President and Director (60)
909 North Washington Street Alexandria,
Virginia 22314. President, Chief Executive
Officer, Director, Armed Forces Benefit
Services, Inc.; President, Chief Executive
Officer, Director, AFBA Life Insurance
Company; President, Chief Executive Officer,
Director, AFBA Investment Management
Company; AFBA Administrators, Inc.

*Larry D. Armel, Director (55).
700 Karnes Blvd., Kansas City,
Missouri 64108-3306. President and Director, Jones
& Babson, Inc.; David L. Babson Growth Fund,
Inc., D. L. Babson Money Market Fund, Inc.,
D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund,
Inc., Shadow Stock Fund, Inc., Babson-Stewart
Ivory International Fund, Inc.; Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free
Money Market Fund, Inc., Scout Regional
Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc.; Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High
Yield Fund, Inc. and Buffalo USA Global Fund,
Inc. President and Trustee, D. L. Babson Bond
Trust.

*John C. Kornitzer, Director (51).
7715 Shawnee Mission Parkway, Shawnee
Mission, Kansas 66202. President, Kornitzer
Capital Management, Inc. Formerly Assistant
Vice President, Waddell & Reed, Inc., 6300
Lamar Avenue, Shawnee Mission, Kansas
66202.

*Lieutenant General C.C. Blanton,
USAF (Ret.), Director and Chairman (67).
909 North Washington Street, Alexandria,
Virginia 22314. President, Chief Executive
Officer, Armed Forces Benefit Association;
Chairman, Armed Forces Benefit Services, Inc.;
Chairman, AFBA Industrial Bank; Chairman,
AFBA Life Insurance Company; Chairman,
AFBA Investment Management Company.

General Monroe W. Hatch, Jr.,
USAF (Ret.), Director (63).
8210 Thomas Ashleigh Lane, Clifton, Virginia
20124. President, Monroe W. Hatch, Jr.
Consulting firm; formerly, Executive Director,
Air Force Association.

Brigadier General Henry J. Sechler,
USAF (Ret.), Director (65).
3190 Fairview Park Drive, Falls Church,
Virginia 22030. Vice President, General
Dynamics Corp.

General Louis C. Wagner, Jr.,
USA (Ret.), Director (65).
6309 Chaucer Lane, Alexandria, Virginia
22304. Private Consultant.

_______________________________________

* Directors who are interested persons as that
term is defined in the Investment Company
Act of 1940, as amended.

6
<PAGE>

P. Bradley Adams, Vice President and Chief
Financial Officer (36).
700 Karnes Blvd., Kansas City,
Missouri 64108-3306. Vice President and Treasurer,
Jones & Babson, Inc.; David L. Babson Growth
Fund, Inc., D. L. Babson Money Market Fund,
Inc., D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise
Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D. L. Babson Bond
Trust; Scout Stock Fund, Inc., Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout Tax-
Free Money Market Fund, Inc., Scout Regional
Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc.; Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo High Yield
Fund, Inc., Buffalo USA Global Fund, Inc..

Martin A. Cramer, Secretary (47).
700 Karnes Blvd., Kansas City,
Missouri 64108-3306. Vice President and Secretary,
Jones & Babson, Inc.; David L. Babson Growth
Fund, Inc., D. L. Babson Money Market Fund,
Inc., D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise
Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D. L. Babson Fund
Trust; Scout Stock Fund, Inc., Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout Tax-
Free Money Market Fund, Inc., Scout Regional
Fund, Inc., Scout Worldwide Fund, Inc., Scout
Balanced Fund, Inc.; Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.

Dionne D. McNamee, Treasurer (40).
909 North Washington Street, Alexandria,
Virginia 22314. Chief Financial Officer, AFBA
Life Insurance Company; AFBA Investment
Management Company. Formerly, Director, Price
Waterhouse LLP; Senior Technical Manager,
American Institute of CPAs.

None of the officers or directors will be
remunerated by the Funds for their normal duties
and services. Their compensation and expenses
arising out of normal operations will be paid by
the Manager under the provisions of the
Management Agreement.

Messrs. Hatch, Wagner and Sechler have no
financial interest in, nor are they affiliated with,
either AFBA Investment Management Company,
Jones & Babson, Inc. or Kornitzer Capital
Management, Inc.

The Audit Committee of the Board of Directors
is composed of Messrs. Hatch, Wagner and
Sechler.

The officers and directors as a group own less
than 1% of each of the respective Funds.

The Company will not hold annual meetings
except as required by the Investment Company
Act of 1940 and other applicable laws. The
Company is a Maryland corporation. Under
Maryland law, a special meeting of stockholders
of a fund must be held if the fund receives the
written request for a meeting from the
stockholders entitled to cast at least 25% of all the
votes entitled to be cast at the meeting. The
Company has undertaken that its Directors will
call a meeting of stockholders if such a meeting is
requested in writing by the holders of not less than
10% of the outstanding shares of the Fund. To
the extent required by the undertaking, the
Company will assist shareholder communications
in such matters.

As of the effective date of the Fund's
registration statement, Armed Forces Benefit
Association Investment Management Company
("AFBA IMCO"), the Manager, may be deemed
to "control" the Funds because it purchased the
initial shares offered by the Funds. The address of
AFBA IMCO and the Manager is the same.

CUSTODIAN

The Funds' assets are held for safekeeping by an
independent custodian, UMB Bank, n.a. This
means the bank, rather than the Funds, has
possession of the Funds' cash and securities. The
custodian bank is not responsible for the Funds'
investment management or administration. But,
as directed by the officers of the Company, it
delivers cash to those who have sold securities to
the Funds in return for such securities, and to
those who have purchased portfolio securities
from the Funds, it delivers such securities in
return for their cash purchase price. It also
collects income directly from issuers of securities
owned by the Funds and holds this for payment to

7
<PAGE>

shareholders after deduction of the Funds'
expenses. The custodian bank is compensated for
its services by the Manager. There is no charge to
the Funds.

INDEPENDENT AUDITORS

The Company's financial statements are audited
annually by independent auditors approved by the
directors each year, and in years in which an
annual meeting is held the directors may submit
their selection of independent auditors to the
shareholders for ratification. Ernst & Young
LLP, One Kansas City Place, 1200 Main Street,
Suite 2000, Kansas City, Missouri 64105, is the
Company's present independent auditor.

Reports to shareholders will be published at
least semiannually.

DESCRIPTION OF COMMERCIAL
PAPER RATINGS

Moody's. . . Moody's commercial paper rating
is an opinion of the ability of an issuer to repay
punctually promissory obligations not having an
original maturity in excess of nine months.
Moody's has one rating - prime. Every such
prime rating means Moody's believes that the
commercial paper note will be redeemed as
agreed. Within this single rating category are the
following classifications:

Prime - 1 Highest Quality
Prime - 2 Higher Quality
Prime - 3 High Quality

The criteria used by Moody's for rating a
commercial paper issuer under this graded system
include, but are not limited to the following
factors:

(1) evaluation of the management of the issuer;

(2) economic evaluation of the issuer's industry
or industries and an appraisal of
speculative type risks which may be
inherent in certain areas;

(3) evaluation of the issuer's products in
relation to competition and customer
acceptance;
(4) liquidity;

(5) amount and quality of long-term debt;

(6) trend of earnings over a period of ten years;

(7) financial strength of a parent company and
relationships which exist with the issue;
and

(8) recognition by the management of
obligations which may be present or may
arise as a result of public interest questions
and preparations to meet such obligations.

S&P . . . Standard & Poor's commercial paper
rating is a current assessment of the likelihood of
timely repayment of debt having an original
maturity of no more than 270 days. Ratings are
graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the
lowest. The four categories are as follows:

"A" Issues assigned this highest rating are
regarded as having the greatest capacity
for timely payment. Issues in this
category are further refined with the
designations 1, 2, and 3 to indicate the
relative degree of safety.

"A-1" This designation indicates that the degree
of safety regarding timely payment is very
strong.

"A-2" Capacity for timely payment on issues
with this designation is strong. However,
the relative degree of safety is not as
overwhelming.

"A-3" Issues carrying this designation have a
satisfactory capacity for timely payment.
They are, however, somewhat more
vulnerable to the adverse effects of
changes in circumstances than obligations
carrying the higher designations.

"B" Issues rated "B" are regarded as having
only an adequate capacity for timely
payment. Furthermore, such capacity may
be damaged by changing conditions or
short-term adversities.

8
<PAGE>

"C" This rating is assigned to short-term debt
obligations with a doubtful capacity for
payment.

"D" This rating indicates that the issuer is
either in default or is expected to be in
default upon maturity.

AFBA FIVE STAR FUND, INC.

FINANCIAL STATEMENTS

Report of Independent Auditors

The Shareholder and Board of Directors
AFBA Five Star Fund, Inc.

We have audited the accompanying statements of net assets
of AFBA Five Star Fund, Inc. (comprised of the following
series: AFBA Five Star Balanced Fund, AFBA Five Star Equity
Fund, AFBA Five Star USA Global Fund and AFBA Five Star High
Yield Fund) (collectively referred to herein as the Company)
as of May 16, 1997. These statements of net assets are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these statements of net assets based
on our audit.

We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the statements of net assets are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of net
assets. Our procedures included confirmation of cash as of May 16, 1997,
by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall statements of net
assets presentation. We believe that our audit provides a reasonable
basis for our opinion. In our opinion, the statements of net assets
referred to above present fairly, in all material respects, the financial
position of the Company at May 16, 1997, in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Kansas City, Missouri
May 16, 1997

9
<PAGE>

AFBA Five Star Fund, Inc.

Statements of Net Assets

May 16, 1997

<TABLE>
<CAPTION>
AFBA AFBA AFBA AFBA
Five Star Five Star Five Star Five Star
Balanced Equity USA Global High Yield
Assets
<S> <C> <C> <C> <C>
Cash $100,000 $100,000 $100,000 $100,000

Net assets applicable to
outstanding shares $100,000 $100,000 $100,000 $100,000

Capital shares, $1.00 par value
Authorized $10,000,000 $10,000,000 $10,000,000 $10,000,000

Outstanding 10,000 10,000 10,000 10,000
Net asset value per share $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>

Note - Significant Accounting Policies:

Organization - AFBA Five Star Fund, Inc. (the Company) was organized as a
Maryland corporation on January 9, 1997 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company with the following series: AFBA Five Star Balanced Fund,
AFBA Five Star Equity Fund, AFBA Five Star USA Global Fund and AFBA Five Star
High Yield Fund. Shares outstanding for each series on May 16, 1997 were
issued to AFBA Investment Management Company, the Company's investment manager
(Manager). The costs of organization will be paid by the Manager and
Jones & Babson, Inc., the Company's administrator and distributor.

Management Fees - the Manager will charge each series a fee based on an annual
rate of one percent (l.00%) of average daily net assets of the particular
series from which the Manager pays Kornitzer Capital Management, Inc., which
serves as investment counsel, (the Adviser) a fee of one-third of one percent
(0.33%) of average daily net assets and Jones & Babson an administrative
services fee of one-third of one percent (0.33%) of average daily net assets.
The Manager or Jones & Babson will pay all other operating expenses of the
series except the cost of acquiring and disposing of portfolio securities, the
taxes, if any, imposed directly on the Company and the shares of its series
and the cost of qualifying the series' shares for sale in any jurisdiction.
Certain officers and directors of the Company are also officers or directors
or both of the Manager, Jones & Babson or the Adviser.

10
<PAGE>

AFBA Five Star Balanced Fund, Inc.
Income Statement & Statement of Assets and Liabilities
October 31, 1997

Income Statement From 4/01/97

Income
Dividends $ 1,509.26
Interest 7,427.54
8,936.80

Expenses:
Management fees 1,956.70
Governmental fees 0.00
1,956.70
Net investment income 6,980.10

Dividends paid to shareholders 0.00
Net investment income available for distribution 6,980.10
Income equalization 0.00
Undistributed net investment income 3/31/97 0.00
Current undistributed net investment income $ 6,980.10

Statement of Assets and Liabilities

Assets:
Investment securities at market value $ 1,004,980.82
(identified cost 991,841.73)
Cash 11,025.91
Accrued dividends 180.48
Accrued interest 9,379.66
Receivable for investments sold 0.00
Total assets 1,025,566.87

Liabilities
Payable for investments purchased 89,616.50
Call options written, at value 0.00
Total liabilities 89,616.50
Net Assets $ 935,950.37

Net Assets consist of:
Capital stock 86,331.61
Paid-in surplus 826,125.67
Undistributed net investment income 6,980.17
Accumulated net realized gain(loss)
on investment transactions 3,374.30
Net unrealized appreciation (depreciation)
on options written 0.00
Net unrealized appreciation(depreciation)
on investments 13,139.09
Net Assets Applicable to Outstanding Shares $ 935,950.37

Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 86,332
Net asset value per $ 10.84

11
<PAGE>

AFBA Five Star Equity, Inc.
Income Statement & Statement of Assets and Liabilities
October 31, 1997

Income Statement From 4/01/97

Income
Dividends $ 5,551.78
Interest 5,160.62
10,712.40

Expenses:
Management fees 5,707.86
Governmental fees 0.00
5,004.54
Dividends paid to shareholders 0.00
Net investment income available for distribution 5,004.54
Income equalization 0.00
Undistributed net investment income 3/31/97 0.00
Current undistributed net investment income $ 5,004.54

Statement of Assets and Liabilities

Assets:
Investment securities at market value $ 2,371,613.24
(identified cost 2,372,248.17)
Cash 41,225.71
Accrued dividends 1,086.00
Accrued interest 0.00
Receivable for investments sold 19,759.34
Total assets 2,433,684.29

Liabilities
Payable for investments purchased 14,400.00
Call options written, at value 0.00
Total liabilities 14,400.00
Net Assets $ 2,419,284.29

Net Assets consist of:
Capital stock 222,826.71
Paid-in surplus 2,176,789.05
Undistributed net investment income 5,004.54
Accumulated net realized gain(loss)
on investment transactions 15,298.92
Net unrealized appreciation (depreciation)
on options written 0.00
Net unrealized appreciation (depreciation)
on investments (643.93)
Net Assets Applicable to Outstanding Shares $ 2,419,284.29

Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 222,827
Net asset value per $ 10.86

12
<PAGE>

AFBA Five Star High Yield Fund, Inc.
Income Statement & Statement of Assets and Liabilities
October 31, 1997

Income Statement From 4/01/97

Income
Dividends $ 906.96
Interest 9,714.72
10,621.68

Expenses:
Management fees 1,749.36
Governmental fees 0.00
1,749.36
Net investment income 8,872.32

Dividends paid to shareholders 0.00
Net investment income available for distribution 8,872.32
Income equalization 0.00
Undistributed net investment income 3/31/97 0.00
Current undistributed net investment income $ 8,872.32

Statement of Assets and Liabilities

Assets:
Investment securities at market value $ 863,279.07
(identified cost 848,916.01)
Cash 17,997.02
Accrued dividends 162.48
Accrued interest 9,137.49
Receivable for investments sold 0.00
Total assets 890,576.06

Liabilities
Payable for investments purchased 72,357.25
Call options written, at value 0.00
Total liabilities 72,357.25
Net Assets $ 818,218.81

Net Assets consist of:
Capital stock 77,209.74
Paid-in surplus 717,635.09
Undistributed net investment income 8,872.32
Accumulated net realized gain(loss)
on investment transactions 138.60
Net unrealized appreciation (depreciation)
on options written 0.00
Net unrealized appreciation (depreciation)
on investments 14,336.06
Net Assets Applicable to Outstanding Shares $ 818,218.81

Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 77,210
Net asset value per $ 10.60

13
<PAGE>

AFBA Five Star USA Global Fund, Inc.
Income Statement & Statement of Assets and Liabilities
October 31, 1997

Income Statement From 4/01/97

Income
Dividends $ 3,764.75
Interest 7,887.32
11,652.07

Expenses:
Management fees 5,389.57
Governmental fees 0.00
5,389.57
Net investment income 6,262.50

Dividends paid to shareholders 0.00
Net investment income available for distribution 6,262.50
Income equalization 0.00
Undistributed net investment income 3/31/97 0.00
Current undistributed net investment income $ 6,262.50

Statement of Assets and Liabilities

Assets:
Investment securities at market value $ 1,816,131.57
(identified cost 1,853,427.22)
Cash 399,214.55
Accrued dividends 1,316.50
Accrued interest 0.00
Receivable for investments sold 0.00
Total assets 2,216,662.62

Liabilities
Payable for investments purchased 0.00
Call options written, at value 0.00
Total liabilities 0.00
Net Assets $ 2,216,662.62

Net Assets consist of:
Capital stock 212,808.65
Paid-in surplus 2,034,622.91
Undistributed net investment income 6,262.50
Accumulated net realized gain(loss)
on investment transactions 264.21
Net unrealized appreciation (depreciation)
on options written 0.00
Net unrealized appreciation (depreciation)
on investments (37,295.65)
Net Assets Applicable to Outstanding Shares $ 2,216,662.62

Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 212,809
Net asset value per $ 10.42

<PAGE>

PART C

OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements
Included in Part B

(b) (1) (a) Registrant's Articles of Incorporation*

(b) Articles Supplementary*

(2) Form of Registrant's By-laws*

(3) Not applicable, because there is no voting trust
agreement.

(4) Specimen copy of each security to be issued by the
registrant.*

(5) (a) Form of Management Agreement between
AFBA Investment Management Company and
the Registrant*

(b) Form of Investment Counsel Agreement
between AFBA Investment Management
Company and Kornitzer Capital
Management, Inc.*

(6) Form of principal Underwriting Agreement between
Jones & Babson, Inc. and the Registrant*

(7) Not applicable, because there are no pension,
bonus or other agreement for the benefit of
directors and officers.

(8) Form of Custodian Agreement between Registrant and
UMB Bank, n.a.*

(9) Form of Transfer Agency Agreement between AFBA
Investment Management Company and Jones & Babson,
Inc.*

(10) Opinion and consent of counsel as to the legality
of the Registrant's securities being registered.
(To be filed annually with Rule 24f-2 notice.)

(11) (a) Powers of Attorney*

(b) Auditors Consent*

(12) Not applicable.

(13) Form of letter from contributors of initial
capital to the Registrant that purchase was made
for investment purposes without any present
intention of redeeming or selling.*

(14) Not applicable.

(15) Not applicable.

(16) Schedule for computation of performance
quotations. (To be supplied
by further amendment.)

*Incorporated by reference to Registrant's Registration on N-1A.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL OF THE
REGISTRANT.

NONE

Item 26. NUMBER OF HOLDERS OF SECURITIES.

The number of record holders of each series of securities of
the Registrant as of November 21, 1997, is as follows:

(1) (2)
Title of Class
Common Stock Number of Record Holders
$1.00 par value

AFBA Five Star Balanced Fund 296
AFBA Five Star Equity Fund 498
AFBA Five Star USA Global Fund 438
AFBA Five Star High Yield Fund 239

Item 27. INDEMNIFICATION.

Under the terms of the Maryland General Corporation Law and the
Company's By-laws, the Company shall indemnify any person who was
or is a director, officer or employee of the Company to the
maximum extent permitted by the Maryland General Corporation Law;
provided however, that any such indemnification (unless ordered
by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of such
persons is proper in the circumstances. Such determination shall
be made:

(i) by the Board of Directors by a majority vote of a quorum
which consists of the directors who are neither "interested
persons" of the Company as defined in Section 2(a)(19) of the
1940 Act, nor parties to the proceedings, or

(ii) if the required quorum is not obtainable or if a quorum of
such directors so directs, by independent legal counsel in a
written opinion.

No indemnification will be provided by the Company to any
director or officer of the Company for any liability to the
company or shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.

AFBA Investment Management Company is a wholly-owned subsidiary
of Armed Forces Benefit Services, Inc. ("AFBSI"), which serves as
investment manager to the Registrant. AFBSI is a for-profit
services entity which is wholly-owned by Armed Forces Benefit
Association, a voluntary employee benefit association.

The principal business of Kornitzer Capital Management, Inc. is
to provide investment counsel and advice to a wide variety of
clients. Kornitzer Capital Management, Inc. has $1.2 billion
under management.

The information required by this Item 28 with respect to each
director, officer, or partner of the Manager and the Investment
Adviser of the Registrant is incorporated by reference to the
Form ADV, as filed and amended, by the Manager and Investment
Adviser, respectively, with the SEC:

AFBA Investment Management Company
SEC File No. 801-54247

Kornitzer Capital Management, Inc.
SEC File No. 801-34933

Item 29. PRINCIPAL UNDERWRITERS.

(a) Jones & Babson, Inc., the only principal underwriter of the
Registrant, also acts as principal underwriter for the David
L. Babson Growth Fund, Inc., D.L. Babson Money Market Fund,
Inc., D.L. Babson Tax-Free Income Fund, Inc., D.L. Babson
Bond Trust, Babson Value Fund, Inc., Shadow Stock Fund,
Inc., Babson-Stewart Ivory International Fund, Inc., Scout
Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money Market
Fund, Inc, Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
High Yield Fund, Inc., Buffalo Equity Fund, Inc. and Buffalo
USA Global Fund, Inc.

(b) Herewith is the information required by the following table
with respect to each director, officer or partner of the
only underwriter named in answer to Item 21 of Part B:

Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant

Stephen S. Soden Chairman and Director None
MBA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Larry D. Armel President and Director Director
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Giorgio Balzer Director None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Robert T. Rakich Director None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Edward S. Ritter Director None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Robert N. Sawyer Director None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Vernon W. Voorhees Director None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

P. Bradley Adams Vice President Vice President and
BMA Tower and Treasurer Chief Financial
700 Karnes Blvd Officer
Kansas City, MO 64108-3306

Michael A. Brummel Vice President None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306

Martin A. Cramer Vice President Secretary
BMA Tower and Secretary
700 Karnes Blvd.
Kansas City, MO 64108-3306

(c) The principal underwriter does not receive any remuneration
or compensation for the duties or services rendered to the
Registrant pursuant to the principal Underwriting Agreement.

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

Each account, book or other document required to be maintained by
Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to
31a-3) promulgated thereunder is in the physical possession of
Jones & Babson, Inc., at 700 Karnes Blvd, Kansas City, Missouri
64108-3306.

Item 31. MANAGEMENT SERVICES

All management services are covered in the Management Agreement
between the Registrant and AFBA Investment Management Company
which are discussed in Parts A and B.

Item 32. UNDERTAKINGS

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to its registration statement to be signed on its behalf by the
undersigned, thereunto authorized, in the City of Alexandria, and State of
Virginia on the 25th day of November, 1997.

AFBA FIVE STAR FUND, INC.
(Registrant)

By /s/John A. Johnson
John A. Johnson, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment #1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

/s/John A. Johnson November 25, 1997
John A. Johnson
President, Pricipal Executive
Officer and Director

/s/C.C. Blanton November 25, 1997
C.C. Blanton
Director

/s/Monroe W. Hatch, Jr.* November 25, 1997
Monroe W. Hatch, Jr.
Director

/s/Louis C. Wagner, Jr.* November 25, 1997
Louis C. Wagner, Jr.
Director

/s/Henry J. Sechler* November 25, 1997
Henry J. Sechler
Director

/s/John C. Kornitzer* November 25, 1997
John C. Kornitzer
Director

/s/Larry Armel November 25, 1997
Larry Armel
Director

/s/P. Bradley Adams November 25, 1997
P. Bradley Adams
Vice President and Principal
Financial and Accounting
Officer

*Signed pursuant to Power of
Attorney

By /s/C.C. Blanton
C.C. Blanton
Attorney-in-Fact

REPRESENTATIONS OF COUNSEL

I assisted in the preparation of this Post Effective Amendment to the Fund's
Registration Statement filed under the Securities Act of 1933 and the
Amendment to the Fund's Registration Statement filed under the Investment
Company Act of 1940. Based on my review it is my opinion that this
amendment does not contain disclosures which would render it ineligible
to become effective pursuant to paragraph (b) of Rule 485 under the
Securities Act of 1933.

/s/John G. Dyer November 25, 1997
John G. Dyer
Attorney