Exhibit 13.1
                                                                   ------------


                       PROFUTURES DIVERSIFIED FUND, L.P.

                                 ANNUAL REPORT

                               December 31, 2006



<PAGE>



                       PROFUTURES DIVERSIFIED FUND, L.P.



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

                               TABLE OF CONTENTS
                             ----------------------


                                                                          PAGES
                                                                          -----


Affirmation of the Commodity Pool Operator                                    1

Report of Independent Registered Public Accounting Firm                       2

Report of Independent Registered Public Accounting Firm                       3

Financial Statements

   Statements of Financial Condition                                          4

   Condensed Schedules of Investments                                         5

   Statements of Operations                                                   6

   Statements of Changes in Partners' Capital (Net Asset Value)               7

   Notes to Financial Statements                                         8 - 15




<PAGE>



                       PROFUTURES DIVERSIFIED FUND, L.P.
                   AFFIRMATION OF THE COMMODITY POOL OPERATOR
                               ---------------













To the best of the knowledge and belief of the undersigned, the information
contained in the Annual Report for the year ended December 31, 2006 is accurate
and complete.






                                       /s/ Gary D. Halbert
                                       ---------------------------------------
                                       Gary D. Halbert, President
                                       ProFutures, Inc.
                                       PROFUTURES DIVERSIFIED FUND, L.P.



                                     - 1 -
<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            -------------------------------------------------------


To the Partners
ProFutures Diversified Fund, L.P.

We have audited the accompanying statements of financial condition of
ProFutures Diversified Fund, L.P., including the condensed schedules of
investments, as of December 31, 2006 and 2005, and the related statements of
operations and changes in partners' capital (net asset value) for the years
ended December 31, 2006 and 2005. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
Partnership has an investment in Winton Futures Fund at December 31, 2006. The
value of the investment at December 31, 2006 of $9,338,122 is derived from
financial statements audited by other auditors whose reports haven been
furnished to us, and our opinion, insofar as it relates to the investment, is
based primarily on the reports of such other auditors.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Partnership is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ProFutures Diversified Fund,
L.P. as of December 31, 2006 and 2005, and the results of its operations and
the changes in its net asset values for the years ended December 31, 2006 and
2005, in conformity with accounting principles generally accepted in the United
States of America.




/s/ KBA Group LLP
Dallas, Texas
April 2, 2007



                                     - 2 -
<PAGE>



            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            -------------------------------------------------------


To the Partners
ProFutures Diversified Fund, L.P.


We have audited the accompanying statement of operations and changes in
partners' capital (net asset value) of ProFutures Diversified Fund, L.P. for
the year ended December 31, 2004. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Partnership is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and the changes in net asset
value of ProFutures Diversified Fund, L.P. for the year ended December 31,
2004, in conformity with U.S. generally accepted accounting principles.


                  /s/ ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.


Hunt Valley, Maryland
March 24, 2005


                                     - 3 -
<PAGE>

                         PROFUTURES DIVERSIFIED FUND, L.P.
                         STATEMENTS OF FINANCIAL CONDITION
                            December 31, 2006 and 2005
                               --------------------

<TABLE>
<CAPTION>
                                                                           2006                       2005
                                                                           ----                       ----
<S>                                                                 <C>                        <C>
ASSETS

    Equity in broker trading accounts
        Cash                                                         $        13,325,595       $     22,398,315
        Option premiums (received) paid                                         (63,125)                 23,550
        Unrealized gain (loss) on open contracts                                 483,877              (761,849)
                                                                     --------------------      -----------------

                Deposits with broker                                          13,746,347             21,660,016

    Cash                                                                           3,204                  2,648
    Cash deposits in forward trading collateral accounts                       5,412,319             10,674,912
    Net premiums paid on options
        on forward currency contracts                                              3,294                      -
    Unrealized gain (loss) on open forward currency contracts                    371,164              (326,881)
    Investment in Winton Futures Fund, L.P. (US)                               9,338,122                      -
                                                                     --------------------      -----------------

                Total assets                                         $        28,874,450       $     32,010,695
                                                                     ====================      =================

LIABILITIES

    Accounts payable                                                 $            54,006       $         51,071
    Commissions and other trading fees
        on open contracts                                                          5,951                 40,880
    Incentive fees payable                                                        62,651                296,921
    Management fees payable (includes $89,607 and $98,289
        payable to the General Partner at December 31, 2006
        and 2005, respectively)                                                  238,977                280,502
    Redemptions payable                                                          338,753                400,683
                                                                     --------------------      -----------------

                Total liabilities                                                700,338              1,070,057
                                                                     --------------------      -----------------

PARTNERS' CAPITAL (Net Asset Value)

    General Partner - 187 units outstanding
        at December 31, 2006 and 2005                                            592,117                560,244
    Limited Partners - 8,716 and 10,147 units
        outstanding at December 31, 2006 and 2005                             27,581,995             30,380,394
                                                                     --------------------      -----------------

                Total partners' capital
                    (Net Asset Value)                                         28,174,112             30,940,638
                                                                     --------------------      -----------------

                                                                     $        28,874,450       $     32,010,695
                                                                     ====================      =================
</TABLE>

                            See Accompanying Notes.


                                     - 4 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                       CONDENSED SCHEDULE OF INVESTMENTS
                           December 31, 2006 and 2005
                              --------------------
<TABLE>
<CAPTION>

LONG FUTURES CONTRACTS                              2006                      2005
----------------------                    -----------------------   -----------------------
                                                       % of Net                    % of Net
                                                         Asset                       Asset
         Description                        Value        Value         Value         Value
         -----------                        -----      -------         -----       -------

<S>                                       <C>           <C>        <C>             <C>
         Agricultural                     $    (480)    (0.00)%    $   119,327       0.38%

         Currency                                38      0.00%         (35,303)     (0.11)%

         Energy                             (99,060)    (0.35)%        (93,005)     (0.30)%

         Interest rate                      (50,146)    (0.18)%        293,053       0.95%

         Metal (1)                          (18,666)    (0.07)%     15,167,433      49.01%

         Stock index                        193,440      0.69%         (26,086)     (0.08)%
                                          ---------    -------     ------------    --------

         Total long futures contracts     $  25,126      0.09%     $15,425,419      49.85%
                                          ---------    -------     ------------    --------

SHORT FUTURES CONTRACTS
-----------------------
         Description
         -----------

         Agricultural                     $     213      0.00%      $  (89,987)     (0.29)%

         Currency                            62,245      0.22%         (30,428)     (0.10)%

         Energy                              18,760      0.07%         (33,372)     (0.11)%

         Interest rate                      333,242      1.18%         185,871       0.60%

         Metal (2)                           33,416      0.12%     (16,231,246)    (52.45)%

         Stock index                              -      0.00%          16,694       0.05%
                                          ---------    -------     ------------    --------

         Total short futures contracts    $ 447,876      1.59%     (16,182,468)    (52.30)%
                                          ---------    -------     ------------    --------

         Total futures contracts          $ 473,002      1.68%     $  (757,049)     (2.45)%
                                          =========     ======     ============    ========

PURCHASED OPTIONS ON FUTURES CONTRACTS
--------------------------------------

         Agricultural options                     -      0.00%           5,550       0.02%

         Energy options                           -      0.00%          13,200       0.04%
                                          ---------     ------     ------------    --------

         Total purchased options on
         futures contracts (premiums
         paid - $0 and $23,550,
         respectively)                    $       -      0.00%     $    18,750       0.06%
                                          =========     ======     ============    ========

WRITTEN OPTIONS ON FUTURES CONTRACTS
------------------------------------

         Stock index                      $ (52,250)    (0.19)%    $         -       0.00%
                                          ---------    -------     ------------    --------

         Total written options on
         futures contracts (premiums
         received - $63,125 and $0,
         respectively)                    $ (52,250)    (0.19)%    $         -       0.00%
                                          =========    =======     ============    ========
</TABLE>


   (1) As of December 31, 2005, there were certain long metal futures contracts
       with an aggregate value above 5% of Net Asset Value, consisting of 903
       LME aluminum futures contracts, expiration dates 1/06 - 12/09, at a
       value of $4,729,465 (15.28% of Net Asset Value) and 715 LME copper
       futures contracts, expiration dates 1/06 - 12/08, at a value of
       $9,524,486 (30.78% of Net Asset Value).

   (2) As of December 31, 2005, there were certain short metal futures
       contracts with an aggregate value above 5% of Net Asset Value,
       consisting of 883 LME aluminum futures contracts, expiration dates 1/06
       - 12/09, at a value of $(5,296,278) (17.12% of Net Asset Value) and 708
       LME copper futures contracts, expiration dates 1/06 - 12/08, at a value
       of $(10,252,843) (33.14% of Net Asset Value).



                                     - 5 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                            STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 2006, 2005 and 2004
                                ---------------

<TABLE>
<CAPTION>
                                                2006              2005             2004
                                                ----              ----             ----
<S>                                         <C>               <C>              <C>
TRADING GAINS (LOSSES)
    Gain (loss) from futures and options
    on futures trading
        Realized                            $   2,245,198     $   6,184,059    $   6,744,693
        Change in unrealized                    1,245,726        (1,275,765)      (1,502,106)
        Brokerage commissions                    (778,830)       (1,141,416)        (856,269)
                                            --------------    --------------   --------------

        Gain from futures and options on
        futures trading                         2,712,094         3,766,878        4,386,318
                                            --------------    --------------   --------------

        Realized gain from investment in
        physical commodities                            -           580,729                -
                                            --------------    --------------   --------------

    Gain (loss) from trading of forward
        currency contracts and options on
        forward currency contracts
        Realized                                 (691,720)        1,320,214          805,336
        Change in unrealized                      698,045           (47,561)        (882,202)
                                            --------------    --------------   --------------

    Gain (loss) from forward
        currency contracts and options
        on forward currency contracts               6,325         1,272,653          (76,866)
                                            --------------    --------------   --------------
    Change in unrealized gain
       from investment in Winton
       Futures Fund, L.P. (US)                    398,122                 -                -
                                            --------------    --------------   --------------

          Total trading gains                   3,116,541         5,620,260        4,309,452
                                            --------------    --------------   --------------

NET INVESTMENT INCOME (LOSS)
    Income
        Interest income                         1,292,259           882,295          442,893
                                            --------------    --------------   --------------

    Expenses
        Incentive fees                            530,112           849,102        1,138,118
        Management fees (includes
          $1,128,704, $1,201,191,
          $1,050,783 charged by the
          General Partner for the years
          ended December 31, 2006, 2005,
          and 2004, respectively)               1,944,002         2,118,910        2,160,170
        Operating expenses                        325,870           268,468          202,142
                                            --------------    --------------   --------------

                Total expenses                  2,799,984         3,236,480        3,500,430
                                            --------------    --------------   --------------

                Net investment (loss)          (1,507,725)       (2,354,185)      (3,057,537)
                                            --------------    --------------   --------------

                NET INCOME                  $   1,608,816     $   3,266,075    $   1,251,915
                                            ==============    ==============   ==============

NET INCOME PER GENERAL
    AND LIMITED PARTNER UNIT
     (based on weighted average number
     of units outstanding during the year
     of 9,746, 11,174 and 12,454,
     respectively)                          $      165.07     $      292.29    $      100.52
                                            ==============    ==============   ==============

INCREASE IN NET ASSET VALUE
    PER GENERAL AND LIMITED
    PARTNER UNIT                            $      170.33     $      294.10    $      101.44
                                            ==============    ==============   ==============
</TABLE>


                            See accompanying notes.


                                     - 6 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
          STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
              For the Years Ended December 31, 2006, 2005 and 2004
                                ---------------

<TABLE>
<CAPTION>
                                           Total

                                         Number of                              Partners' Capital
                                                           --------------------------------------------------------------
                                           Units                General               Limited                Total
                                    ------------------     -----------------    ------------------     ------------------
<S>                                            <C>         <C>                  <C>                    <C>
Balances at December 31, 2003                  12,941               584,564            33,041,117             33,625,681
Net income for the year
    ended December 31, 2004                                          22,820             1,229,095              1,251,915

Redemptions                                    (1,059)                    -            (2,795,943)            (2,795,943)
                                    ------------------     -----------------    ------------------     ------------------

Balances at December 31, 2004                  11,882               607,384            31,474,269             32,081,653
Net income for the year
    ended December 31, 2005                                          52,860             3,213,215              3,266,075

Redemptions                                    (1,548)             (100,000)           (4,307,090)            (4,407,090)
                                    ------------------     -----------------    ------------------     ------------------

Balances at December 31, 2005                  10,334               560,244            30,380,394             30,940,638
Net income for the year
    ended December 31, 2006                                          31,873             1,576,943              1,608,816

Redemptions                                    (1,431)                    -            (4,375,342)            (4,375,342)
                                    ------------------     -----------------    ------------------     ------------------

Balances at December 31, 2006                   8,903       $       592,117     $      27,581,995      $      28,174,112
                                    ==================     =================    ==================     ==================

                                                       Net Asset Value Per Unit
                                    ----------------------------------------------------------------

                                                              December 31,
                                         2006                     2005                 2004
                                    ------------------     -----------------    ------------------

                                    $    3,164.35          $    2,994.02        $     2,699.92
                                    ==================     =================    ==================
</TABLE>




                            See accompanying notes.


                                     - 7 -
<PAGE>



                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        -----------------------------------------------------------

        A.  General Description of the Partnership

            ProFutures Diversified Fund, L.P. (the Partnership) is a Delaware
            limited partnership, which operates as a commodity investment pool.
            The Partnership engages in the speculative trading of futures
            contracts, options on futures contracts, physical commodities,
            interbank forward currency contracts and options on interbank
            forward currency contracts. The Partnership closed to investors in
            1995 and will terminate at the end of December 2012, at which time
            the remaining assets will be distributed.

        B.  Regulation

            As a registrant with the Securities and Exchange Commission, the
            Partnership is subject to the regulatory requirements under the
            Securities Act of 1933 and the Securities Exchange Act of 1934. As
            a commodity investment pool, the Partnership is subject to the
            regulations of the Commodity Futures Trading Commission, an agency
            of the United States (U.S.) government which regulates most aspects
            of the commodity futures industry; rules of the National Futures
            Association, an industry self-regulatory organization; and the
            requirements of commodity exchanges, Futures Commission Merchants
            (brokers), and interbank market makers through which the
            Partnership trades.

        C.  Method of Reporting

            The Partnership's financial statements are presented in accordance
            with accounting principles generally accepted in the United States
            of America, which require the use of certain estimates made by the
            Partnership's management.

            For purposes of both financial reporting and calculation of
            redemption value, Net Asset Value per Unit is calculated by
            dividing Net Asset Value by the total number of units outstanding.

        D.  Use of Estimates

            The preparation of financial statements in conformity with
            accounting principles generally accepted in the United States of
            America requires management to make estimates and assumptions that
            affect the reported amounts of assets and liabilities and
            disclosure of contingent assets and liabilities at the date of the
            financial statements, and the reported amounts of revenues and
            expenses during the reporting periods. Actual results could differ
            from the estimates and assumptions utilized.

        E.  Cash and Cash Equivalents

            Cash and cash equivalents includes cash and investments in money
            market mutual funds.



                                     - 8 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        -----------------------------------------------------------
        (CONTINUED)
        -----------

        F.  Futures and Forward Currency Contracts

            Transactions are accounted for on the trade date. Gains or losses
            are realized when contracts are liquidated. Unrealized gains or
            losses on open contracts (the difference between contract trade
            price and market price) are reflected in the statement of financial
            condition as a net gain or loss, as there exists a right of offset
            of unrealized gains or losses in accordance with Financial
            Accounting Standards Board Interpretation No. 39 - "Offsetting of
            Amounts Related to Certain Contracts." Any change in net unrealized
            gain or loss from the preceding period is reported in the statement
            of operations.

        G.  Physical Commodities

            Physical commodities are stated at the market price on the
            valuation date. Transactions are recorded on the trade date.
            Realized gains and losses from physical commodity transactions are
            determined using the identified cost method. Any change in net
            unrealized gain or loss from the preceding period is reported in
            the statement of operations. Storage fees, sales commissions and
            delivery charges are reflected as an adjustment to cost or proceeds
            at the time of the transaction.

        H.  Income Taxes

            The Partnership prepares calendar year U.S. and applicable state
            information tax returns and reports to the partners their allocable
            shares of the Partnership's income, expenses and trading gains or
            losses.

        I.  Foreign Currency Transactions

            The Partnership's functional currency is the U.S. dollar; however,
            it transacts business in currencies other than the U.S. dollar.
            Assets and liabilities denominated in currencies other than the
            U.S. dollar are translated into U.S. dollars at the rates in effect
            at the date of the statement of financial condition. Income and
            expense items denominated in currencies other than the U.S. dollar
            are translated into U.S. dollars at the rates in effect during the
            period. Gains and losses resulting from the translation to U.S.
            dollars are reported in income currently.

        J. Investment in Winton Futures Fund, L.P. (US)

            The Partnership's investment in Winton Futures Fund, L.P. (US) is
            reported in the statement of financial condition at fair value.
            Fair value ordinarily is the value determined by Winton Futures
            Fund, L.P. (US) in accordance with its valuation policies and as
            reported by their management at the time of the Partnership's
            valuation. Generally, the fair value of the Partnership's
            investment in Winton Futures Fund, L.P. (US) represents the amount
            that the Partnership could reasonably expect to receive from Winton
            Futures Fund, L.P. (US) if the Partnership's investment was
            redeemed at the time of valuation, based on information reasonably
            available at the time the valuation is made and that the
            Partnership believes to be reliable.


                                     - 9 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        -----------------------------------------------------------
        (CONTINUED)
        -----------

        K.  Redemptions of Units

            Redemptions payable at December 31, 2006 represents redemptions
            approved by the General Partner prior to January 1, 2007, which are
            not effective until January 2, 2007.

        L.  Brokerage Commissions
            Brokerage commissions include other trading fees and are charged to
            expense when contracts are opened.

        M.  Statements of Cash Flows

            The Partnership has elected not to provide statements of cash flows
            as permitted by Statement of Financial Accounting Standards No. 102
            - "Statement of Cash Flows - Exemption of Certain Enterprises and
            Classification of Cash Flows from Certain Securities Acquired for
            Resale."

        N.  Recently Issued Accounting Pronouncements

            In July 2006, the Financial Accounting Standards Board (FASB)
            issued Interpretation No. 48 (FIN 48) entitled "Accounting For
            Uncertainty in Income Taxes - an interpretation of FASB Statement
            No. 109." FIN 48 prescribes the minimum recognition threshold a tax
            position must meet in connection with accounting for uncertainties
            in income tax positions taken or expected to be taken by an entity
            before being measured and recognized in the financial statements.
            Adoption of FIN 48 is required for fiscal years beginning after
            December 15, 2006. The implementation of FIN 48 is not expected to
            have a material impact on the Partnership's financial statements.

            In September 2006, FASB issued Statement of Financial Accounting
            Standards No. 157, "Fair Value Measurements" (FAS 157). FAS 157
            defines fair value, establishes a framework for measuring fair
            value in accounting principles generally accepted in the United
            States of America, and expands disclosures about fair value
            measurements. While FAS 157 does not require any new fair value
            measurements, for some entities, the application of FAS 157 may
            change current practice. FAS 157 is effective for financial
            statements issued for fiscal years beginning after November 15,
            2007, and interim periods within those fiscal years. The
            implementation of FAS 157 is not expected to have a material impact
            on the Partnership's financial statements.



                                    - 10 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                ---------------
Note 2. GENERAL PARTNER
        ---------------

        The General Partner of the Partnership is ProFutures, Inc., which
        conducts and manages the business of the Partnership. The Agreement of
        Limited Partnership requires the General Partner to contribute to the
        Partnership an amount in the aggregate equal to at least the greater of
        (i) 3% of the aggregate initial capital contributions of all partners
        or $100,000, whichever is less, or (ii) 1% of the aggregate initial
        capital contributions of all partners.

        The Agreement of Limited Partnership also requires that the General
        Partner maintain in the aggregate a net worth at least equal to (i) the
        lesser of $250,000 or 15% of the aggregate initial capital
        contributions of any limited partnerships for which it acts as general
        partner and which are capitalized at less than $2,500,000; and (ii) 10%
        of the aggregate initial capital contributions of any limited
        partnerships for which it acts as general partner and which are
        capitalized at greater than $2,500,000.

        Effective October 22, 2004, ProFutures, Inc. has a callable stock
        subscription agreement with Man Financial Inc. (MFI), the Partnership's
        broker, whereby MFI has subscribed to purchase (up to $7,000,000,
        subject to conditions set forth in the stock subscription agreement
        dated October 22, 2004) the number of shares of common stock of
        ProFutures, Inc. necessary to maintain the General Partner's net worth
        requirements. Prior to October 22, 2004, ProFutures, Inc. had a
        callable stock subscription agreement with ABN AMRO Incorporated (ABN),
        the Partnership's prior broker, whereby ABN had subscribed to purchase
        (up to $7,000,000, subject to the conditions set forth in the stock
        subscription agreement as amended effective May 20, 2002) the number of
        shares of common stock of ProFutures, Inc. necessary to maintain the
        General Partner's net worth requirements.

        The Partnership pays the General Partner a monthly management fee of
        1/4 of 1% (3% annually) of month-end Net Asset Value. The General
        Partner receives an additional monthly management fee of .0625% (.75%
        annually) of the Partnership's month-end Net Asset Value for consulting
        services rendered to the Partnership.

        Total management fees earned by ProFutures, Inc. for the years ended
        December 31, 2006, 2005 and 2004 were $1,128,704, $1,201,191 and
        $1,050,783, respectively. Management fees payable to ProFutures, Inc.
        as of December 31, 2006 and 2005 were $89,607 and $98,289,
        respectively.

Note 3. CONSULTANTS
        -----------

        On October 25, 2004, the Partnership entered into a consulting
        agreement effective November 1, 2004, with Altegris Investments, Inc.
        (Altegris), whereby Altegris will recommend the selection and
        termination of the Partnership's trading advisors and the allocation
        and reallocation of the Partnership's assets. Pursuant to the
        consulting agreement, Altegris receives a monthly consulting fee equal
        to .0208% (.25% annually) of the Partnership's month-end Net Asset
        Value. The consulting fee (included in management fees in the statement
        of operations) earned by Altegris for the years ended December 31,
        2006, 2005 and 2004 were $75,247, $80,079 and $13,651, respectively.


                                    - 11 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 3. CONSULTANTS (CONTINUED)
        -----------------------

        Prior to October 15, 2004, Kenmar Global Strategies Inc. (Kenmar)
        assisted the General Partner in making decisions about which commodity
        trading advisors to hire, the allocations among the advisors and the
        day-to-day monitoring and risk management of the Partnership's trading
        activities. Kenmar received a monthly management fee of 1/12 of 1% (1%
        annually) of month-end Net Asset Value. Effective October 15, 2004,
        ProFutures, Inc. terminated the consulting agreement between Kenmar and
        the Partnership. Accordingly, Kenmar was paid a pro rated monthly
        management fee for the period October 1, 2004 through October 15, 2004.
        Management fees earned by Kenmar totaled $266,317 for the year ended
        December 31, 2004.

Note 4. COMMODITY TRADING ADVISORS
        --------------------------

        The Partnership has trading advisory contracts with several commodity
        trading advisors to furnish investment management services to the
        Partnership. The trading advisors receive management fees ranging from
        1% to 2% annually of Allocated Net Asset Value (as defined in each
        respective trading advisory contract). In addition, the trading
        advisors receive quarterly incentive fees ranging from 20% to 25% of
        Trading Profits (as defined). Total management fees earned by the
        trading advisors amounted to $740,051, $837,640 and $829,419 for the
        years ended December 31, 2006, 2005 and 2004, respectively. Total
        incentive fees earned by the trading advisors amounted to $530,112,
        $849,102 and $1,138,118 for the years ended December 31, 2006, 2005 and
        2004, respectively.

Note 5. DEPOSITS WITH BROKER
        --------------------

        The Partnership deposits funds with MFI (ABN prior to October 2004) to
        act as broker, subject to Commodity Futures Trading Commission
        regulations and various exchange and broker requirements. Margin
        requirements are satisfied by the deposit of cash with such broker.
        Accordingly, assets used to meet margin and other broker or regulatory
        requirements are partially restricted. The Partnership earns interest
        income on its assets deposited with the broker.

Note 6. INVESTMENT IN WINTON FUTURES FUND, L.P. (US)
        --------------------------------------------

        On November 1, 2006, the Partnership invested in Class B Interests of
        Winton Futures Fund, L.P. (US) (the "Winton Fund"). This investment is
        subject to the terms of the Agreement of Limited Partnership of the
        Winton Fund. The General Partner of the Winton Fund is Altegris
        Portfolio Management, Inc., an affiliate of Altegris Investments, Inc.

        Summarized information for this investment for the period ended
        December 31, 2006 is as follows:

                  Net Asset Value
                        December 31, 2005           $         0

                  Additions                           9,000,000

                  Income                                398,122

                  Redemptions                           (60,000)
                                                    ------------
                  Net Asset Value
                        December 31, 2006           $ 9,338,122
                                                    ============



                                    - 12 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 6. INVESTMENT IN WINTON FUTURES FUND, L.P. (US) (CONTINUED)
        --------------------------------------------------------

        Class B Interests of the Winton Fund are charged management fees of
        1.75% annually and incentive fees of 20% of trading profits. For 2006,
        the Partnership's proportionate share of management fees and incentive
        fees charged by the Winton Fund were approximately $27,000 and $91,000,
        respectively.

        As of December 31, 2006, the Partnership's investment in the Winton
        Fund represents 16.34% of the total net asset value of the Winton Fund.

        The Partnership may redeem any or all of its investment in the Winton
        Fund at the end of any calendar month on 15 days prior written notice.

Note 7. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
        --------------------------------------------

        Investments in the Partnership were made by subscription agreement,
        subject to acceptance by the General Partner. The Partnership's most
        recent offering of Units of Limited Partnership Interest terminated on
        April 30, 1995.

        The Partnership is not required to make distributions, but may do so at
        the sole discretion of the General Partner. A Limited Partner may
        request and receive redemption of units owned, subject to restrictions
        in the Agreement of Limited Partnership.

Note 8. TRADING ACTIVITIES AND RELATED RISKS
        ------------------------------------

        The Partnership engages in the speculative trading of U.S. and foreign
        futures contracts, options on U.S. and foreign futures contracts,
        physical commodities, forward currency contracts and options on forward
        currency contracts (collectively, "derivatives"). The Partnership is
        exposed to both market risk, the risk arising from changes in the
        market value of the contracts, and credit risk, the risk of failure by
        another party to perform according to the terms of a contract.

        Purchase and sale of futures and options on futures contracts and
        physical commodities requires margin deposits with the broker.
        Additional deposits may be necessary for any loss on contract value.
        The Commodity Exchange Act requires a broker to segregate all customer
        transactions and assets from such broker's proprietary activities. A
        customer's cash and other property (for example, U.S. Treasury bills)
        deposited with a broker are considered commingled with all other
        customer funds subject to the broker's segregation requirements. In the
        event of a broker's insolvency, recovery may be limited to a pro rata
        share of segregated funds available. It is possible that the recovered
        amount could be less than total cash and other property deposited.

        For derivatives, risks arise from changes in the market value of the
        contracts. Theoretically, the Partnership is exposed to a market risk
        equal to the notional contract value of futures and forward currency
        contracts purchased and unlimited liability on such contracts sold
        short. As both a buyer and seller of options, the Partnership pays or
        receives a premium at the outset and then bears the risk of unfavorable
        changes in the price of the contract underlying the option. Written
        options expose the Partnership to potentially unlimited liability, and
        purchased options expose the Partnership to a risk of loss limited to
        the premiums paid. The Partnership is also exposed to market risk on
        physical commodities equal to the market value of physical commodities
        owned.


                                    - 13 -
<PAGE>


                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 8. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
        ------------------------------------------------

        The Partnership has a portion of its assets on deposit with a financial
        institution in connection with its trading of forward currency
        contracts and its cash management activities. Cash deposited with
        brokers and dealers in securities and other financial institutions in
        connection with the Partnership's trading of forward currency and other
        derivative contracts are partially restricted due to deposit or margin
        requirements. In the event of a financial institution's insolvency,
        recovery of Partnership assets on deposit may be limited to account
        insurance or other protection afforded such deposits. Since forward
        currency contracts are traded in unregulated markets between
        principals, the Partnership also assumes the risk of loss from
        counterparty nonperformance.

        The Partnership's investment in Winton Futures Fund, L.P. (US) is
        subject to the market and credit risks of futures contracts held or
        sold short by Winton Futures Fund, L.P. (US). The Partnership bears the
        risk of loss only to the extent of the market value of its respective
        investment and, in certain specific circumstances, distributions and
        redemptions received.

        The General Partner has established procedures to actively monitor
        market risk and minimize credit risk, although there can be no
        assurance that it will, in fact, succeed in doing so. The General
        Partner's basic market risk control procedures consist of continuously
        monitoring the trading activity of the various commodity trading
        advisors, with the actual market risk controls being applied by
        Altegris (Kenmar prior to October 15, 2004), as a consultant, and the
        advisors themselves. The General Partner seeks to minimize credit risk
        primarily by depositing and maintaining the Partnership's assets at
        financial institutions and brokers, which the General Partner believes
        to be creditworthy. The Limited Partners bear the risk of loss only to
        the extent of the market value of their respective investments and, in
        certain specific circumstances, distributions and redemptions received.

Note 9. INDEMNIFICATIONS
        ----------------

       In the normal course of business, the Partnership enters into contracts
       and agreements that contain a variety of representations and warranties
       and which provide general indemnifications. The Partnership's maximum
       exposure under these arrangements is unknown, as this would involve
       future claims that may be made against the Partnership that have not yet
       occurred. The Partnership expects the risk of any future obligation
       under these indemnifications to be remote.


                                    - 14 -
<PAGE>



                       PROFUTURES DIVERSIFIED FUND, L.P.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

Note 10.   FINANCIAL HIGHLIGHTS
           --------------------

                  The following information presents per unit operating
performance data and other supplemental financial data for the years ended
December 31, 2006, 2005 and 2004. This information has been derived from
information presented in the financial statements.

<TABLE>
<CAPTION>
                                                                                2006           2005           2004
                                                                                ----           ----           ----
           <S>                                                                <C>            <C>             <C>
           Per Unit Performance
           (for a unit outstanding throughout the entire year)
           ---------------------------------------------------

           Net asset value per unit at beginning of year                      $2,994.02      $2,699.92       $2,598.48
                                                                              ----------     -----------     ---------
           Income (loss) from operations:
                Total trading gains (1)                                          325.03         504.78          346.95
                Net investment (loss) (1)                                       (154.70)       (210.68)        (245.51)
                                                                              -----------    -----------     -----------
                      Total income from operations                               170.33         294.10          101.44
                                                                              -----------    -----------     -----------
           Net asset value per unit at end of year                            $3,164.35      $2,994.02       $2,699.92
                                                                              ===========    ===========     ===========
           Total Return                                                            5.69%         10.89%           3.90%
                                                                              ===========    ===========     ===========
           Supplemental Data

           Ratios to average net asset value: (2)
                Expenses prior to incentive fees                                   7.63%          7.60%           7.19%
                Incentive fees                                                     1.78%          2.70%           3.47%
                                                                              -----------    -----------     -----------
                      Total expenses                                               9.41%         10.30%          10.66%
                                                                              ===========    ===========     ===========
                Net investment (loss) (3)                                         (3.29)%        (4.79)%         (5.85)%
                                                                              ===========    ===========     ===========
</TABLE>


        Total returns are calculated based on the change in value of a unit
        during the year. An individual partner's total returns and ratios may
        vary from the above total returns and ratios based on the timing of
        redemptions.



-----------------
(1)   The net investment (loss) per unit is calculated by dividing the net
      investment (loss) by the average number of units outstanding during the
      year. Total trading gains is a balancing amount necessary to reconcile
      the change in net asset value per unit with the other per unit
      information. Such balancing amount may differ from the calculation of
      total trading gains per unit due to the timing of trading gains and
      losses during the year relative to the number of units outstanding.

(2)   Excludes the Partnership's proportionate share of expenses and net
      investment income (loss) from Winton Futures Fund, L.P. (US).

(3)   Excludes incentive fee


                                    - 15 -