SECURITIES AND EXCHANGE COMMISSION FORM 485BXT. Post-effective amendments to designate new effective dates

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1 SECURITIES AND EXCHANGE COMMISSION FORM 485BXT Post-effective amendments to designate new effective dates Filing Date: SEC Accession No (HTML Version on secdatabase.com) PRUDENTIAL DIVERSIFIED FUNDS CIK: State of Incorp.:DE Fiscal Year End: 0731 Type: 485BXT Act: 33 File No.: Film No.: FILER Business Address GATEWAY CENTER THREE 100 MULBERRY STREET NEWARK NJ

2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1999 SECURITIES ACT REGISTRATION NOS INVESTMENT COMPANY ACT REGISTRATION NO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 3 AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 3 [X] [X] [X] [X] (CHECK APPROPRIATE BOX OR BOXES) PRUDENTIAL DIVERSIFIED FUNDS (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) GATEWAY CENTER THREE 100 MULBERRY STREET NEWARK, NEW JERSEY (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) DAVID F. CONNOR, ESQ. 100 MULBERRY STREET GATEWAY CENTER THREE NEWARK, NEW JERSEY (NAME AND ADDRESS OF AGENT FOR SERVICE) COPIES TO: ARTHUR J. BROWN, ESQ. KIRKPATRICK & LOCKHART LLP 1800 MASSACHUSETTS AVE., N.W. WASHINGTON, D.C It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [X] on (October 7, 1999) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485

3 If appropriate, check the following box: [X] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. <S> <C> Title of Securities Being Registered... Shares of Beneficial Interest, $.001 par value per share 2 PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND PRUDENTIAL DIVERSIFIED MODERATE GROWTH FUND PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND PROSPECTUS: OCTOBER 4, 1999 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the Trust's shares, nor has the SEC determined that this prospectus is complete or accurate. It is a criminal offense to state otherwise. [PRUDENTIAL INVESTMENT LOGO] 3 TABLE OF CONTENTS <S> <C> 1 RISK/RETURN SUMMARY 1 Investment Objectives and Principal Strategies 9 Principal Risks 11 Fees and Expenses 15 HOW THE FUNDS INVEST 15 Investment Objectives and Policies 23 Other Investments and Strategies 27 Investment Risks 33 HOW THE TRUST IS MANAGED 33 Board of Trustees 33 Manager 34 Advisers and Portfolio Managers 38 Distributor 38 Year 2000 Readiness Disclosure 39 FUND DISTRIBUTIONS AND TAX ISSUES 39 Distributions 40 Tax Issues 42 If You Sell or Exchange Your Shares 43 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE TRUST 43 How to Buy Shares 51 How to Sell Your Shares 54 How to Exchange Your Shares

4 57 FINANCIAL HIGHLIGHTS FOR MORE INFORMATION (Back Cover) PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY This section highlights key information about the investment portfolios (the Funds) of PRUDENTIAL DIVERSIFIED FUNDS (the Trust). Additional information follows this summary. INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES The following summarizes the investment objectives, principal strategies and principal risks for each of the Funds. For more information on the risks associated with the Funds, see "Principal Risks" below. While we make every effort to achieve the investment objective for each Fund, we can't guarantee success. INTRODUCTION A study has shown that the greatest impact on long-term investment returns is attributable to an investor's asset allocation decisions (i.e., the mix of stocks, bonds and money market investments) rather than market timing or individual security selection. (1) Many investors do not have the time, the experience or the resources to implement a sound asset allocation strategy on their own. Investors have increasingly looked to mutual funds as a way to diversify their investments. Prudential Diversified Funds is designed for investors who want investment professionals to make their asset allocation decisions. The Trust offers three Funds designed to provide investors with a means to manage their long-term investments prudently in light of their personal investment goals and risk tolerance. Each Fund pursues its investment objective by investing in a mix of equity and fixed-income securities appropriate for a particular type of investor. Each Fund may serve as the cornerstone of a larger investment portfolio. (1) Source: Financial Analysts Journal. May/June 1991: "Determinants of Portfolio Performance II: An Update," by Gary Brinson, Brian Singer and Gilbert Beebower. Results are based on the 10-year performance records of 82 pension funds. The study updates and supports a similar study done in RISK/RETURN SUMMARY 1 HOW DO THE FUNDS DIFFER? Each Fund has a distinct investment objective and is situated differently along the risk/return spectrum.

5 [RISK/RETURN CHART] R High Growth Fund I S K Conservative Growth Fund Moderate Growth Fund R E T U R N The risk/return balance of each Fund depends upon the proportion of assets it allocates to different types of investments. Of course, higher risk does not always result in higher returns. Historic performance is no guarantee of future results. Prudential Investments Fund Management LLC (PIFM or the Manager) has developed an asset allocation strategy for the Funds designed to provide a mix of investment types and styles that is appropriate for investors with a conservative, moderate or aggressive investment orientation. PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND (CONSERVATIVE GROWTH FUND) may be appropriate for investors such as those in early retirement, who need to draw income from investments while obtaining a measure of long-term capital growth as a hedge against inflation. The Fund's focus on bonds for stability of principal also makes it suitable for conservative investors seeking income and modest growth, especially those concerned about market volatility. RISKS Market risk Style risk Credit risk Interest rate risk Small and medium size company risk 2 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY PRUDENTIAL DIVERSIFIED MODERATE GROWTH FUND (MODERATE GROWTH FUND) may be appropriate for investors looking for a balance of long-term capital growth and current income. The Fund offers a diversified approach to equities for long-term growth, but will normally maintain a substantial component of fixed-income securities to provide current income and a measure of stability (e.g., investors in their 50s who are saving on a regular basis for retirement and who plan to retire in their early to mid 60s). RISKS Market risk

6 Style risk Small and medium size company risk Foreign market risk Credit risk Interest rate risk PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND (HIGH GROWTH FUND) may be appropriate for investors seeking long-term capital growth. In addition, investors who already have a diversified portfolio may find this allocation suitable as an additional growth component (e.g., investors in their 20s, 30s or 40s who are saving for retirement and who plan to retire in their early to mid 60s). RISKS Market risk Style risk Foreign market risk Small and medium size company risk An investor can choose any of these three Funds, depending on his or her financial situation, personal investment objectives, investment horizon and level of risk tolerance. HOW ARE THE FUNDS MANAGED? The Manager has contracted with several highly regarded subadvisers (called Advisers) to manage the assets of each Fund. Each Adviser manages a portion of a Fund's assets, focusing on a particular type and style of 7 RISK/RETURN SUMMARY investing. The Manager monitors the performance of each Fund's Advisers and allocates the Fund's assets among its Advisers. The Manager believes that its asset allocation strategy and multi-adviser approach will enhance the performance of the Funds and reduce their volatility. First, the Manager has identified a select group of proven, experienced Advisers. Although each Adviser will focus the management of its Fund segment on a particular type and style of investing, the Manager believes that the combined efforts of several Advisers will result in prudently diversified Funds. Secondly, the Manager believes that, at any given time, certain investment types and styles will generate higher returns than others. Accordingly, the Manager believes that diversifying each Fund among a variety of investment types and styles will reduce volatility. CONSERVATIVE GROWTH FUND The Fund's investment objective is to seek to provide CURRENT INCOME and a reasonable level of CAPITAL APPRECIATION. This means that we seek investments that will pay income and investments that will increase in value. The Fund seeks to achieve its objective by investing in a diversified portfolio of fixed-income and equity securities. The table identifies the Fund's Advisers and the Fund segments they manage. TARGET ALLOCATION OF PRIMARY ADVISER FUND'S ASSETS ASSET CLASS INVESTMENT TYPE/STYLE <S> <C> <C> <C> Jennison Associates LLC 15% Equities Growth-oriented, focusing

7 on large-cap stocks The Prudential Investment 15% Equities Value-oriented, focusing Corporation on large-cap stocks Franklin Advisers, Inc. 5% Equities Growth-oriented, focusing on small-cap and mid-cap stocks The Dreyfus Corporation 5% Equities Value-oriented, focusing on small-cap and mid-cap stocks Pacific Investment Management 40% Fixed High-quality debt Company Income instruments The Prudential Investment 20% Fixed High-yield debt, including Corporation Income junk bonds and emerging market debt 4 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY In response to market developments, the Manager may rebalance the allocation of the Fund's assets or may add or eliminate Fund segments in accordance with the Fund's investment objective and the policies described below. The Fund will normally invest approximately 60% of its total assets in DEBT OBLIGATIONS issued or guaranteed by the U.S. GOVERNMENT and its agencies, as well as debt obligations issued by U.S. COMPANIES, FOREIGN COMPANIES AND FOREIGN GOVERNMENTS and their agencies. The Fund may invest in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S. government entities and in privately-issued, mortgage-related securities (not issued or guaranteed by the U.S. government). These investments may include collateralized mortgage obligations and stripped mortgage-backed securities. We may also invest in ASSET-BACKED SECURITIES. The debt obligations held by the Fund will normally have a dollar-weighted average maturity of between 4 and 15 years. We may invest up to 35% of the Fund's total assets in HIGH-YIELD DEBT OBLIGATIONS -- also known as "JUNK BONDS" -- which are rated at least B by Standard & Poor's Ratings Group (S&P), Moody's Investors Service, Inc. (Moody's) or another major rating service, and unrated debt obligations that we believe are comparable in quality. The Fund may continue to hold an obligation even if it is later downgraded or no longer rated. We may also invest up to 25% of the Fund's total assets in FOREIGN DEBT OBLIGATIONS, including up to 10% of its total assets in debt obligations of issuers in emerging markets. The Fund will normally invest approximately 40% of its total assets in COMMON STOCKS OF U.S. AND FOREIGN COMPANIES. The Fund may invest up to 15% of its total assets in STOCKS OF FOREIGN COMPANIES, including companies in emerging markets. These securities include American Depositary Receipts, American Depositary Shares, Global Depositary Receipts and European Depositary Receipts, which are certificates representing an equity investment in a foreign company. The foreign debt obligations and foreign stocks held by the Fund will normally be denominated in foreign currencies, including the euro -- a multinational currency unit.

8 5 9 RISK/RETURN SUMMARY MODERATE GROWTH FUND The Fund's investment objective is to seek to provide CAPITAL APPRECIATION and a reasonable level of CURRENT INCOME. This means that we seek investments that will increase in value and investments that will pay income. The Fund seeks to achieve its objective by investing in a diversified portfolio of equity and fixed-income securities. The table below identifies the Fund's Advisers and the Fund segments they manage. TARGET ALLOCATION OF PRIMARY ADVISER FUND'S ASSETS ASSET CLASS INVESTMENT TYPE/STYLE <S> <C> <C> <C> Jennison Associates LLC 20% Equities Growth-oriented, focusing on large-cap stocks The Prudential Investment 20% Equities Value-oriented, focusing Corporation on large-cap stocks Franklin Advisers, Inc. 7.5% Equities Growth-oriented, focusing on small-cap and mid-cap stocks The Dreyfus Corporation 7.5% Equities Value-oriented, focusing on small-cap and mid-cap stocks Lazard Asset Management 10% International Stocks of foreign Equities companies Pacific Investment 20% Fixed High-quality debt Management Company Income instruments The Prudential Investment 15% Fixed High-yield debt, including Corporation Income junk bonds and emerging markets debt In response to market developments, the Manager may rebalance the allocation of the Fund's assets or may add or eliminate Fund segments in accordance with the Fund's investment objective and the policies described below. The Fund will normally invest approximately 65% of its total assets in COMMON STOCKS OF U.S. AND FOREIGN COMPANIES. The Fund may invest up to 25% of its total assets in STOCKS OF FOREIGN COMPANIES, including companies in emerging markets. These securities include American Depositary Receipts, American Depositary Shares, Global Depositary Receipts and European Depositary Receipts, which are certificates representing an equity investment in a foreign company. The foreign securities held by the Fund normally will 6 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY

9 be denominated in foreign currencies, including the euro -- a multinational currency unit. The Fund will normally invest approximately 35% of its total assets in DEBT OBLIGATIONS issued or guaranteed by the U.S. GOVERNMENT and its agencies, as well as debt obligations issued by U.S. COMPANIES, FOREIGN COMPANIES AND FOREIGN GOVERNMENTS and their agencies. The Fund may invest in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S. government entities and in privately issued, mortgage-related securities (not issued or guaranteed by the U.S. government). These investments may include collateralized mortgage obligations and stripped mortgage-backed securities. We may also invest in ASSET-BACKED SECURITIES. The debt obligations held by the Fund will normally have a dollar-weighted average maturity of between 4 and 15 years. We may invest up to 35% of the Fund's total assets in HIGH-YIELD DEBT OBLIGATIONS -- also known as "JUNK BONDS" -- which are rated at least B by S&P, Moody's or another major rating service, and unrated debt obligations that we believe are comparable in quality. The Fund may continue to hold an obligation even if it is later downgraded or no longer rated. We may also invest up to 25% of the Fund's total assets in FOREIGN DEBT OBLIGATIONS, including up to 10% of its total assets in debt obligations of issuers in emerging markets. 11 RISK/RETURN SUMMARY HIGH GROWTH FUND The Fund's investment objective is to seek to provide long-term CAPITAL APPRECIATION. This means that we seek investments that will increase in value. The Fund seeks to achieve its objective by investing in a diversified portfolio of equity securities. The table below identifies the Fund's Advisers and the Fund segments they manage. TARGET Allocation of PRIMARY Adviser Fund's Assets Asset Class Investment Type/Style <S> <C> <C> <C> Jennison Associates LLC 25% Equities Growth-oriented, focusing on large-cap stocks The Prudential Investment 25% Equities Value-oriented, focusing Corporation on large-cap stocks Franklin Advisers, Inc. 15% Equities Growth-oriented, focusing on small-cap and mid-cap stocks The Dreyfus Corporation 15% Equities Value-oriented, focusing on small-cap and mid-cap stocks Lazard Asset Management 20% International Stocks of foreign Equities companies 7 In response to market developments, the Manager may rebalance the allocation of the Fund's assets or may add or eliminate Fund segments in accordance with the Fund's investment objective and the policies described below.

10 The Fund will normally invest substantially all of its assets in COMMON STOCKS OF U.S. AND FOREIGN COMPANIES. The Fund may invest up to 35% of its total assets in STOCKS OF FOREIGN COMPANIES, including companies in emerging markets. These securities include American Depositary Receipts, American Depositary Shares, Global Depositary Receipts and European Depositary Receipts, which are certificates representing an equity investment in a foreign company. The foreign securities held by the Fund normally will be denominated in foreign currencies, including the euro -- a multinational currency unit. 8 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY PRINCIPAL RISKS Although we try to invest wisely, all investments involve risk. Like any mutual fund, an investment in a Fund could lose value, and you could lose money. The following summarizes the principal risks of investing in the Funds. Unless otherwise indicated, the following risks apply to each of the Funds. MARKET RISK FOR COMMON STOCKS Since the Funds invest in common stocks, there is the risk that the price of a particular stock owned by a Fund could go down. Generally, the stock price of large companies is more stable than the stock price of smaller companies, but this is not always the case. In addition to an individual stock losing value, the value of a market sector or of the equity market as a whole could go down. In addition, different parts of a market can react differently to adverse issuer, market, regulatory, political and economic developments. SMALL AND MEDIUM SIZE COMPANY RISK Each Fund has segments that are invested in stocks of small and medium-size companies. These companies usually offer a smaller range of products and services than larger companies. They may also have limited financial resources and may lack management depth. As a result, the prices of stocks issued by small and medium-size companies tend to fluctuate more than the stocks of larger, more established companies. STYLE RISK Since some of the Fund segments focus on either a growth or value style, there is the risk that a particular style may be out of favor for a period of time. CREDIT RISK The debt obligations in which the Conservative Growth and Moderate Growth Funds invest are generally subject to the risk that the issuer may be unable to make principal and interest payments when they are due. MARKET RISK FOR DEBT OBLIGATIONS Debt obligations are also subject to market risk, which is the possibility that the market value of an investment may move up or down and that its movement

11 9 13 RISK/RETURN SUMMARY may occur quickly or unpredictably. Market risk may affect an industry, a sector or the entire market. INTEREST RATE RISK Debt obligations with longer maturities typically offer higher yields, but are subject to greater price shifts as a result of interest rate changes than debt obligations with shorter maturities. The prices of debt obligations generally move in the opposite direction to that of market interest rates. FOREIGN MARKET RISK Investing in foreign securities involves more risk than investing in securities of U.S. issuers. Foreign markets -- especially emerging markets -- tend to be more volatile than U.S. markets and are generally not subject to regulatory requirements comparable to those in the U.S. The amount of income available for distribution may be affected by our foreign currency gains or losses and certain hedging activities. In addition, political developments and changes in currency exchange rates may adversely affect the value of a Fund's foreign securities. OTHER RISKS The CONSERVATIVE GROWTH AND MODERATE GROWTH FUNDS may invest in mortgage-related securities and asset-backed securities, which are subject to prepayment risk. If these securities are prepaid, a Fund may have to replace them with lower-yielding securities. Stripped mortgage-backed securities are generally more sensitive to changes in prepayment and interest rates than other mortgage-related securities. The CONSERVATIVE GROWTH AND MODERATE GROWTH FUNDS may invest in noninvestment-grade securities -- also known as "junk bonds" -- which have a higher risk of default and tend to be less liquid than higher-rated securities. These Funds may also invest in debt obligations of foreign issuers. Investing in foreign securities presents additional risks. For more information about the risks associated with the Funds, see "How the Funds Invest -- Investment Risks." An investment in a Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 10 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY EVALUATING PERFORMANCE Because the Funds have operated for less than one year, they have no performance history as of the date of this prospectus.

12 FEES AND EXPENSES These tables show the sales charges, fees and expenses that you may pay if you buy and hold shares of each share class of the Funds -- Class A, B, C and Z. Each share class has different sales charges -- known as "loads" -- and expenses, but represents an investment in the same fund. Class Z shares are available only to a limited group of investors. For more information about which share class may be right for you, see "How to Buy, Sell and Exchange Shares of the Funds." SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS C CLASS Z <S> <C> <C> <C> <C> Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5% None 1% None Maximum deferred sales charge (load) (as a percentage of the lower of original purchase price or sale proceeds) None 5%(2) 1%(3) None Maximum sales charge (load) imposed on reinvested dividends and other distributions None None None None Redemption fee None None None None Exchange fee None None None None (1) Your broker may charge you a separate or additional fee for purchases and sales of shares. (2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by 1% annually to 1% in the fifth and sixth years and 0% in the seventh year. Class B shares convert to Class A shares approximately seven years after purchase. (3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of purchase. 15 RISK/RETURN SUMMARY 11 ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS) Class A Class B Class C Class Z <S> <C> <C> <C> <C> Conservative Growth Fund Management fees.75%.75%.75%.75% + Distribution and service (12b-1) fees.30% 1.00% 1.00% None + Other expenses.92%.92%.92%.92% = Total annual Fund operating expenses 1.97% 2.67% 2.67% 1.67% - Fee waiver(1).05% 0% 0% 0% = Net annual Fund operating expenses(1) 1.92% 2.67% 2.67% 1.67%

13 ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS) Class A Class B Class C Class Z <S> <C> <C> <C> <C> Moderate Growth Fund Management fees.75%.75%.75%.75% + Distribution and service (12b-1) fees.30% 1.00% 1.00% None + Other expenses.88%.88%.88%.88% = Total annual Fund operating expenses 1.93% 2.63% 2.63% 1.63% - Fee waiver(1).05% 0% 0% 0% = Net annual Fund operating expenses(1) 1.88% 2.63% 2.63% 1.63% ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS) Class A Class B Class C Class Z <S> <C> <C> <C> <C> High Growth Fund Management fees.75%.75%.75%.75% + Distribution and service (12b-1) fees.30% 1.00% 1.00% None + Other expenses.73%.73%.73%.73% = Total annual Fund operating expenses 1.78% 2.48% 2.48% 1.48% - Fee waiver(1).05% 0% 0% 0% = Net annual Fund operating expenses(1) 1.73% 2.48% 2.48% 1.48% (1) For the fiscal year ending July 31, 2000, the Distributor of the Funds has contractually agreed to reduce its distribution and service (12b-1) fees for Class A shares to.25 of 1% of the average daily net assets of the Class A shares. 12 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) RISK/RETURN SUMMARY EXAMPLE This example will help you compare the fees and expenses of each Fund's different share classes and the cost of investing in each Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in a Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that each Fund's operating expenses remain the same, except for the Distributor's reduction of distribution and service (12b-1) fees for Class A shares of the Funds during the first year. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 YR 3 YRS 5 YRS 10 YRS <S> <C> <C> <C> <C> CONSERVATIVE GROWTH FUND Class A shares $685 $1,083 $1,505 $2,677 Class B shares $770 $1,129 $1,515 $2,755

14 Class C shares $967 $921 $1,501 $3,073 Class Z shares $170 $526 $907 $1,976 MODERATE GROWTH FUND Class A shares $677 $1,057 $1,461 $2,587 Class B shares $766 $1,117 $1,495 $2,697 Class C shares $463 $909 $1,481 $3,034 Class Z shares $166 $514 $887 $1,933 HIGH GROWTH FUND Class A shares $667 $1,027 $1,411 $2,483 Class B shares $751 $1,072 $1,419 $2,561 Class C shares $448 $864 $1,406 $2,885 Class Z shares $150 $467 $807 $1, RISK/RETURN SUMMARY 13 You would pay the following expenses on the same investment if you did not sell your shares: 1 YR 3 YRS 5 YRS 10 YRS <S> <C> <C> <C> <C> CONSERVATIVE GROWTH FUND Class A shares $685 $1,083 $1,505 $2,677 Class B shares $270 $829 $1,415 $2,755 Class C shares $367 $921 $1,501 $3,073 Class Z shares $170 $526 $907 $1,976 MODERATE GROWTH FUND Class A shares $677 $1,057 $1,461 $2,587 Class B shares $266 $817 $1,395 $2,697 Class C shares $363 $909 $1,481 $3,034 Class Z shares $166 $514 $887 $1,933 HIGH GROWTH FUND Class A shares $667 $1,027 $1,411 $2,483 Class B shares $251 $772 $1,319 $2,561 Class C shares $348 $864 $1,406 $2,885 Class Z shares $150 $467 $807 $1, PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) HOW THE FUNDS INVEST INVESTMENT OBJECTIVES AND POLICIES CONSERVATIVE GROWTH FUND The Fund's investment objective is to seek to provide CURRENT INCOME and a reasonable level of CAPITAL APPRECIATION. This means that we seek investments that will pay income and investments that will increase in value. The Fund seeks to achieve its objective by investing in a diversified portfolio of fixed-income

15 and equity securities. FIXED-INCOME PORTION In pursuing our objective, we normally invest approximately 60% of the Fund's total assets in debt obligations issued or guaranteed by the U.S. GOVERNMENT and its agencies, as well as debt obligations issued by U.S. COMPANIES, FOREIGN COMPANIES AND FOREIGN GOVERNMENTS and their agencies. The Fund invests in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S. government entities, including securities issued by the Federal National Mortgage Association (FNMA or "Fannie Mae") or the Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") or guaranteed by the Government National Mortgage Association (GNMA or "Ginnie Mae"). We may also invest in privately issued, mortgage-related securities (those not issued or guaranteed by the U.S. government). The mortgage-related securities in which the Fund may invest may include COLLATERALIZED MORTGAGE OBLIGATIONS and STRIPPED MORTGAGE-BACKED SECURITIES. We may also invest in ASSET-BACKED SECURITIES like automobile loans and credit card receivables. We may invest up to 35% of the Fund's total assets in HIGH YIELD DEBT OBLIGATIONS--also known as "JUNK BONDS"--which are rated at least B by S&P, Moody's or another major rating service, and unrated debt obligations that we believe are comparable in quality. The Fund can invest up to 25% of its total assets in FOREIGN DEBT OBLIGATIONS, including up to 10% of its total assets in debt obligations of issuers in emerging markets. The Advisers of the Fund's fixed-income segments each focus on a particular type of investing. PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO) focuses primarily on INVESTMENT-GRADE DOMESTIC AND FOREIGN DEBT OBLIGATIONS--debt obligations rated at least BBB by S&P, Baa by Moody's, or the equivalent by another major rating service, and unrated debt obligations that PIMCO believes are comparable in quality. 19 HOW THE FUNDS INVEST 15 THE PRUDENTIAL INVESTMENT CORPORATION (PIC) focuses primarily on HIGH-YIELD DOMESTIC AND FOREIGN DEBT OBLIGATIONS, including junk bonds and debt obligations of issuers from emerging markets. In choosing debt obligations for the Fund, PIMCO and PIC consider economic conditions and interest rate fundamentals and, for foreign debt securities, country and currency selection. PIMCO and PIC also evaluate individual debt securities within each fixed-income sector based upon their relative investment merit. They also consider factors such as yield, duration and potential for price or currency appreciation, as well as credit quality, maturity and risk.

16 EQUITY PORTION We normally invest approximately 40% of the Fund's total assets in STOCKS OF U.S. AND FOREIGN COMPANIES. We may invest up to 15% of the Fund's total assets in stocks of companies located in foreign countries, including developing countries. The foreign securities held by the Fund normally will be denominated in foreign currencies, including the euro--a multinational currency unit. The Fund may also invest in AMERICAN DEPOSITARY RECEIPTS (ADRS), AMERICAN DEPOSITARY SHARES (ADSS), GLOBAL DEPOSITARY RECEIPTS (GDRS) and EUROPEAN DEPOSITARY RECEIPTS (EDRS). ADRs, ADSs, GDRs and EDRs are certificates--usually issued by a bank or trust company--that represent an equity investment in a foreign company. ADRs and ADSs are issued by U.S. banks and trust companies and are valued in U.S. dollars. EDRs and GDRs are issued by foreign banks and trust companies and are usually valued in foreign currencies. The Advisers of the Fund's equity segments each focus on a particular type and style of investing. JENNISON ASSOCIATES LLC (JENNISON) focuses on STOCKS OF LARGE COMPANIES, using a GROWTH INVESTMENT STYLE. Jennison selects stocks of companies that it believes will experience earnings growth at a faster rate than that of the U.S. economy in general. Jennison looks for stocks of companies that have demonstrated growth in earnings and sales, high returns on equity and assets, or other strong financial characteristics. Jennison will consider selling a security when it thinks the security has achieved its growth potential, or when Jennison thinks it can find better growth opportunities. THE PRUDENTIAL INVESTMENT CORPORATION (PIC) focuses on STOCKS OF LARGE companies, using a VALUE INVESTMENT STYLE. PIC selects stocks that it believes are undervalued and have an above-average potential to increase in price. PIC looks for stocks that it believes to be undervalued based on the company's sales, earnings, book value and cash flow. PIC will consider selling a stock if it has increased in value to the point where PIC no longer considers it to be undervalued. 16 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) FRANKLIN ADVISERS, INC. (FRANKLIN) focuses on STOCKS OF SMALL AND MEDIUM-SIZE COMPANIES, using a GROWTH INVESTMENT STYLE. Franklin selects stocks of companies that it believes to have potential to rapidly grow revenues, earnings or cash flow. Although Franklin may find these companies in growing industries, its strategy targets companies with sustainable competitive advantages, like unique products or proprietary technology, that may provide these companies with growth opportunities regardless of the growth outlook of the industry. Franklin will consider selling a security when it thinks the security has achieved its growth potential, or when Franklin thinks it can find better growth opportunities. THE DREYFUS CORPORATION (DREYFUS) focuses on STOCKS OF SMALL AND MEDIUM-SIZE COMPANIES, using a VALUE INVESTMENT STYLE. Dreyfus selects stocks that it believes are undervalued and have an above-average potential to increase in price. Dreyfus looks for stocks that it believes to be undervalued based on the company's sales, earnings, book value and cash flow. Dreyfus generally constructs its Fund segment to resemble the Russell 2000 Value Index, but weights the segment toward the stocks that Dreyfus deems most attractive. Dreyfus will consider selling a stock if it has increased in value to the point where Dreyfus no longer considers it to be undervalued. LAZARD ASSET MANAGEMENT (LAZARD) focuses on STOCKS OF FOREIGN COMPANIES,

17 using a VALUE INVESTMENT STYLE. Lazard looks for stocks that it believes to be undervalued based on the company's earnings, cash flow or asset values. Lazard will consider selling a stock if it has increased in value to the point where Lazard no longer considers it to be undervalued. MODERATE GROWTH FUND The Fund's investment objective is to seek to provide CAPITAL APPRECIATION and a reasonable level of CURRENT INCOME. This means that we seek investments that will increase in value, in addition to investments that will pay income. The Fund seeks to achieve its objective by investing in a diversified portfolio of equity and fixed-income securities. EQUITY PORTION In pursuing our objective, we invest approximately 65% of the Fund's total assets in stocks of U.S. and foreign companies. We may invest up to 25% of the Fund's total assets in stocks of companies located in foreign countries, including developing countries. The Fund may also invest IN AMERICAN DEPOSITARY RECEIPTS (ADRS), AMERICAN DEPOSITARY SHARES (ADSS), GLOBAL DEPOSITARY RECEIPTS (GDRS) and EUROPEAN DEPOSITARY RECEIPTS (EDRS). ADRs, ADSs, GDRs and EDRs are 21 HOW THE FUNDS INVEST 17 certificates--usually issued by a bank or trust company--that represent an equity investment in a foreign company. ADRs and ADSs are issued by U.S. banks and trust companies and are valued in U.S. dollars. EDRs and GDRs are issued by foreign banks and trust companies and are usually valued in foreign currencies. The Advisers of the Fund's equity segments each focus on a particular type and style of investing. JENNISON ASSOCIATES LLC (JENNISON) focuses on STOCKS OF LARGE COMPANIES, using a GROWTH INVESTMENT STYLE. Jennison selects stocks of companies that it believes will experience earnings growth at a faster rate than that of the U.S. economy in general. Jennison looks for stocks of companies that have demonstrated growth in earnings and sales, high returns on equity and assets, or other strong financial characteristics. Jennison will consider selling a security when it thinks the security has achieved its growth potential, or when Jennison thinks it can find better growth opportunities. THE PRUDENTIAL INVESTMENT CORPORATION (PIC) focuses on STOCKS OF LARGE COMPANIES, using a VALUE INVESTMENT STYLE. PIC selects stocks that it believes are undervalued and have an above-average potential to increase in price. PIC looks for stocks that it believes to be undervalued based on the company's sales, earnings, book value and cash flow. PIC will consider selling a stock if it has increased in value to the point where PIC no longer considers it to be undervalued. FRANKLIN ADVISERS, INC. (FRANKLIN) focuses on STOCKS OF SMALL AND MEDIUM-SIZE COMPANIES, using a GROWTH INVESTMENT STYLE. Franklin selects stocks of companies that it believes to have potential to rapidly grow revenues, earnings or cash flow. Although Franklin may find these companies in growing industries, its strategy targets companies with sustainable competitive advantages, like unique products or proprietary technology, that may provide these companies with growth

18 opportunities regardless of the growth outlook of the industry. Franklin will consider selling a security when it thinks the security has achieved its growth potential, or when Franklin thinks it can find better growth opportunities. THE DREYFUS CORPORATION (DREYFUS) focuses on STOCKS OF SMALL AND MEDIUM-SIZE COMPANIES, using a VALUE INVESTMENT STYLE. Dreyfus selects stocks that it believes are undervalued and have an above-average potential to increase in price. Dreyfus looks for stocks that it believes to be undervalued based on the company's sales, earnings, book value and cash flow. Dreyfus generally constructs its Fund segment to resemble the Russell 2000 Value Index, but weights the segment toward the stocks that Dreyfus deems most attractive. Dreyfus will consider selling a stock if it has increased in value to the point where Dreyfus no longer considers it to be undervalued. 18 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) HOW THE FUNDS INVEST LAZARD ASSET MANAGEMENT (LAZARD) focuses on STOCKS OF FOREIGN COMPANIES using a VALUE INVESTMENT STYLE. Lazard looks for stocks that it believes to be undervalued based on the company's earnings, cash flow or asset values. Lazard will consider selling a stock if it has increased in value to the point where Lazard no longer considers it to be undervalued. FIXED-INCOME PORTION We normally invest approximately 35% of the Fund's total assets in debt obligations issued or guaranteed by the U.S. government and its agencies, as well as debt obligations issued by U.S. companies, foreign companies and foreign governments and their agencies. The Fund invests in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S. government entities, including securities issued by the Federal National Mortgage Association (FNMA or "Fannie Mae") or the Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") or guaranteed by the Government National Mortgage Association (GNMA or "Ginnie Mae"). We may also invest in privately issued, mortgage-related securities (those not issued or guaranteed by the U.S. government). The mortgage-related securities in which the Fund may invest may include COLLATERALIZED MORTGAGE OBLIGATIONS and STRIPPED MORTGAGE-BACKED SECURITIES. We may also invest in ASSET-BACKED SECURITIES like automobile loans and credit card receivables. We may invest up to 35% of the Fund's total assets in HIGH-YIELD DEBT obligations--also known as "JUNK BONDS"--which are rated at least B by S&P, Moody's or another major rating service, and unrated debt obligations that we believe are comparable in quality. The Fund can invest up to 25% of its total assets in FOREIGN DEBT OBLIGATIONS, including up to 10% of its total assets in debt obligations of issuers in emerging markets. The Advisers of the Fund's fixed-income segments each focus on a particular type of investing. PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO) focuses primarily on

19 INVESTMENT-GRADE DOMESTIC AND FOREIGN DEBT OBLIGATIONS--debt obligations rated at least BBB by S&P, Baa by Moody's, or the equivalent by another major rating service, and unrated debt obligations that PIMCO believes are comparable in quality. THE PRUDENTIAL INVESTMENT CORPORATION (PIC) focuses primarily on HIGH-YIELD DOMESTIC AND FOREIGN DEBT OBLIGATIONS, including junk bonds and debt obligations of issuers from emerging markets. In choosing debt obligations for the Fund, PIMCO and PIC consider economic conditions and interest rate fundamentals and, for foreign debt 23 HOW THE FUNDS INVEST 19 securities, country and currency selection. PIMCO and PIC also evaluate individual debt securities within each fixed-income sector based upon their relative investment merit. They also consider factors such as yield, duration and potential for price or currency appreciation, as well as credit quality, maturity and risk. HIGH GROWTH FUND The Fund's investment objective is to seek to provide long-term CAPITAL APPRECIATION. This means that we seek investments that will increase in value. The Fund seeks to achieve its objective by investing in a diversified portfolio of equity securities. In pursuing our objective, we invest substantially all of the Fund's assets in STOCKS OF U.S. AND FOREIGN COMPANIES. We may invest up to 35% of the Fund's total assets in stocks of companies located in foreign countries, including developing countries. The Fund may also invest in AMERICAN DEPOSITARY RECEIPTS (ADRs), AMERICAN DEPOSITARY SHARES (ADSs), GLOBAL DEPOSITARY RECEIPTS (GDRs) AND EUROPEAN DEPOSITARY RECEIPTS (EDRs). ADRs, ADSs, GDRs and EDRs are certificates--usually issued by a bank or trust company--that represent an equity investment in a foreign company. ADRs and ADSs are issued by U.S. banks and trust companies and are valued in U.S. dollars. EDRs and GDRs are issued by foreign banks and trust companies and are usually valued in foreign currencies. The Advisers of the Fund's equity segments each focus on a particular type and style of investing. JENNISON ASSOCIATES LLC (JENNISON) focuses on STOCKS OF LARGE COMPANIES, using a GROWTH INVESTMENT STYLE. Jennison selects stocks of companies that it believes will experience earnings growth at a faster rate than that of the U.S. economy in general. Jennison looks for stocks of companies that have demonstrated growth in earnings and sales, high returns on equity and assets, or other strong financial characteristics. Jennison will consider selling a security when it thinks the security has achieved its growth potential, or when Jennison thinks it can find better growth opportunities. THE PRUDENTIAL INVESTMENT CORPORATION (PIC) focuses on STOCKS OF LARGE COMPANIES, using a VALUE INVESTMENT STYLE. PIC selects stocks that it believes are undervalued and have an above-average potential to increase in price. PIC looks for stocks that it believes to be undervalued based on the company's sales, earnings, book value and cash flow. PIC will consider selling a stock if

20 it has increased in value to the point where PIC no longer considers it to be undervalued. 20 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) HOW THE FUNDS INVEST FRANKLIN ADVISERS, INC. (FRANKLIN) focuses on STOCKS OF SMALL AND MEDIUM-SIZE COMPANIES, using a GROWTH INVESTMENT STYLE. Franklin selects stocks of companies that it believes to have potential to rapidly grow revenues, earnings or cash flow. Although Franklin may find these companies in growing industries, its strategy targets companies with sustainable competitive advantages, like unique products or proprietary technology, that may provide these companies with growth opportunities regardless of the growth outlook of the industry. Franklin will consider selling a security when it thinks the security has achieved its growth potential, or when Franklin thinks it can find better growth opportunities. THE DREYFUS CORPORATION (DREYFUS) focuses on STOCKS OF SMALL AND MEDIUM-SIZE COMPANIES, using a VALUE INVESTMENT STYLE. Dreyfus selects stocks that it believes are undervalued and have an above-average potential to increase in price. Dreyfus looks for stocks that it believes to be undervalued based on the company's sales, earnings, book value and cash flow. Dreyfus generally constructs its Fund segment to resemble the Russell 2000 Value Index, but weights the segment toward the stocks that Dreyfus deems most attractive. Dreyfus will consider selling a stock if it has increased in value to the point where Dreyfus no longer considers it to be undervalued. LAZARD ASSET MANAGEMENT (LAZARD) focuses on STOCKS OF FOREIGN COMPANIES, using a VALUE INVESTMENT STYLE. Lazard looks for stocks that it believes to be undervalued based on the company's earnings, cash flow or asset values. Lazard will consider selling a stock if it has increased in value to the point where Lazard no longer considers it to be undervalued. For more information, see "Investment Risks" and the Statement of Additional Information, "Description of the Funds, Their Investments and Risks." The Statement of Additional Information--which we refer to as the SAI--contains additional information about the Funds. To obtain a copy, see the back cover page of this prospectus. Although we make every effort to achieve each Fund's objective, we can't guarantee success. Except for certain investment restrictions described in the SAI, the Board of the Trust can change the investment objective and policies of each Fund without obtaining shareholder approval. MORTGAGE-RELATED SECURITIES The CONSERVATIVE GROWTH and MODERATE GROWTH FUNDS may each invest in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S. governmental entities or private issuers. These securities are usually pass-through instruments that pay investors a share of all interest and principal payments from 25 HOW THE FUNDS INVEST 21 an underlying pool of fixed or adjustable rate mortgages. Mortgage-related securities issued by the U.S. government or its agencies include FNMAs, GNMAs

21 and debt securities issued by the FHLMC. The U.S. government or the issuing agency directly or indirectly guarantees the payment of interest and principal on these securities, but not their value. Private mortgage-related securities that are not guaranteed by U.S. governmental entities generally have one or more types of credit enhancement to ensure timely receipt of payments and to protect against default. Mortgage pass-through securities include collateralized mortgage obligations, multiclass pass-through securities and stripped mortgage-backed securities. A COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a security backed by an underlying portfolio of mortgages or mortgage-backed securities that may be issued or guaranteed by a bank or by U.S. governmental entities. A MULTICLASS PASS-THROUGH SECURITY is an equity interest in a trust composed of underlying mortgage assets. Payments of principal and interest on the mortgage assets and any reinvestment income thereon provide the funds to pay debt service on the CMO or to make scheduled distributions on the multiclass pass-through security. A STRIPPED MORTGAGE-BACKED SECURITY (MBS STRIP) may be issued by U.S. governmental entities or by private institutions. MBS strips take the pieces of a debt security (principal and interest) and break them apart. The resulting securities may be sold separately and may perform differently. The values of mortgage-backed securities vary with changes in market interest rates, generally, and in yields among various kinds of mortgage-related securities. Such values are particularly sensitive to changes in prepayments of the underlying mortgages. For example, during periods of falling interest rates, prepayments tend to increase as homeowners and others refinance their higher-rate mortgages; these prepayments reduce the anticipated duration of the mortgage-related securities. Conversely, during periods of rising interest rates, prepayments can be expected to decline, which has the effect of extending the anticipated duration at the same time that the value of the securities declines. MBS strips tend to be even more highly sensitive to changes in prepayment and interest rates than mortgage-related securities and CMOs generally. ASSET-BACKED SECURITIES The CONSERVATIVE GROWTH and MODERATE GROWTH FUNDS may each invest in ASSET-BACKED DEBT SECURITIES. An asset-backed security is another type of pass-through instrument that pays interest based upon the cash flow of an underlying pool of assets, such as automobile loans and credit card receiv- 22 PRUDENTIAL DIVERSIFIED FUNDS [TELEPHONE GRAPHIC] (800) HOW THE FUNDS INVEST ables. Unlike mortgage-related securities, asset-backed securities are usually not collateralized. OTHER INVESTMENTS AND STRATEGIES In addition to their principal strategies, we may also use the following investment strategies to increase the Funds' returns or protect their assets if market conditions warrant. MONEY MARKET INSTRUMENTS Each Fund may invest in high-quality MONEY MARKET INSTRUMENTS. Money market instruments include the commercial paper of U.S. and foreign corporations, obligations of U.S. and foreign banks, certificates of deposit and obligations issued or guaranteed by the U.S. government or its agencies or a foreign government.

22 The Funds will generally purchase money market instruments in one of the two highest short-term quality ratings of a major rating service. The Funds may also invest in money market instruments that are not rated, but which we believe are of comparable quality to the instruments described above. U.S. GOVERNMENT SECURITIES The Funds may invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY. Treasury securities have varying interest rates and maturities, but they are all backed by the full faith and credit of the U.S. government. The Funds may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT and government-related entities. Some of these debt securities are backed by the full faith and credit of the U.S. government, like GNMA obligations. Debt securities issued by other government entities, like obligations of FNMA and SLMA, are not backed by the full faith and credit of the U.S. government. However, these issuers have the right to borrow from the U.S. Treasury to meet their obligations. In contrast, the debt securities of other issuers, like the Farm Credit System, depend entirely upon their own resources to repay their debt. The U.S. government sometimes "strips" its debt obligations into their component parts: the U.S. government's obligation to make interest payments and its obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold to investors separately. Stripped securities do not make periodic interest payments. They are usually sold at a discount and then redeemed for their face value on their maturity dates. These securities increase in value when interest rates fall and lose value when interest rates rise. However, the value of stripped 27 HOW THE FUNDS INVEST securities generally fluctuates more in response to interest rate movements than the value of traditional debt obligations. A Fund may try to earn money by buying stripped securities at a discount and either selling them after they increase in value or holding them until they mature. 23 TEMPORARY DEFENSIVE INVESTMENTS In response to adverse market, economic or political conditions, we may temporarily invest up to 100% of a Fund's assets in money market instruments or U.S. government securities. Investing heavily in these securities limits our ability to achieve each Fund's investment objective, but can help to preserve a Fund's assets when the markets are unstable. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS Each Fund may enter into REVERSE REPURCHASE AGREEMENTS. When a Fund enters into a reverse repurchase agreement, the Fund borrows money on a temporary basis by selling a security with an obligation to repurchase it at an agreed-upon price and time. The Conservative Growth and Moderate Growth Funds may each enter into DOLLAR ROLLS. When a Fund enters into a dollar roll, the Fund sells securities to be delivered in the current month and repurchases substantially similar (same type and coupon) securities to be delivered on a specified future date by the same party. The Fund is paid the difference between the current sales price and the forward price for the future purchase, as well as the interest earned on the cash proceeds of the initial sale.