Quarterly Report – March 31, 2007

April 13, 2007

As noted in past communications, ELCO’s portfolio approach is based on our belief that the present energy cycle will extend over a longer period than in the past reflecting a tightening supply demand outlook for most energy commodities; specifically oil, gas, and electric power, to mention the most important. This macro factor has been the major reason behind our positive long-term position on most of the energy sub sectors. For example, natural gas reserve growth has not matched demand increases in recent years. As a consequence, the United States is increasingly looking at liquefied natural gas (LNG) to make up some of the short fall. Noteworthy, is that March 2007 imports of LNG are expected to have reached record levels and expand over time as new plants are completed. ELCO has invested in the overall “tightening gas theme” through companies involved in LNG such as Chicago Bridge and Iron, Dresser Rand, Kinder Morgan, and Southern Union. Also Canadian natural gas producers have cut back on capital spending and, therefore, we would not be surprised if total North American gas production actually declines in 2007 and 2008, while demand increases by 5.0 -5.5 %. This should further alter the supply/demand balance for natural gas and contribute to meaningful tightening beginning in the fourth quarter of 2007, if weather is normal in the second half of the year.

The Fund also increased its investments in electric power, particularly the non-regulated merchants, and companies that are beginning to benefit from expansion of the transmission grid. Power markets are expected to narrow over the next few years as reserve margins decline below minimum levels in at least four U.S. regions, including the Northeast and West coast. Thus translates into rising margins for companies with plants that are strategically located in this space. During the quarter, we held positions in Dynegy, Exelon, FPL Group, NRG, and TXU Corporation, and added a “new” name; PPL Corporation. Stock prices have benefited from the significant rise in power plant values and the increasing interest in these assets by private equity players.

Electricity transmission and distribution spending is forecasted to grow at least 10% annually over the next five years. Currently, federal and state regulatory bodies are providing incentives to encourage investment in T&D. We have invested in this sub sector in recent years and recently added to our holdings in ABB Ltd. and Thomas and Betts.

Master Limited Partnerships (MLPs) have been important contributors to the Fund’s performance during the quarter. The Federal Reserve ended its long record of interest rate boosts, while the basic businesses; i.e. pipelines and natural gas gathering and processing are generating unprecedented amounts of cash flow. Accordingly, we have added to the Fund’s position in this relatively high yield, tax efficient asset class. Our emphasis is focused on those MLPs that have demonstrated an ability to increase their dividends and deliver total returns that exceed the peer group average.

In summary, we continue to be very bullish about the long-term energy outlook. As value investors, we continue to take advantage of equity pullbacks and employ all available tools to capitalize on the opportunities and reduce volatility.

Certain statements contained herein may contain "forward-looking statements" within the meaning of the Private Securities and Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among others, risks and uncertainties associated with the timing and costs of energy sector production, the demand for and prices of oil/gas products, the timing and amount of capital spending in the nation and world wide, and general economic factors. This report is not a recommendation to either buy or sell any securities mentioned.

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About ELCO Management, LLC
Established in 1995 and based in New York, ELCO Management (www.elcomanagement.com) offers investment solutions to high net worth individuals and institutions. ELCO also manages two highly specialized energy funds: the ELCO Energy Fund, L.P. and the ELCO Select Fund L.P.