AFBA FIVE STAR FUNDS INC, N-1A EL/A, 1997-04-17

AFBA FIVE STAR FUNDS INC
N-1A EL/A, 1997-04-17

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

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940 [X]

Amendment No. 1 [ ]

File Nos. 333-20637; 811-8035

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

2440 Pershing Road, Suite G-15, Kansas City, MO 64108
(Address of Principal Executive Office)

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

Larry D. Armel, AFBA Five Star Fund, Inc.
2440 Pershing Road, Suite G-15, Kansas City, MO 64108
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.

Please address inquiries and a carbon copy of all
and communications to: communications to:

John G. Dyer, Esq. Mark H. Plafker, Esq.
Jones & Babson, Inc. Stradley, Ronon, Stevens & Young, LLP
2440 Pershing Road, Suite G-15 2600 One Commerce Square
Kansas City, MO 64108 Philadelphia, PA 19103-7098
Telephone: (816) 471-5200 Telephone: (215) 564-8000

Registrant hereby elects to register an indefinite number of its shares
pursuant to Rule 24f-2 under the Investment Company Act of 1940. Registrant
hereby amends this Registration Statement on such dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until this Registration Statement shall become effective on such date as the
Commission, acting pursuant to such Section 8(a), may determine.

56 Total Pages
Exhibit Index Page 54
<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...........................................Not Applicable

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.............................Cover Page; How to
being offered Purchase Shares;
Shareholder Services

Item 8. Redemption or Repurchase...........................How to Redeem Shares

Item 9. Pending Legal Proceedings..........................Not Applicable

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

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<PAGE>

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
of Securities Being Offered are Handled;
Redemption of
Shares; Financial
Statements

Item 20. Tax Status.........................................Dividends,
Distributions and
Their Taxation
(Prospectus)

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

Item 22. Calculation of Yield Quotations....................Not Applicable
of Money Market Fund

Item 23. Financial Statements...............................(To be supplied by
further Amendment)

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<PAGE>
--------------------------------------------------------------

PROSPECTUS
dated [____________], 1997

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

AFBA Five Star Fund, Inc.
2440 Pershing Road, Suite G-15
Kansas City, MO 64108

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

Manager:
AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia 22314

Investment Counsel: Distributor and Administrator:
Kornitzer Capital Management, Inc. Jones & Babson, Inc.
7715 Shawnee Mission Parkway 2440 Pershing Road, Suite G-15
Shawnee Mission, Kansas 66202 Kansas City, Missouri 64108

Please contact the Funds toll free at 800-[__________]

INVESTMENT OBJECTIVES

Five Star Balanced Fund

The 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 Balanced Fund's 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.

Five Star Equity Fund

The 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 Equity Fund's
objective of long-term capital appreciation.

Five Star USA Global Fund

The 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 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

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<PAGE>
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.

Five Star High Yield Fund

The 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 in a significant portion, up to 90% 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 Policy," page ; "Risk Factors," page ; "Investment Restrictions,"
page and "Description of Securities Ratings," page . Secondarily, the High Yield
Fund may invest up to 10% of the value of its total assets in common stocks and
other equity securities.

PURCHASE INFORMATION

Minimum Investment
Initial Purchase $1,000
Initial IRA and Uniform Transfers (Gifts)
to Minors Purchases $250
Subsequent Purchase:
By Mail $100
By Telephone or Wire $1,000
All Automatic Purchases $100

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 Funds at the telephone numbers 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 Funds may obtain a copy
without charge by writing or calling the Funds.

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.

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<PAGE>

TABLE OF CONTENTS
Page
Fund Expenses
Investment Objectives and Portfolio Management Policies
Repurchase Agreements
Risk Factors
Investment Restrictions
Performance Measures
How to Purchase Shares
Initial Investments
Investments Subsequent to Initial Investment
Telephone Investment Service
Automatic Monthly Investment Plan
How to Redeem Shares
Systematic Redemption Plan
How to Exchange Shares Between Five Star Funds
How Share Price is Determined
Officers and Directors
Management and Investment Counsel
General Information and History
Dividends, Distributions and Their Taxation
Shareholder Services
Shareholder Inquiries

Description of Securities Ratings

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For more information on
HIGHLIGHTS this subject see page...
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The Funds The Five Star Balanced Fund, the Five Star Equity Fund,
the Five Star High Yield Fund and the Five Star USA
Global Fund (the "Funds," the "Five Star Funds" or
individually, a "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.

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<PAGE>

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For more information on
HIGHLIGHTS this subject see page...

The Five Star Balanced Fund seeks long-term 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.

The 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.

The 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.

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

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

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
$1,000 ($250 for IRA and Uniform Transfers/Gifts to
Minors purchases). Subsequent purchases must be at
least $100, except telephone or wire purchases which
must be in the amount of $1,000 or more. ..............

Telephone Investment - You may make investments of
$1,000 or more by telephone if you have authorized such
investment in your application, or, subsequently, on a
special authorization form provided upon request. .....

Automatic Monthly Investment - You may elect to make
monthly investments in a constant dollar amount from
your checking account ($100 minimum). The 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. .........................................

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

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.

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<PAGE>
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For more information on
HIGHLIGHTS this subject see page...
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Exchange
Privilege with
Other Funds Shareholders may transfer their investments without
charge to any other Five Star Fund sponsored by the
Manager. 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. ............

Automatic Exchange - You may exchange shares from your
account ($100 minimum) in any of the Five Star Funds to
an identically registered account in any other Fund in
the Five Star Group 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.

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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 Five Star Funds.

- --------------------------------------------------------------------------------
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 (1.0%) 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 (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.

Although these fees are higher than the fees of some
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.

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Dividend Policies Five Star Balanced Fund and 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 Five Star Balanced Fund.
Distributions from capital gains, if any, will be
declared semi-annually, usually in June and December
for Five Star High Yield Fund.

Five Star Equity Fund and Five Star USA Global Fund
will pay dividends from net investment income and
capital gains semi-annually, usually in June and
December.

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<PAGE>
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For more information on
HIGHLIGHTS this subject see page...
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Taxes The Funds will distribute substantially all of their
net 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.

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

Risk Factors For a discussion of risk factors applicable to
repurchase agreements..................................

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

For a discussion of risk factors applicable to
ADRs...................................................

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

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

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

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

-9-

<PAGE>

FUND EXPENSES
<TABLE>
<CAPTION>

Five Star Five Star Five Star Five Star
Balanced Fund Equity Fund USA Global Fund High Yield 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 Operating 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* 0.06% 0.06% 0.06% 0.06%
----- ----- ----- -----
Total Fund operating expenses*............ 1.06% 1.06% 1.06% 1.06%
===== ===== ===== =====
<FN>

* Jones & Babson, 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.
</FN>
</TABLE>

Example

You would pay the following expenses on a $1,000 investment, assuming (1) a
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 past or 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 past or future annual return. The actual return may be
greater or less than the assumed amount.

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<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.

FIVE STAR BALANCED FUND

The 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.

The 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 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.

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" on page 6.)

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.

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<PAGE>

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 so.

The Fund is authorized to write (i.e. sell) covered call options on the
securities in which it may invest 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.

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 for common stocks in the Fund's portfolio
will not exceed 100% on an annual basis, and that portfolio turnover for other
securities will not exceed 100% on an annual basis.

FIVE STAR EQUITY FUND

The 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

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<PAGE>

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. (See "Risk Factors Applicable to Covered Call
Options.")

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 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.

FIVE STAR USA GLOBAL FUND

The 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

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<PAGE>

considered by the Manager to have above average potential for appreciation;
income is a secondary consideration. Under normal circumstances, the Fund will
invest in 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 U.S. Liquidity risk is
lowered because trading volumes are generally higher on U.S. 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 may invest 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.

FIVE STAR HIGH YIELD FUND

The 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 is a no-load, open-end diversified management company commonly referred to
as a "mutual fund."

The Fund may invest up to 90% 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

-14-

<PAGE>

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 subsequently 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. Going defensive in any one or more of these manners might involve a
reduction in the yield on the Fund's portfolio.

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<PAGE>

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

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 Five Star Funds may enter into repurchase agreements.

ASSET-BACKED SECURITIES

The 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 Covered Call Options

Each of the 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.

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<PAGE>

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.

Risk Factors Applicable To Repurchase Agreements

Each of the 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 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 ADRs

Up to 25% of the 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

The Five Star Equity Fund, the Five Star Balanced Fund and the Five Star USA
Global Fund invest in common stocks. The Five Star High Yield Fund may invest up
to 10% of its assets in common stocks. The Funds are subject to market risk and
fund 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. Fund 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

The Five Star Balanced Fund and the 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

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<PAGE>

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 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). Rating 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 the 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.

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<PAGE>

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

The 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.

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<PAGE>

Performance Comparisons

In advertisements or in reports to shareholders, each of the Funds may compare
its performance to that of other mutual funds with similar investment objectives
and to stock or other relevant indices. For example, the 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. The Five Star Balanced Fund, the Five Star Equity
Fund and the 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. The 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. The 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 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., 2440 Pershing Road, Suite G-15, Kansas City, MO
64108. For information call toll free 1-800-4-[ ] (1-800-[ ]). 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 a Fund. Shares are
purchased at the Fund's net asset value (price) per share next effective after a
purchase order and payment have been

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<PAGE>

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.

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 ($2,500 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, n.a. Mail your application and check to:

The AFBA Five Star Fund Group
c/o Jones & Babson, Inc.
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108

Initial investments -- By wire. You may purchase shares of a Fund by wiring
funds ($2,500 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
1-800-[number], [or in the Kansas City area 471-5200], 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 Five Star Balanced Fund/
AC=
For Five Star Equity Fund/
AC=
For Five Star USA Global Fund/
AC=
For Five Star High Yield Fund/
AC=
OBI=(assigned Fund number and name in
which registered)

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<PAGE>

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 $1,000 or more if purchases are made by wire or
telephone. Automatic monthly investments must be in amounts of $100 or more.

Checks should be mailed to the Fund at its address, but make them payable to UMB
Bank, n.a. 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 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 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 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 ($100 minimum). The relevant Fund will draft your checking
account on the same day each month in

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<PAGE>

the amount you authorize in 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)
next computed after receipt of a redemption request in "good order." (See "How
Share Price is Determined," page __.)

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 page __);
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 2440
Pershing Road, Suite G-15, Kansas City, Missouri 64108. 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," page __.)

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 seventh
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 in Rule l7Ad-15 under 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 seven-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

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<PAGE>

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.

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
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 FIVE STAR FUNDS

Shareholders may exchange their Fund shares, which have been held in open
account for 30 days or more, and for which good payment has been received, for
identically registered shares of any Fund in the Five Star Fund Group which is
legally registered for sale in the state of residence of the investor, provided
that the minimum amount exchanged has a value of $1,000 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

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<PAGE>

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 Five Star Fund 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 Five Star Fund Group, 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, 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."

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<PAGE>

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 Five Star
Funds, 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 the Five
Star Balanced Fund, the Five Star Equity Fund, the Five Star USA Global Fund and
the Five Star High Yield 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
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, the Five Star Balanced Fund, the
Five Star Equity Fund, the Five Star USA Global Fund and the Five Star High
Yield Fund each pay the Manager a fee at the annual rate of one percent (1.0%)
of average daily net assets from which the Manager pays the Adviser a fee of
one-third of one percent (0.33%) of average daily net assets for investment
counsel services, and also pays Jones & Babson a fee of one-third of one percent
(0.33%) for administrative and other services provided to the Funds, which are
not otherwise provided by the Manager. The fees are computed daily and paid
semi-monthly.

The annual fee charged by the Manager is higher than the management fees of many
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

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<PAGE>

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, 1999. 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 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

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<PAGE>

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 Returns(1)
Ended March 31, 1996

Inception(2)
Year Ended to Year Ended
March 31, 1996 March 31, 1996

Buffalo Balanced Fund 17.87% 12.53%
S&P 500 and Merrill Lynch Bond
Fund Weighted Index 22.20% 18.55%
Buffalo Equity Fund N/A 29.11%
S&P 500 Index 32.10% 26.87%
Buffalo USA Global Fund N/A 17.49%
S&P 500 Index 32.10% 26.87%
Buffalo High Yield Fund N/A 16.67%
Merrill Lynch High Yield Bond Fund Index 12.30% 9.61%

- --------
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 S&P 500 Index is an unmanaged index composed of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks.

The Merrill Lynch Bond Fund Index is an unmanaged index composed 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 3-31-96, the Buffalo Balanced Fund's portfolio consisted of
an approximate mix of 33% stocks and 67% bonds (the percentage allocations
did not vary significantly throughout the periods presented).

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<PAGE>

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 the Five Star
Balanced Fund, the Five Star Equity Fund, the Five Star USA Global Fund and the
Five Star High Yield 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 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 Five Star Balanced Fund and the 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 Five Star Balanced Fund annually on or before December 31 and
by the Five Star High Yield Fund semiannually, usually in June and December. The
Five Star Equity Fund and the 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

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<PAGE>

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 fiscal 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.

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.

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<PAGE>

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.

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<PAGE>

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.

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 ($100 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 $1,000 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 Five Star Funds to an identically registered account in any other
Fund in the Five Star Group 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.

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<PAGE>

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. 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 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 ($2,250 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 Jones & Babson 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.

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<PAGE>

SHAREHOLDER INQUIRIES

Telephone inquiries may be made toll free to the Funds, 1-800-[Number]

Shareholders may address written inquiries to the Funds at:

AFBA Five Star Fund, Inc.
c/o Jones & Babson, Inc.
2440 Pershing Road, Suite G-15
Kansas City, MO 64108

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

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

PROSPECTUS
[___________________], 1997

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<PAGE>

PART B

AFBA FIVE STAR FUND, INC.
consisting of:

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

STATEMENT OF ADDITIONAL INFORMATION

[____________], 1997

This Statement is not a prospectus but should be read in conjunction with the
Funds' current prospectus dated [____________], 1997. To obtain the prospectus
please call the Fund toll free, 1-800-[Number].

TABLE OF CONTENTS
Page
Investment Objectives and Policies
Portfolio Transactions
Investment Restrictions
Five Star Balanced Fund
Five Star Equity Fund
Five Star USA Global Fund
Five Star High Yield Fund
Performance Measures
How the Funds' Shares are Distributed
How Share Purchases are Handled
Redemption of Shares
Signature Guarantees
Management and Investment Counsel
How Share Price is Determined
Officers and Directors
Custodian
Independent Auditors
Other Funds
Description of Commercial Paper Ratings
Financial Statements

INVESTMENT OBJECTIVES AND POLICIES

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

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<PAGE>

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
Boards of Directors of the 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.

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<PAGE>

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.

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," restrictions also may not be changed without approval of
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; or (13) invest in securities which
are assessable or involve unlimited liability; (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 Five Star High Yield Fund may quote its 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.

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<PAGE>

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:

6
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 Five Star Fund's "average annual total return" figures will be
computed according to a formula prescribed by the Securities and Exchange
Commission. The formula can be expressed as follows:

n
P(1+T) = 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.

-39-
<PAGE>

Jones & Babson does not receive any fee or other compensation under the
Underwriting Agreement relating to the Five Star Funds, 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 the order is accepted by a Fund.

Each investment is confirmed by a year-to-date statement which provides the
details of the immediate transaction, plus all prior 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 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

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<PAGE>

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 seven-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 Fund's 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.

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

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.

-41-
<PAGE>

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
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 22324
President, Chief Executive Officer, Armed Forces Benefit Services, Inc.;
Executive Vice President, AFBA Industrial Bank; President, Chief Executive
Officer, Director, AFBA Life Insurance Company; AFBA Investment Management
Company; AFBA Administrators, Inc.

* Larry D. Armel, Director (55).

2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
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.

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<PAGE>

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.

P. Bradley Adams, Vice President and Chief Financial Officer (36).
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
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).
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108

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. Director, Price Waterhouse LLP. Formerly, 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.

-43-
<PAGE>

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 Services, Inc. (AFBSI), an affiliate of the Manager, may be deemed to
"control" the Fund because it purchased the initial shares offered by the Fund.
The address of AFBSI 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 custodian 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 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.

-44-

<PAGE>
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.

"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.

-45-
<PAGE>

AFBA FIVE STAR FUND, INC.

FINANCIAL STATEMENTS TO BE
SUPPLIED BY FURTHER AMENDMENT

-46-

<PAGE>
PART C

OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements
Included in Part B (to be supplied by amendment)

(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 (To be supplied by amendment)

(12) Not applicable.

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<PAGE>

(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. (To be supplied by
amendment)

(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 [____________], 1997, is as follows:

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

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

Item 27. INDEMNIFICATION.

Under the terms of the Maryland General Corporation Law and the
Company's Bylaws, 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

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<PAGE>

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.

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<PAGE>

(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
BMA Tower
One Penn Valley Park
Kansas City, MO 64141

Larry D. Armel President and Director Director
2440 Pershing Road, G-15
Kansas City, MO 64108

Giorgio Balzer Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141

Robert T. Rakich Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141

Edward S. Ritter Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141

Robert N. Sawyer Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141

Vernon W. Voorhees Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141

P. Bradley Adams Vice President and Treasurer Vice President
2440 Pershing Road, G-15 and Chief
Kansas City, MO 64108 Financial
Officer

Michael A. Brummel Vice President None
Three Crown Center
2440 Pershing Road, G-15
Kansas City, MO 64108

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<PAGE>

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

Martin A. Cramer Vice President and Secretary Secretary
Three Crown Center
2440 Pershing Road, G-15
Kansas City, MO 64108

(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 Three Crown Center, 2440 Pershing Road, Suite G-15,
Kansas City, Missouri 64108.

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

Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of Registrant's 1933 Act Registration
Statement.

Registrant undertakes to call a meeting of shareholders, if requested
to do so by the holders of at least 10% of the registrant's
outstanding shares, for the purpose of voting upon the question of
removal of a director or directors and to assist in communications
with other shareholders.

Insofar as indemnification for liability arising under the Securities
Act of 1993 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been

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<PAGE>

settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

-52-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto authorized, in the City of Alexandria, and State of Virginia on the
15th day of April, 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 amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.

/s/ John A. Johnson President, Principal Executive
John A. Johnson Officer, and Director April 15, 1997

/s/ C.C. Blanton Director
C.C. Blanton April 15, 1997

/s/ Monroe W. Hatch, Jr.* Director
Monroe W. Hatch, Jr. April 15, 1997

/s/ Louis C. Wagner, Jr.* Director
Louis C. Wagner, Jr. April 15, 1997

/s/ Henry J. Sechler* Director
Henry J. Sechler April 15, 1997

/s/ John C. Kornitzer* Director
John C. Kornitzer April 15, 1997

/s/ Larry Armel Director
Larry Armel April 15, 1997

/s/ P. Bradley Adams
P. Bradley Adams Vice President and Principal April 15, 1997
Financial and Accounting
Officer

*Signed pursuant to Power of
Attorney

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

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<PAGE>

EXHIBIT INDEX

Item 24.(b) Page

(1) (b) Articles Supplementary 55

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Exhibit 1(b)

ARTICLES SUPPLEMENTARY
TO ARTICLES OF INCORPORATION
OF AFBA FIVE STAR FUND, INC.

THE AFBA FIVE STAR FUND, INC., a Maryland corporation having its principal
office in Baltimore, Maryland (hereinafter called the "Corporation", hereby
certifies to the State Department of Assessments and Taxation of Maryland, in
accordance with the requirements of Section 2-208 and 2-208.1 of the Maryland
General Corporation Law that:

FIRST: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940.

SECOND: The total number of shares which the Corporation currently has
authority to issue is 40,000,000 shares of stock, with a par value of one dollar
($1.00) per share, known as Common Stock and such Common Stock having an
aggregate par value of forty Million Dollars ($40,000,000), is classified and
allocated into one class as follows:

Number of Shares of Common Stock
Name of Class Initially Classified and Allocated

Common Capital Stock 40,000,000

THIRD: The Board of Directors of the Corporation, at a meeting duly
convened and held on ___________________, 1997, adopted resolutions allocating
and classifying or reclassifying its shares as follows:

Number of Shares of Common Stock
Name of Class Initially Classified and Allocated

AFBA Five Star Balanced Fund 10,000,000
AFBA Five Star Equity Fund 10,000,000
AFBA Five Star High Yield Fund 10,000,000
AFBA Five Star USA Global Fund 10,000,000

FOURTH: The shares of each series so classified and allocated shall have
all the rights and privileges as set forth in the Corporation's Articles of
Incorporation, including such priority in the assets and liabilities of such
series as may be provided in such Articles.

FIFTH: The shares of each series have been classified by the Board of
Directors pursuant to authority contained in the Articles of Incorporation of
the Corporation.

SIXTH: After giving effect to the allocation, the aggregate par value of
all Common Stock of the Corporation is Forty Million Dollars ($40,000,000) and
the total amount of Common Stock, with a par value of one dollar ($1.00) per
share, allocated to each class is as follows:

Total Number of
Name of Class Shares Allocated

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<PAGE>

AFBA Five Star Balanced Fund 10,000,000
AFBA Five Star Equity Fund 10,000,000
AFBA Five Star High Yield Fund 10,000,000
AFBA Five Star USA Global Fund 10,000,000

IN WITNESS WHEREOF, ABF FIVE STAR FUND INC. has caused these presents to be
signed in its name and on its behalf by its Vice President and attested by its
Secretary on February 27, 1997.

AFBA FIVE STAR FUND, INC.

By: /s/ P. Bradley Adams

Attest:

/s/ Martin Cramer

THE UNDERSIGNED, Vice President of AFBA FIVE STAR FUND, INC., who executed on
behalf of said Corporation the foregoing Articles Supplementary to the Articles
of Incorporation of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the foregoing Articles
Supplementary to the Articles of Incorporation to be the corporate act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters set forth therein with respect to the
approval thereof are true in all material respects, under the penalties of
perjury.

/s/ P. Bradley Adams

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