| [X] | ANNUAL                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|

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----

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| Delaware                               |   | 75-2197831                                          |
|----------------------------------------|--------|-----------------------------------------------------|
| (State                of organization) |   | (I.R.S.                Employer Identification No.) |
|                                   |   |                                                |

----

----

| Securities              registered pursuant to Section 12(b) of the Act             |   |                                                      |
|------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|
|                                                                                     |   |                                                      |
| Title                of each class.                                                      |   | Name                of each exchange on which registered. |
|                                                                                     |   |                                                      |
|                                                                                     |   |                                                      |
| Securities                registered pursuant to Section 12(g) of the                Act |

----

----

**EXPLANATORY      NOTE**

----

| Item                15. | Exhibits                and Financial Statement Schedules. |
|-------------------------|------------------------------------------------------------|

|   | (a)(1) | Financial                Statements. |
|--------|--------|--------------------------------------|

|   | The                following are included with the 2006 Report of Independent Registered                Public Accounting Firm, a copy of which is filed herewith as Exhibit                13.1 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a)(2) | Schedules                are omitted for the reason that all required information is contained                in                the financial statements included in (a)(1) above or are not                applicable. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a)(3) | Exhibits                as required by Item 601 of Regulation                S-K. |
|--------|--------|-----------------------------------------------------------------------------------|

| *1.1   | Form                of Selling Agreement between the Partnership and ProFutures Financial                Group, Inc.                                                     |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *1.2   | Form                of Additional Selling Agents Agreement between ProFutures Financial                Group,                Inc. and certain Additional Selling Agents. |
| *3.1   | Agreement                of Limited Partnership (attached to the Prospectus as Exhibit                A).                                                                |
| *3.2   | Subscription                Agreement and Power of Attorney (attached to the Prospectus as Exhibit                B).                                                    |
| *3.3   | Request                for Redemption Form (attached to the Prospectus as Exhibit                C).                                                                     |
| *5.1   | Opinion                of Counsel as to the legality of the Units.                                                                                                       |
| *8.1   | Tax                Opinion of Counsel.                                                                                                                                   |
| *10.4  | Form                of Consulting Agreement between the Registrant and Kenmar Global                Strategies Inc.                                                      |
| *10.6  | Form                of Amended and Restated Stock Subscription Agreement by and between                ABN                AMRO Incorporated and ProFutures, Inc.         |
|   |                                                                                                                                                                     |

|   | (b) | Exhibits. |
|--------|-----|-----------|

|   | 13.1 | 2006                Report of Independent Registered Public Accounting                Firm. |
|--------|------|---------------------------------------------------------------------------------------------|

| * | The foregoing forms of exhibits                were filed                in the April 6, 1987 Registration Statement No. 33-13008 and/or                Post-Effective Amendment No. 1 thereto filed March 11, 1988, and/or                the                June 5, 1991 Registration    Statement No. 33-41073,                and/or Pre-Effective Amendment No. 1 thereto filed August 8, 1991,                and/or                Post-Effective Amendment No. 1 thereto filed March 26, 1992; and/or                the                October 14, 1992 Registration Statement No. 33-53324, and/or the                November                17, 1992 Pre-effective Amendment No. 1 thereto and/or the July 2,                1993                Registration Statement No. 33-65596, and/or the Pre-Effective Amendment                No. 1 thereto filed August 16, 1993, and Supplement dated December                3,                1993, Post-Effective Amendment No. 2 thereto filed June 30, 1994                and                Supplement dated January 31, 1995, and/or Post-Effective Amendment                No. 3                dated June 23 1995; and/or Form 10-K for the year ended 2001; and/or                Form                10-Q for the quarter ended June 30, 2002.  Accordingly, such                exhibits are incorporated herein by reference and notified                herewith. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 31.01 | Certification                of Gary D. Halbert, President, pursuant to Rules 13a-14 and 15d-14                of the                Securities Exchange Act of 1934. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.02 | Certification                of Debi B. Halbert, Chief Financial Officer, pursuant to Rules 13a-14                and                15d-14 of the Securities Exchange Act of                1934. |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.01 | Certification                of Gary D. Halbert, President, pursuant to 18 U.S.C. Section 1350                as                enacted by Section 906 of The Sarbanes-Oxley Act of                2002. |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.02 | Certification                of Debi B. Halbert, Chief Financial Officer, pursuant to 18 U.S.C.                Section                1350 as enacted by Section 906 of The Sarbanes-Oxley Act of                2002. |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Financial                Statement Schedules. |
|--------|-----|-----------------------------------------------|

|   | Not                Applicable or information included in the financial                statements. |
|--------|---------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                       |   | PROFUTURES                DIVERSIFIED FUND, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                       |   | (Partnership)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| December                4,                2007                                     |   | By                /s/ GARY D.                HALBERT                                                                            |
| Date                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Gary                D. Halbert, President and Director |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ProFutures,                Inc. |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | General                Partner |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| December                 4,                2007                          |   | By                /s/ DEBI B.                HALBERT                                                                            |
| Date                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Debi                B. Halbert, Chief Financial Officer, |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |     Treasurer                and Director |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ProFutures,                Inc. |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | General                Partner |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |

----

|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| December                4,                2007                          |   | By                /s/ GARY D.                HALBERT                                                                                                                                                                                |
| Date                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Gary                D. Halbert, President and Director |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ProFutures,                Inc. |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | General                Partner |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| December                4,                2007                          |   | By                /s/ DEBI B.                HALBERT                                                                            |
| Date                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Debi                B. Halbert, Chief Financial Officer, |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |     Treasurer                and Director |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ProFutures,                Inc. |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | General                Partner |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |

----

**PROFUTURES      DIVERSIFIED FUND, L.P.**

**ANNUAL      REPORT**

----

**PROFUTURES      DIVERSIFIED FUND, L.P.**

|                                                                                | 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                                           | 7                            |
|                                                                                |                         |
| Statements                  of Changes in Partners’ Capital (Net Asset Value) | 8                            |
|                                                                                |                         |
| Notes                  to Financial Statements                                      | 9–                  16 |

----

**PROFUTURES      DIVERSIFIED FUND, L.P.**

**AFFIRMATION      OF THE COMMODITY POOL OPERATOR**

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

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**/s/      KBA Group LLP**

----

----

**PROFUTURES        DIVERSIFIED FUND, L.P.**

**STATEMENTS        OF FINANCIAL CONDITION**

|                                                                                                                                                                                                                                                                                                 |   | 2006   |       |   | 2005   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| **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 |   |
|                                                                                                                                                                                                                                                                                                 |   |   |       |
|  See                accompanying                notes.                                                                                                                                                                                                                                          |

----

**PROFUTURES      DIVERSIFIED FUND, L.P.**

**CONDENSED      SCHEDULE OF INVESTMENTS**

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

|   | (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).                         |

See      accompanying      notes.

----

**PROFUTURES        DIVERSIFIED FUND, L.P.**

**CONDENSED        SCHEDULE OF INVESTMENTS (CONTINUED)**

| **FORWARD                  CURRENCY CONTRACTS**                                                                                                                                                                                                                                                                                                                                                         |   | 2006      |          |   | 2005                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|---------------|--------|---------------------------------------------------------------|
| **Description**                                                                                                                                                                                                                                                                                                                                                                                         |   | **Value** |          |   | **%                  of Net****Asset                  Value** |   |   | **Value** |   |   | **%                  of Net****Asset                  Value** |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |      |          |   |                                                          |   |   |   |   |   |   |
| Long                  forward currency contracts                                                                                                                                                                                                                                                                                                                                                        |   | $         | (255,674      | )      |                                                          |   | (0.91 | )% |   | $ | (333,740 | ) |   |   | (1.08 | )% |
| Short                  forward currency contracts                                                                                                                                                                                                                                                                                                                                                       |   |      | 625,493       |   |                                                          |   | 2.22 | % |   |   | 6,859 |   |   |   | 0.02 | % |
| **Total                  forward currency contracts**                                                                                                                                                                                                                                                                                                                                                   |   | **$**     | **369,819**   |   |                                                          | ** ** | **1.31** | **%** |   | **$** | **(326,881** | **)** |   | ** ** | **(1.06** | **)%** |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |      |          |   |                                                          |   |   |   |   |   |   |   |   |   |
| **PURCHASED                  OPTIONS ON FORWARD CURRENCY CONTRACTS**                                                                                                                                                                                                                                                                                                                                    |   |      |          |   |                                                          |   |   |   |   |   |   |   |   |   |
| **Purchased                  options on forward currency contracts (premiums paid - $7,747 and                  $0,                  respectively)**                                                                                                                                                                                                                                                    |   | **$**     | **8,911**     |   |                                                          | ** ** | **0.03** | **%** |   | **$** | **0** |   |   | ** ** | **0** | **%** |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |      |          |   |                                                          |   |   |   |   |   |   |   |   |   |
| **WRITTEN                  OPTIONS ON FORWARD CURRENCY CONTRACTS**                                                                                                                                                                                                                                                                                                                                      |   |      |          |   |                                                          |   |   |   |   |   |   |   |   |   |
| **Written                  options on forward currency contracts (premiums received - $4,453                  and****$0,                  respectively)**                                                                                                                                                                                                                                               |   | **$**     | **(4,272**    | **)**  |                                                          | ** ** | **(0.02** | **)%** |   | **$** | **0** |   |   | ** ** | **0** | **%** |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |      |          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| **INVESTMENT                  IN WINTON FUTURES FUND, L.P. (US)**                                                                                                                                                                                                                                                                                                                                       |   |      |          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| **Description**                                                                                                                                                                                                                                                                                                                                                                                         |   |      |          |   |                                                          |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |      |          |   |                                                          |   |   |   |   |   |   |
| **Winton                  Futures Fund, L.P. (US) – Class B Interests**Investment                  ObjectiveTo                  achieve capital appreciation                  bytrading U.S. and Non U.S. futures                  contracts                          Redemption ProvisionsMonthly,                  with 15 days                  notice |   | **$**     | **9,338,122** |   |                                                          | ** ** | **33.14** | **%** |   | **$** | **0** |   |   | ** ** | **0** | **%** |

See      accompanying      notes.

----

**PROFUTURES        DIVERSIFIED FUND, L.P.**

**STATEMENTS        OF OPERATIONS**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2006 |   |   | 2005 |   |   | 2004 |   |
| **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 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| See                accompanying notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |

----

**PROFUTURES        DIVERSIFIED FUND, L.P.**

**STATEMENTS        OF CHANGES IN PARTNERS’ CAPITAL (NET ASSET VALUE)**

|                                                                                                 |   | Total                                   |     |   |                             |                        |     |    |   |   |       |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|--------|----------------------------------|-----------------------------|----------|---------|--------|--------|------------|--------|
|                                                                                                 |   | Number                of                |     |   | Partners'                Capital |                        |
|                                                                                                 |   | Units                                   |     |   | General                          |                        |     | Limited |   |   | Total      |   |
| 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   |   |   |   |   |   |

----

**PROFUTURES        DIVERSIFIED FUND, L.P.**

**NOTES        TO FINANCIAL STATEMENTS**

----

| 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

----

**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) |
|--|----|-------------------------------------------------------------|

----

**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 |
|--|----|----------------------------------------------------------|

----

**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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**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) |
|------------------------|----------------------------------------------------------------------------|

| 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 |   |

----

**PROFUTURES        DIVERSIFIED FUND, L.P.**

**NOTES        TO FINANCIAL STATEMENTS (CONTINUED)**

----

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

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

| 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. |
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|   | 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. |
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**PROFUTURES        DIVERSIFIED FUND, L.P.**

**NOTES        TO FINANCIAL STATEMENTS (CONTINUED)**

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

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**PROFUTURES        DIVERSIFIED FUND, L.P.**

**NOTES        TO FINANCIAL STATEMENTS (CONTINUED)**

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

|                                                                       |   | 2006   |     |   | 2005   |   |     | 2004   |   |
|----------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| **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 | )% |

*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. |
|--|-----|----------------------------------------|

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